A leading estate administration solicitor in the UK has recently indicated that there are a number of ways parents can contribute towards the costs of their children's house move without affecting their tax status. He indicated that parents could take advantage of their annual tax free gift allowance without affecting their inheritance tax. Each parent could give away £6,000 tax free a year without infringing on their inheritance tax position. They could give donate over £12,000 between them but this would affect their status in the sense that they would have to survive for seven years after the date of the donating for the money to allow the money given to fall out of their estate and therefore not be inheritance tax deductible. If the parents donating the money are worried that their contribution could be threatened when the children by their property, all of the parties involved could sign a Declaration of Trust that outlines the equitable contribution and the associated equitable shares that could be created because of this, which could be repaid to the parents - with or without interest – if the children choose to sell the property on.
The estate administration solicitor further stated that parents could contribute to their children in the form of a loan. Like the scenario stated above, the amount contributed parents can be protected with a Declaration of Trust. Although, despite this, when the house is sold they could take no capital gains tax exposure on any increase in value on the house as the whole of the money earned in the sale would receive the benefit of the main residence relief claimed by the child claiming the loan. If the parents were to secure a equitable share in the proceeds there would be capital gains liability on the amount that they owe the parents, which is worked out by working out the difference between the contribution of the parents and their share of the sale proceeds. This, according to the estate planning solicitor, it the most secure and prudent way to ensure the parents payment. He indicated that either the Declaration of Trust or the loan means that the capital amount is still included into the parents estate.