A woman in her early eighties had given away £300,000 and spent £250,000 building an annex she lived in rent-free. Neither had left her estate. The answer was a review of her position, a new will and a lasting power of attorney, and the most effective step was paying a market rent for the annex. No trust or other structure was sold, because none was needed. The fees came to £1,820 in total.
Names and personal details have been changed. The situation and the figures are real.
The situation
Sandra was in her early eighties. She had sold her own home and moved in with her son, funding the build of an annex at his house out of her own money. Over the previous three years she had also made gifts of more than £300,000 to her two children.
Her estate stood at around £900,000: the £300,000 of gifts, £250,000 spent on the annex, and the remainder in savings and investments.
What we found
- The gifts had not left her estate yet. They were inside the seven-year period, so they came back into the estate and used up her allowance before anything else did.
- The annex was still hers for tax purposes. The £250,000 spent building an annex she lived in rent-free was a gift with a benefit kept back, so it had not left her estate at all.
- The family home allowance was no longer straightforward. Having sold her own home, the extra allowance for passing on a residence could not simply be assumed.
What we recommended
A written review of her position, with the options for reducing the liability ranked by how quickly each would take effect.
- Paying a market rent for the annex. This was the route with the most immediate effect. It removes the benefit she was keeping back, and starts the seven-year clock on the £250,000.
- A new will and a lasting power of attorney, so her wishes and her affairs were in order alongside the review.
What we did not recommend
A trust, or any other structure. None was needed.
The numbers
| Estate at the review | around £900,000 |
|---|---|
| Within four years, as the earlier gifts fall away | around £600,000 |
| The annex, once a market rent is paid | No longer treated as hers |
The gifts had already been made, so the saving comes from time and from the rent, not from a product.
What it cost
| Fixed-fee consultation and written review | £500 |
|---|---|
| Will | £780 inc VAT |
| Lasting power of attorney | £540 inc VAT |
| Total | £1,820 |
The power of attorney is shown at the current guide price. The Office of the Public Guardian's registration fee was paid separately. Current figures are on the guide prices page.
The takeaway
Gifts and help with housing can go wrong for tax even when the intentions are good. The answer here was not to undo anything. It was to understand what had already happened, and to take the one step that changed how the annex was treated.
If you have made gifts, helped a family member with a property, or moved in with family, book a free twenty minute call.
This case study is illustrative. The figures are those of the matter at the time and the rules then in force; the fees are what was charged then, except the power of attorney, which is shown at the current guide price. It is not a guarantee of any outcome, and your own position depends on your circumstances. More case studies.
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