Got this letter in my e-mail today...
M Brennan, Esq My Ref MB
Thornfield House,
Crowsley Road,
Lower Shiplake,
Oxfordshire,
RG9 1UJ. 14th October 2008
Dear Martin,
I have just realised, after finding my note of telephone conversation hidden under a pile of papers, that I have not replied to your phone call of some time ago for which I apologise.
Answering the points raised the answers are as follows:
Personal tax allowances for children
All of a child’s income is chargeable on the child and he or she has full entitlement to personal allowances and reliefs. In most cases only the personal allowances will be available. Returns and claims may be made by a child in respect of income within his control but otherwise these are the responsibility of his parent or guardian who is also liable for payment of any tax in default of payment by the child.
Dependent Relative Relief
Dependent relative relief is not available after 5th April 1988 unless the residence was acquired before that date and the following conditions were met by that date:
the dependant relative must occupy the dwelling house rent free and without any other consideration,
Only one dependent’s dwelling house can qualify at any one time,
A husband and wife can claim for only one such dwelling house between them,
The dwelling house must be the sole residence of the dependent relative, and
The dwelling house must have been acquired before 6th April 1988 and the conditions above fulfilled in relation to a dependent relative before that date.
From the information that you advised to me being that the property was purchased in 1987 and the dependent relative lived in it as their sole residence then the property would qualify for the relief so long as all the other conditions mentioned above were met. If this was the situation then the profit of £200,000 (sale proceeds of £270,000 less purchase price £70,000) would not be taxable and be treated as similar to the position of a principal private residence.
Inheritance tax
The rules on Inheritance tax and the availability to give away assets in ones lifetime are that each individual has a tax free amount of £312,000 before Inheritance tax commences that usually applies at the time of death. However lifetime gifts are allowable and no inheritance tax will be chargeable on those gifts if the donor survives seven years after the gift was made. If the donor dies within the seven years then a percentage of the full charge will be made as follows:
0 – 3 years 100%
3 – 4 years 80%
4 – 5 years 60%
5 – 6 years 40%
6 – 7 years 20%
Once the seven years has elapsed then the overall allowance of £312,000 is reinstated.
I trust that this answers the questions raised and if you need further clarification do not hesitate in contacting me.
Yours sincerely,
Alan Patmore
MB2801
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