Is it possible to buy a relatives house for £1 to avoid inheritance tax?

Question

I have heard that if a relative, for example your parents, mutually agree, you can legally buy their house from them for an arbitrary sum e.g. £1 and go through solicitors so it is all legal.

This way when they die you will own their house tax free.

Is this possible or are their other legal implications to consider?

Answer 1

Also in the USA... if you get property for less than fair market value, it's considered that you received a gift and you'd have to pay tax on the amount that is different between what you paid and what it's worth.

From what limited amount I know of the UK, Inheritance Tax is payable on the balance of any estate worth more than the prevailing inheritance tax threshold, which is £275,000 for 2006... given that, you are better off having them will it to you when they die. Even better, find a solicitor that specializes in inheritance to get the best advice.

Answer 2

If you buy the house for $1.00 you have a basis of $1.00 (it really would be a Quite Claim not a sale). When you sell the house you pay tax on anything greater than $1.00. On the other hand you inherit the house or better yet acquire it in a trust the basis is the fair market value on the date of your mothers passing. There are other reasons to transfer property before one passes but inheritance tax is not one of them. There really is no inheritance tax and the only estate tax likely to be in effect will have at least a $1million exemption. So unless the house is valued at greater than a mil put it in a trust and transfer it you you when she passes.

Answer 3

I can't speak to UK law on that issue, but would not be surprised if they don't have a tax law similar to the US. In the US, if property is transferred within 5 years of death for less than market value it may be deemed to have been transferred in anticipation of death and be subject to inclusion in the decedent's estate for inheritance tax purposes. Not an issue if the total value is less than the exemption amount, currently $3.5 million.

There could be gift tax implications as well if the UK has a gift tax. Not sure on that either.

Consult with a qualified tax professional to get a line on the best way to handle that. Depending upon the value of the property, something like a life trust may be the best way to proceed.

Answer 4

Not being in the UK, I can't say for sure, but if you were to resell the house, you would pay tax on the whole house, instead of just the gain in the value of the house.

That's just from the US perspective. Going through a solicitor would be a very good idea here.

Answer 5

no, not really
if the parents have a mortgage on the house and they die
unless they have insurance and the insurance company pays the house
off then the mortgage company still has a lien on the house and if that lien
is not satisfied and the kids do not pay, the mortgage company will foreclose
and you will loose the house. also, most companies have an accelerration clause, so if the deed is transferred before the debt is paid the mortgage company can call the note.
please be careful

Answer 6

Good idea but if you did it for tax avoidance purposes the state can claim the tax back. However, the state has to prove that you were avoiding tax

Answer 7

Now that sounds a great idea.......I think I will look into that. It would need to be drawn up in a legal contract with a solicitor. But I agree that is a pretty good idea. Thanks!

Answer 8

hi, In my country (middle east) it's OK legally and you will not face any legal problems. But if you are not the only inheritor of your parents; in the future the other inheritors can ask for their rights in the court and mostly have it.
go a head and do it.