barneybill Posted March 27, 2008 Report Share Posted March 27, 2008 Hi all. My father in law passed occupation of his house to the family many years ago & he still lives there, obviously at no rent. However, I remember seeing an alteration to the tax laws a few years back regarding charging father in law rent. I wonder if this is correct & if so can someone point me to the right site regarding this. Obviously I disagree with this but would like to know what the law states. Many thanks. Link to comment Share on other sites More sharing options...
plym77 Posted March 28, 2008 Report Share Posted March 28, 2008 Hi Wally My name is Sherena and I am a Chartered Tax Adviser and Senior Tax Consultant with Target Chartered Accountants. I assume that the property was passed to you for Inheritance Tax purposes? Unfortunately the gift will be ineffective for IHT as your father has continued to benefit from this property - this is known as a gift with reservation of benefit. Also, look at pre-owned asset tax legislation as this may also apply. There are FAQ's found: http://www.hmrc.gov.uk/poa/poa_faqs.htm To make the gift effective he should may market rent to the owners. If he starts paying rent now then the gift will be effective from now and therefore it will take 7 years for the asset to leave his Estate. Additionally, unless the owners (ie the family) live in the property then you will not be entitled to claim Principal Private Residence Relief if the property is ever sold. Unfortunately there are a few issues here and I would recommend that your father seeks Inheritance Tax Advice so that everything is structure to achieve what was intended. If you require specific Inheritance Tax and Capital Gains Tax Advice please do contact me on sherena.glanton@target-accountants.com and we can take it from there. In the meantime I am sorry to be the bearer of bad news but hope that the above information has provided a little clarity. Regards Sherena Link to comment Share on other sites More sharing options...
simhar Posted March 28, 2008 Report Share Posted March 28, 2008 I thought you had to pay a 'market rent' if the relative still lives in the property for this IHT dodge to be valid? Link to comment Share on other sites More sharing options...
barneybill Posted March 28, 2008 Author Report Share Posted March 28, 2008 Thanks for both of your replies which is much appreciated. Although it would be nice not to pay IHT we realise that we will have to, in fact we assumed this. I didnt realise that this rent business was to do with IHT. Putting that to one side, the house has been signed over for 11 years will any other problems crop up as we are letting him live there rent free & is this still within the law. Link to comment Share on other sites More sharing options...
Simon Dewsberry Posted March 29, 2008 Report Share Posted March 29, 2008 Are you sure he hasn't paid market rent to you .....all of this time .......in cash ......????? Give yourself a poke and jig your memory !!!!!!!!!! The Rodent Link to comment Share on other sites More sharing options...
plym77 Posted March 31, 2008 Report Share Posted March 31, 2008 now simon you know better than that! haha - in seriousness, I wouldn't advise this course of action. Very serious penalties if you are caught out. You are better off dealing with this correctly. Simhar - agreed - but that is what I was saying in my post - market rent would make it effective for IHT going forward. Wally - the other issue for tax is Capital Gains Tax on the sale - depending on the circumstances, however assuming that the 'owners' (ie the family) do not live in the property then this property will have lost PPR relief from the time it was signed over to you. Your father is not an owner-occupier anymore and therefore what should be an exempt property will no longer be exempt. You and your family may wish to think about this as the value of property has dramatically increased in the last 11 years. Although of course this may not be an issue if the property is never going to be sold while your father is alive. I do not understand what your father was trying to achieve since he has gained no IHT advantage and also potentially adversely affected CGT. He has of course also lost control over his own home - although I am sure that no-one intends to turf him out. Why did he transfer it? Sherena Link to comment Share on other sites More sharing options...
Simon Dewsberry Posted March 31, 2008 Report Share Posted March 31, 2008 serious condition .....Amnesia .......................!!!!!!!!!!!!! even more serious condition ......................losing IHT benefits.....................!!!!!!!!!!!!!!!!!!! surely he must have paid for the shopping each week ? (at £100 (?) per wk ....or some other figure related to "market rent "????) Also what about have your cake and eat it ....... "Bill him" back rent for time frame(+interest ??) ...11yrs.... and accept as one lump sum now .......which has the added effect of removing this cash from his estate and into yours, bypassing 7 year gift rule and reducing IHT liability further ..........???? Sherena ???? The Rodent Link to comment Share on other sites More sharing options...
Matthew Posted March 31, 2008 Report Share Posted March 31, 2008 I'm with the Rodent on this one. He would have paid cash anyhow, and there is no way of proving either way. In my opinion there is no real point in cutting ones nose off to spite ones face, unless ones nose is particularly ugly. Link to comment Share on other sites More sharing options...
Simon Dewsberry Posted March 31, 2008 Report Share Posted March 31, 2008 As the gentleman will be of more mature years, he will almost certainly not have been fond of banks, and will have kept his savings in cash ...probably under the mattress .....and clearly this is what he would have used to pay the "rent" ....... In the light of the above it would be unreasonable to expect a paper trail showing payments.... Altho some sort of documentation to show receipts of said would be "useful" but probably not essential ??? unless the proverbial microscope wants to have a look at your rectal passage ....... Rent fig will need to be less than the "rentaroom" tax threshold which Sherena will , i'm sure, expand on ???!!! The Rodent Link to comment Share on other sites More sharing options...
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