Tax and inhertitance tax query

Adam_Rebsah · 20 March 2018 at 9:04PM

Hello all

I am in a bit of a situation and looking for some suggestions on the best plan of action.

I own two properties jointly with my husband. My main home and a BTL flat. My parents (married) are quite elderly and are looking to sell their main home and move into my BTL flat. The plan is for them to pay off the outstanding mortgage on my BTL from the proceeds of their sale. They would be gifting me this money to pay off the BTL mortgage. In the past they have also gifted me £140,000 towards part of my deposit to purchase my main home. Questions I have are as below;

1. How would this work out on inheritance tax bill in case any one of my parents or both were to pass away within the next 7 years?

2. If my father was to pass away within the next 7 years would the remaining proceeds from his estate go to my mother without any tax implications?

3. What happens to the joint gifts they gave me over the last 7 year period when one parent is alive?

4. Am I right in assuming as they are married any proceeds from their estate upto £650,000 wont attract any inheritance tax for me as the only beneficiary on their will?

5. Will I have any tax implications on owning my second property outright and my parents living there rent free?

Any help will be greatly appreciated.

getmore4less · 20 March 2018 at 10:02PM

The standard 7 year rules for failed PET won't apply.

Start with gift with reservation and preowed asset tax.

Daniel54 · 20 March 2018 at 10:10PM

What are you seeking to achieve ?

There is now an additional IHT allowance for passing the family home to a direct descendant

It might make more sense for your parents to buy the BTL from you,although that would trigger CGT at market price

Both you and your parents need professional advice
https://www.gov.uk/inheritance-tax

Keep_pedalling · 21 March 2018 at 1:21AM

Unless they have plenty of other assets they would be fololish to do this. What happens to them is you die before them or get involved in a divorce or bankruptcy?

If they need residential care the issue of deprivation of assets could also come into play.

Tom99 · 21 March 2018 at 7:29AM

[FONT=Verdana, sans-serif]Re the £140k gift if this was £70k from each parent and they each had available that years and the previous years £3k exemption then a PET of £64k for each parent would be deducted from their nil rate band if one were to die within 7 years of the gift.

[/FONT] [FONT=Verdana, sans-serif]If that happens and the parent who dies leaves everything to the survivor then the survivor will only inherit £325k - £64k = £261k nil rate band since some will have been used on that gift.

[/FONT] [FONT=Verdana, sans-serif]The cash gift to pay off your mortgage would seen to be caught by the gift with reservation provisions ie your parents are getting free accommodation so its not really a gift. I think therefore the cash gift to pay off your mortgage might remain part of your parents estate.

[/FONT] [FONT=Verdana, sans-serif]Since they will not longer own a main residence, then unless they meet the downsizing rules the new residential nil rate band would be lost which could be up to £350k between them.[/FONT]

Adam_Rebsah · 21 March 2018 at 9:40PM

getmore4less wrote: »

The standard 7 year rules for failed PET won't apply.

Start with gift with reservation and preowed asset tax.

Thanks for your reply. Could you kindly elaborate on what you mean by; "Start with gift with reservation and preowed asset tax"

Adam_Rebsah · 21 March 2018 at 9:44PM

Tom99 wrote: »

[FONT=Verdana, sans-serif]Re the £140k gift if this was £70k from each parent and they each had available that years and the previous years £3k exemption then a PET of £64k for each parent would be deducted from their nil rate band if one were to die within 7 years of the gift.

[/FONT] [FONT=Verdana, sans-serif]If that happens and the parent who dies leaves everything to the survivor then the survivor will only inherit £325k - £64k = £261k nil rate band since some will have been used on that gift.

[/FONT] [FONT=Verdana, sans-serif]The cash gift to pay off your mortgage would seen to be caught by the gift with reservation provisions ie your parents are getting free accommodation so its not really a gift. I think therefore the cash gift to pay off your mortgage might remain part of your parents estate.

