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July 2003

TRANSFERRING OWNERSHIP OF HOME

Q: My father and sister live in a house owned by my father. If he transfers ownership to myself and my sister jointly, would the property then be out of his estate for inheritance tax (IHT) purposes or would it be classed as a gift with reservation? Could it be viewed as my sister’s home as she intends to stay there?

A: Under current IHT legislation, it would be tempting for someone to give away property to another which could be totally exempt from IHT provided the donor lives for another seven years. To prevent people benefiting from an unfair advantage by giving away their assets, but continuing to enjoy all the benefits of ownership, special provisions apply to such arrangements. If your father transfers the house but remains living there then the property will still be treated as part of his estate as he has "reserved a benefit for himself". However, in this scenario there may be a solution. Your father can still gift the house to you and your sister but he must pay a full market rent to you both. I would suggest you take professional advice on this.
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