Ask Sindie: A family under one roof, but is there a tax shelter?
A reader asks about the implications of a complicated property purchase
Sunday 18 March 2007
Q: My wife and I live in the same Gloucestershire village as our daughter, her husband and their two sons. We've decided that, as we're getting on a bit, perhaps we could buy a property large enough to house all of us.
On the market nearby is a large farmhouse that would easily convert into two suitable dwellings.
At first this seemed an attractive proposition, but we're now having second thoughts. An estate agent suggested that since the house is registered as one dwelling, it would be difficult to treat it as two - and quoted problems with council tax as just one obstacle.
Second, our current house is worth a lot more than that of our daughter, and so we would pay most of the purchase price of the new property and also the stamp duty. Legally, where would we stand on this point of ownership? We would like the house to be owned 50:50.
Third, our wills stipulate that on the death of the surviving spouse, all assets, including the house, should be split three ways between our daughter, the two grandsons and our son. By moving to the new property, these assets are going to be considerably reduced.
In this case, my daughter would, I hope, make up the difference in our son's share by, for example, raising a second mortgage to hand over a cash sum. Would this lead to a tax bill for her or us?
Could you give me an idea of the real problems of moving to the new property - and any way in which we might mitigate them?
A: This situation is very complicated and you must take specialist legal advice before proceeding.
However, I can understand your wish to get a better perspective before committing yourself to legal fees that may run into hundreds of pounds.
First, you need to get the correct information from the appropriate bodies - for instance, on whether it is advisable or even possible to split the house into two dwellings. Here you must speak to the local authority planning department directly, rather than relying on information from the agents.
It could be you decide to move to the house and keep it officially as one dwelling.
As for ownership, to end up with both parties having equal shares - whether it's as one dwelling or two - it may be necessary that part of the deposit you put down is treated as a financial "gift" to your daughter and her family. To escape the possibility of being liable for inheritance tax (IHT) on this, you would have to survive seven years from the date of the gift.
Here's an example. Say you contribute £500,000 towards the purchase (made with your daughter) of a property worth £600,000.
Given that you want only to be a half-owner - with an interest of £300,000 for IHT purposes - you would, in the event of death soon after, be treated as having made a gift of £200,000 (£500,000 minus £300,000) to your daughter. But if you lived for seven years after making this purchase, there would be no IHT to pay.
Richard Grosberg, a partner at solicitors Nelsons, warns that problems could emerge if your daughter and family decided to move out: "The [£200,000] gift would become, retrospectively, a 'gift with reservation'." In other words, it would not matter how long you lived: the house would be included in your assets for IHT purposes.
Now, as for the issue of your assets being split three ways upon death, your daughter could raise a mortgage on the property in order to hand a cash sum to your son. However, it would of course be a matter for her and depend on factors such as her income and other commitments.
So, with the help of a lawyer, you need to work out a way to ensure that your son will be able to come by his full share if some of his inherited wealth is tied up in the property.
This could be achieved by methods such as a secured loan or equity release, though these are high-risk strategies that need long and careful consideration.
IHT is levied according to the value of the estate of the person who has died, so any mortgage your daughter takes out would be irrelevant to this bill.
To reiterate, you need specialist advice on a number of aspects of this plan.
If you need help from our consumer champion, write to Annie Shaw at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email email@example.com. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given
£1,430,000,000,000 (that's £1.43 trillion): Britain's personal debt timebomb
Banks are brought to account by switchers as growing number of people expect to be rewarded by their bank
How to start your own internet business
Five ways to make money on the internet
So what difference will the Autumn Statement make to your finances?
- 1 Cameron's freebie to apartheid South Africa
- 2 Sherlock series 3: Benedict Cumberbatch and Martin Freeman provide teasers for the biggest comeback in British television
- 3 Is this the scariest advert ever? Japanese tyre commercial comes with its own disclaimer and health warning
- 4 Australian ultra-nationalist politician Stephanie Banister in car crash immigration TV interview
- 5 People will try to reduce Mandela to a lilting reggae tune about ‘love’. They will fail
- < Previous
- Next >
iJobs Money & Business
£30000 - £40000 per annum + Bonus and Benefits: Harrington Starr: A global Con...
£150 - £250 per day: Cornwallis Elt : iPhone Rollout- Blackberry Enginee...
£55000 - £70000 per annum: Pro-Recruitment Group: A well-known and renowned in...
£450 - £500 per hour: Cornwallis Elt : Business Analyst Finance System Hy...
Day In a Page
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.
A six-bedroom detached period property with secluded gardens, ample parking and a double garage in Rye, £675,000.
A large split-level property with three double-bedrooms and roof terrace, close to Crouch End Broadway, £625,000.
A charming barn conversion in the picturesque Cotswold village of Ilmington with three bedrooms, a detached garage, workshop and beautifully manicured gardens £675,000.
A three-bedroom new build, ground-floor flat with two bathrooms, close to Bermondsey tube, £445,000.
A three-bedroom house in an enviable new development moments from Oxshott High Street, with secluded garden and decked area, £385,000
A two-bedroom split-level flat with stunning south-west facing roof terrace in the popular Brondesbury Conservation Area, £549,950.
A charming 16th century, three-bedroom detached house in Bidborough with picturesque garden