Inheritance tax worry
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Dogfeatures
Posts: 5 Forumite
in Cutting tax
Hello everyone. I am hoping someone can advise and help.
I have a dear friend who currently lives in a modest bungalow, but the house has land with it and was bought for £650,000 in 2014.
My friend bought the house 50-50 with her sister. So half owns it.
Sadly, this last week her sister has been diagnosed with a terminal illness. No one knows how much longer she has to live.
My friend is very worried about what will happen when/if her sister dies. Obviously she will receive her sister's half of the house in her will.
But as the property will now have increased in value, they could be looking at a £780,000 or more valuation. Half of that is approx. £390.000 or possibly even more depending n property valuation which they have not done yet, and which has been approximated.
Now this might sound like my friend has a lot of money going on. But that is not true.
They bought the property as a retirement home for 'ever'. My friend has no income except a modest pension plus state pension! It is their dream....a little woodland with a stream, land for walking their dogs etc.
She is upset obviously about her sister's sudden illness and all that entails, and now is worried on top about what will happen to her when she eventually receives her sister's bequest!
I worked out that at 40% tax payment (above the threshold of £325,000) she could be looking at a tax bill of £26 or more thousand. Which she will not be able to afford. The thought of having to sell up and relocate after her sister's death (bad enough in itself) is actually making her feel suicidal at present.
Any help or advice would be so welcomed. Thank you in advance.
I have a dear friend who currently lives in a modest bungalow, but the house has land with it and was bought for £650,000 in 2014.
My friend bought the house 50-50 with her sister. So half owns it.
Sadly, this last week her sister has been diagnosed with a terminal illness. No one knows how much longer she has to live.
My friend is very worried about what will happen when/if her sister dies. Obviously she will receive her sister's half of the house in her will.
But as the property will now have increased in value, they could be looking at a £780,000 or more valuation. Half of that is approx. £390.000 or possibly even more depending n property valuation which they have not done yet, and which has been approximated.
Now this might sound like my friend has a lot of money going on. But that is not true.
They bought the property as a retirement home for 'ever'. My friend has no income except a modest pension plus state pension! It is their dream....a little woodland with a stream, land for walking their dogs etc.
She is upset obviously about her sister's sudden illness and all that entails, and now is worried on top about what will happen to her when she eventually receives her sister's bequest!
I worked out that at 40% tax payment (above the threshold of £325,000) she could be looking at a tax bill of £26 or more thousand. Which she will not be able to afford. The thought of having to sell up and relocate after her sister's death (bad enough in itself) is actually making her feel suicidal at present.
Any help or advice would be so welcomed. Thank you in advance.
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Comments
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what about the rest of the sisters estate?
Is there any debt/mortgage/life cover?
does the sister have any kids?
The secondary issue her is IHT planning for the friend inheriting the other 1/2 of the house may not be the best option as unlike a spouse it will not come with any transferable nil rate band.0 -
[FONT=Tahoma, sans-serif]Look up the rules for paying IT by instalments. I think that providing the house is not sold you can pay by 10 equal annual instalments. Interest is charged at I think 2.75%, but paying say about £3k per year over 10 years might make a difference between keeping the house and having to sell it.[/FONT]0
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Is the sister a widow and does she have any children?
If the answer to the above is no, then a sale could be avoided by taking out a life time mortgage (aka equity release) on the property to release some equity from the to both pay off any IHT and to have an emergence cash fund for the surviving sister. Having that sort of asset with no cash to maintain it, is not a good position to be in.0 -
As said above, equity release/lifetime mortgage might be a solution.
https://www.moneyadviceservice.org.uk/en/articles/equity-release
https://societyoflaterlifeadvisers.co.uk/About
http://www.equityreleasecouncil.com/standards/rules-and-guidance/0 -
Many people seem suspicious of equity release but this would seem to be exactly the sort of situation to which it is well suited.Free the dunston one next time too.0
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Many people seem suspicious of equity release but this would seem to be exactly the sort of situation to which it is well suited.
Absolutely, and if the OPs friend has no direct decendants to leave her estate to she should take full advantage of such a scheme to make sure she can live the rest of her life in comfort and security.
Correction, that should apply even if she does have offspring.0 -
Dogfeatures wrote: »Sadly, this last week her sister has been diagnosed with a terminal illness. No one knows how much longer she has to live.
My friend is very worried about what will happen when/if her sister dies. Obviously she will receive her sister's half of the house in her will.
Are they 'joint tenants' or 'tenants in common'?
If 'tenants in common', isn't there anyone else who could inherit from the sister?
Her share could be passed on to someone else while giving the surviving sister the right to live in the house until she dies.0 -
Are they 'joint tenants' or 'tenants in common'?
If 'tenants in common', isn't there anyone else who could inherit from the sister?
Her share could be passed on to someone else while giving the surviving sister the right to live in the house until she dies.
that does not help the future IHT problem
The beneficial interest stays with the life tenant for the IHT calculations0 -
getmore4less wrote: »that does not help the future IHT problem
The beneficial interest stays with the life tenant for the IHT calculations
Isn't the problem that IHT would be due now and the sister doesn't have the money to pay it?
After both sisters have died, other people will get a large inheritance and shouldn't mind paying some of it back in tax.0 -
Isn't the problem that IHT would be due now and the sister doesn't have the money to pay it?
After both sisters have died, other people will get a large inheritance and shouldn't mind paying some of it back in tax.
It does not solve the first IHT problem either you don't carry it over.
it will need paying on first death.
Also Joint or TIC owners the IHT will be due on the share the sister leaves.0
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