Assuming they both own 50% of the property, as I understand the rules, then the reservation of benefit rules will effectively void one of the transfers for IHT purposes. Although classed as a potentially exempt transfer (of 30K), it will not be exempt after 7 years as the other transfer of 30K could be.

IHT will be assessed on the basis one still owns their 50% of it, even though you now legally own it. Obviously it could be more that the 50K it currently equates to when you receive it as part of a will.

Given the value (without knowing what the other estate assets are) the chances are there will be no IHT to pay on it anyway so it probably doesn't really matter.

However, there are other issues you might also want to consider.

HMRC like to have their cake and eat it, so it will I believe also be classed as being in your estate, so were you to die there is potential for double taxation as your estate could be taxed on it.

Another potential problem which you may/may not have considered is the deprivation of assets legislation. Were they to need long term care in the future the loss of value to their individual estates (due to an under priced sale) could be claimed as a deprivation of assets by the local Council and they could come after you. Normally a sale at arms length (market value) would prevent this. Also if they are young and in good health ie there was no obvious expectation care would ever be needed, it would make a claim unlikely/difficult - but not impossible.

Have you considered stamp duty. Obviously whilst within the normal nil rate band for a primary residence, the second home charge (3%) could apply if you already own a house.

Then there is Capital Gains Tax, again if it's not your primary residence you will be open to CGT on the sale.

Finding a Solicitor willing to do it might be an issue.

Is there a reason you want to have ownership of the whole property (at below market value) rather than part of it (at current market value), particularly if what you are really trying to do is release some equity for them. Exchanging assets of equal value ultimately puts you on much safer ground.

I'm not a qualified financial advisor, so take the above simply as food for thought.

Hi,
Thank you for your response.

The estates will certainly be less than the £325k allowance.

My main concern is that i want to buy the house now in order to allow my parents to take some money out of their joint financial interest in the house.

In brief, my mother can't afford to buy the house, but equally, she doesn't want to leave with my younger brother.

I simply wanted to buy the house at a cost that is affordable to me, but at enough of a figure so they would each get about £10k each to get on their feet.

I hope that clears it up a bit.

Thanks

This question raises a lot of issues in my mind.

If you buy the house for less than market value, as a 'connected person' (because you are a close relative), they are for tax purposes making a gift to you of the difference between the market value and the price you pay, regardless of affordability.

If your mother lives in the house, but does not pay you a 'commercial rent', she will be treated as still owning the house for IHT purposes (no 7-year clock applies in this situation), despite any sale and gift figures referred to above.

The flagged issue of you buying a property when you already own one, re 3% stamp duty rates. You would need to check on whether stamp duty would be based on the market value or the actual money changing hands in this artificial, non-arm's length sale, and whether the market value of the house falls within an exempt band. (Do you pay 0% + 3% surcharge, for example?)

There may a different result ultimately whether your parents separate or divorce. They should take legal advice on the implications for this proposed sale and on ultimate liability to IHT if they divorce or separate.

Although there may not be estates exceeding the IHT threshold at the moment, what about if later, but within 7 years, your father acquires a very large sum ( lottery or pools?) and then dies? His half of the house value might then take him into IHT in his own right.
If this was your mother, and she acquired this large extra sum, her half of the house would be aggregated with her estate (no 7-year clock on the house, since she reserves benefit by living in it without paying you a commercial level of rent). This might push her estate at any time in the future above the nil-rate band.
Yes, I know it's probably not going to happen, but it's best to think through all the 'What Ifs'!

These are just some of my thoughts as a non-expert, and I strongly advise you to talk through the implications with a suitably-experienced solicitor (and they would probably need to be of the calibre of those that advise in the FT Saturday financial letters page in the Money section).

Hey,
Thanks again it is very helpful for others also..