Consanguinity relief

[aircobra19]

Not sure if this is a tax query or a property query. Sorry if its in the wrong place.

A friends parent died unexpectedly recently, leaving the spouse with a number of rental residential properties. In addition the house the spouse resides in is too big for them to manage alone. So the question arouse how best to manage these assets and to give some thought to the eventual transfer of these properties to the children. Are the house subject to inheritance tax or stamp duty on the death of the parent? One suggestion was a "house swap" between the parent and one of the children. I understand this would reduce the stamp duty liabilty by 50%, at least on that property alone. But its an unlikely scenerio at best. The main property is 15 yrs old and would need some work, to freshen it up. Windows, heating etc. Its estimated that all the properties (theres 5 or 6) are all worth around 450-500k with the parents house perhaps worth 1.5-2.5m, there are no mortgages and no children living at home. At least none officially. The children have their own mortgages on their own houses, and would have to get a loan to pay any stamp duty or inheritance tax if that situation arose.

Would it be the same different to leave everything as is, and then the children can get loans and pay them with the rental income from the house when they inherit them? Or sell one house to pay the taxes. Another suggestion is to sell the larger house to buy a smaller modern house for the parent and another rental property. Though the managment/maintance of the properties is a problem that needs to be solved.

I should add that this is only future planning, the remaining parent is well, and simply wishes to have the disposal of these assets planned as best as possible and equally between the children.Thoughts and suggestions welcome.

 

[Newby]

The best suggestion you will get is speak to an advisor. You should get exact valuations and know all the facts and present them to a tax advisor.

Are the house subject to inheritance tax or stamp duty on the death of the parent?

Yes and Yes.... whether any amount of inheritance tax is payable will depend on the value transferred to each person and comparing to their CAT threshold.

SD will apply to the transfer of a residential premises but consanguinity relief should apply if it is to a family member.

One suggestion was a "house swap" between the parent and one of the children. I understand this would reduce the stamp duty liabilty by 50%, at least on that property alone. But its an unlikely scenerio at best.

SD should be reduced by 50% if transfer is between parent and child - see above.

The main property is 15 yrs old and would need some work, to freshen it up. Windows, heating etc. Its estimated that all the properties (theres 5 or 6) are all worth around 450-500k with the parents house perhaps worth 1.5-2.5m, there are no mortgages and no children living at home. At least none officially. The children have their own mortgages on their own houses, and would have to get a loan to pay any stamp duty or inheritance tax if that situation arose.

What do you mean "none officially". There may be a relief available if someone was living at home with their parents and the house was transferred to that person. Again it will depend on exact facts of the situation and what is being transferred to whom - talk to a tax advisor!

Would it be the same different to leave everything as is, and then the children can get loans and pay them with the rental income from the house when they inherit them? Or sell one house to pay the taxes. Another suggestion is to sell the larger house to buy a smaller modern house for the parent and another rental property. Though the managment/maintance of the properties is a problem that needs to be solved.

I should add that this is only future planning, the remaining parent is well, and simply wishes to have the disposal of these assets planned as best as possible and equally between the children.Thoughts and suggestions welcome.

It is very smart to think of these things in advance of anything happening however, at the risk of repeating myself - this is something that really should be spoken about with an independent professional tax advisor as for the amount of money involved a few quid on fees to make sure no nasty surprises occur is money well spent.

 

[Rhino 1]

Newby,

Since when is there stamp duty on inheritances??
If properties are being rented, maybe business relief could be claimed thus taking the rental properties out of the tax net.

Sit down and talk to an accountant - seems like straightforward advice.

 

[Newby]

Since when is there stamp duty on inheritances??

Since I stopped double checking my answers... of course you are right!

 

[aircobra19]

"none officially" means the child has their own house & mortgage, and its not rented. But often stays at the parents house. The house would be too big for them to manage anyway, as they are single. It would only make sense for one of the children who has a family who need the space, and could maintain it. They need to talk to a "better" accountant probably. The advice recieved from existing accoutant thus was was essentially, just split it all evenly and just pay the tax what ever it is.

I thought some of the properties could be gifted, one to each child, and if there were under the threshold wouldn't be liable for stamp duty or inheritance tax. Anything over the threshold (the remainder of the estate) would obviously be caught by gift or inheritance tax. I would have thought there was potential for a large saving by taking advantage of the tax consessions available. So take advantage of one off gift and perhaps a transfer of the larger house? Or the parent could just blow it on high living, which is what I advised but wasn't that well recieved by the kids for some reason.