There are a number of financial matters that would need to be considered should a parent (especially one with care needs) starts living with you. The aim of this article is to learn about the potential tax implications of a parent living with you in the UK. In addition to this, we will also review the application of inheritance tax, whether in the case of property or a gift of a sum of money received from one’s parents.

What Are The Tax Implications Of A Parent Living With You In The UK?

While there are no direct tax implications of a parent living with you in the UK, there may be certain specific situations in which a tax may be implied or a tax benefit is reduced. Some of these scenarios are discussed as follows;

  • If your parent owns a house and they choose to sell their house in order to move in with you, the profit gained from selling the property will be subject to Capital Gains Tax.
  • If your parent sells their house and gifts the money to you, only £3,000 from the proceeds will remain tax-free while you will be required to pay tax on the remaining amount.
  • If your parent lives with you and pays you rent for sharing the property, this rental payment will be counted as an income and will be subject to income tax.

In fact, if you build an annexe or a granny flat on your property when your parent moves in, you will be able to get an exemption on council tax if a dependant relative (aged 65 years and above or physically/mentally disabled) is living in the annexe.

You can avail of a 50 per cent discount on your council tax bill for an annexe under the following conditions:

  • the annexe is part of a single property and includes at least one other property
  • the annexe is being used as part of the main residence by the person who is liable to pay council tax
  • a family member occupies the annexe

Will I Get Council Tax Reduction If A Parent Lives With Me?

Suppose you or your parent were benefitting from council tax reduction earlier on and they move in with you. In that case, the chances are that neither of you will remain eligible for the single person council tax discount that you were earlier benefitting from. 

If you are a working adult, you are expected by the law to be contributing towards the housing costs of the premises you occupy. If you share that premises with your parents, you are liable to share bills with them (including those of council tax payments); whether or not your parents want you to contribute to their household expenses.

However, if a parent moves in with you and they are above state pension age, they will be considered your dependant.

Can My Parent Gift 100k To Me?

Yes, your parent can gift £100,000 to you, any other family member or even to trust; however, there are conditions under which inheritance tax will be applicable. 

The annual amount of tax-free gift money in the UK is £3,000. This means if someone gifts this sum of money to their family members (usually children and grandchildren) there will be no inheritance tax due on it.  

In the case of a monetary gift that sums to £100,000, out of this the amount of £3,000 will be considered as a tax-free gift allowance while the remaining £97,000 will be classified as a potentially exempt transfer. 

However, should the person who has gifted this amount dies within a period of 7 years after transferring the amount, it will be counted towards their estate to calculate the amount of inheritance tax. The beneficiaries will not be expected to return the amount as it will only be considered for assessment purposes.

If someone gifts away large sums of money as this and needs to be transferred into a care home facility soon after, this act of reducing assets may be considered by authorities as deprivation of assets:  a deliberate act to avoid having to pay care home fees. Should they be able to find a lack of coincidence, the amount will be considered as still being in possession of the claimant and they will be required to contribute towards their care home fees accordingly.

What Is Inheritance Tax?

Inheritance Tax is a tax that is levied on the estate of someone who has passed away and left behind property, money and possessions that need to be “managed” in an appropriate manner so that (a) if there is a will made by the deceased, the instructions are followed or (b) in the case that there is no will of the deceased, the estate is appropriately handed over to the legal heirs.  

The standard rate of Inheritance Tax is 40 per cent on an estate valued at or more than £325,000.

However, there is no inheritance tax levied on an estate that is valued below £ 325,000; however, you may still be required to report the property to HMRC. Similarly, if valuables above the £325,000 threshold are left behind in the name of one’s partner or spouse, a charity or a community club, there will be no inheritance tax levied. 

If the same property is left behind for children, the threshold will increase to £500,000. 

Conclusion:

The discussion in this blog post makes it clear that although there may be tax implications for a parent living with you, they are subject to specific scenarios and can’t be applied across the board. For instance, if a parent moves in with you, the council tax discount that you were benefitting from earlier will be revoked. Similarly, if your parent pays rent for living in your house, this rental payment will be counted as an income and will be subject to income tax.

FAQs: What Are The Tax Implications Of A Parent Living With You In The UK?

Do I pay tax if I live with my parents?

You will only be required to contribute towards council tax if you are an adult and live with your parents.

How much can my dad give me tax-free in the UK?

Your dad can give you up to £3,000 as tax-free gift money in the UK. 

How much can you pay a family member without being taxed in the UK?

The annual gift allowance for family members is £3,000 in the UK.

Do I have to pay tax on the money my parents give me in the UK?

Gift money received from parents that are in excess of £3,000 is subject to taxes in the UK.

What is the 7-year rule in inheritance tax?

The 7-year rule in inheritance tax implies that if someone gifts a large sum of money or property to close family members and continues to live for 7 years after that.

References:

Mum’s selling up and moving in | Money | The Guardian

The five things you must do when your partner or adult child moves in

How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts – GOV.UK

How Much Money Can I Gift Someone

Granny Annexe Council Tax

What was missing from this post which could have made it better?