[/FONT] [FONT=Verdana, sans-serif]Since they will not longer own a main residence, then unless they meet the downsizing rules the new residential nil rate band would be lost which could be up to £350k between them.[/FONT]

It makes sense what you have said. Will look into this further...

And am I right in assuming as they are married any proceeds from their estate upto £650,000 wont attract any inheritance tax for me as the only beneficiary on their will? Where do these "gifts" fit in say one dies within 7 years and one dies after 7 years...or both die after 7 years

xylophone · 21 March 2018 at 10:23PM

Your parents /you should take expert advice from a solicitor/tax accountant.

Why don't they keep things simple and buy the flat from you and your husband?

You and he may well have CGT to pay but if your parents are feeling generous, they may agree to cover this for you as a gift from their sale proceeds - this gift would be a PET.

The downloadable guide may be worth a look https://www.saga.co.uk/magazine/money/personal-finance/inheritance/paul-lewis-new-guide-to-inheritance-tax

Tom99 · 22 March 2018 at 3:04AM

Adam_Rebsah wrote: »

And am I right in assuming as they are married any proceeds from their estate upto £650,000 wont attract any inheritance tax for me as the only beneficiary on their will? Where do these "gifts" fit in say one dies within 7 years and one dies after 7 years...or both die after 7 years

[FONT=Verdana, sans-serif]Not quite. It will only be £650k on the 2nd death if the 1st to go had not used any of their Nil Rate Band. Gifts within 7 years will eat into the nil rate band of the 1st to go, so if the past gift of say £64k is still within 7 years the NRB transferred will be £261k and therefore the 2nd will have a NRB of £325k + £261K = £586K.

[/FONT] [FONT=Verdana, sans-serif]Re gifts, each parent would have made individual gifts to you so on the 1st death you will need to report the gifts within 7 years that, that parent gave you.

[/FONT] [FONT=Verdana, sans-serif]Obviously you regard the past £140k gift as from your parents jointly but when you come to complete the IHT forms for the 1st to go you will have to work out how much each parent gave you. I think most people would assume the gift came 50% from each parent but you may be able to proof otherwise if bank statements backed that up.

[/FONT] [FONT=Verdana, sans-serif]Gifts drop out after 7 years so if 1 parent died within 7 years of their gift it will count for IHT but if the 2nd parent died more than 7 years after the gift that gift will not count.[/FONT]

Adam_Rebsah · 22 March 2018 at 8:24PM

Tom99 wrote: »

[FONT=Verdana, sans-serif]Not quite. It will only be £650k on the 2nd death if the 1st to go had not used any of their Nil Rate Band. Gifts within 7 years will eat into the nil rate band of the 1st to go, so if the past gift of say £64k is still within 7 years the NRB transferred will be £261k and therefore the 2nd will have a NRB of £325k + £261K = £586K.[/FONT]

You break it down so nicely. Appreciate your input!

So say my dad was to pass away within 7 years as per my initial post and as per his will if everything (He has other investments mainly funds, bonds and ISA's) was to go to my mother (his wife) on his passing away, does the gifts given to me come into picture on his passing away?

Or what you mentioned above only comes into picture on both passing away within 7 years?

Tom99 · 22 March 2018 at 8:38PM

Adam_Rebsah wrote: »

You break it down so nicely. Appreciate your input!

So say my dad was to pass away within 7 years as per my initial post and as per his will if everything (He has other investments mainly funds, bonds and ISA's) was to go to my mother (his wife) on his passing away, does the gifts given to me come into picture on his passing away?

Or what you mentioned above only comes into picture on both passing away within 7 years?

[FONT=Verdana, sans-serif]If your dad passed away within 7 years of the gift to you, but left everything to your mum, there would be no IHT to pay on his death but he would have used up some of his nil rate band so the amount of NRB your mother would inherit would be reduced by the amount of gift to you.

[/FONT] [FONT=Verdana, sans-serif]Hence my £325k + £261k = £586k being the NRB your mum would have to set against her estate.

[/FONT] [FONT=Verdana, sans-serif]If your dad died 1st but you could show that the gift to you came entirely from you mum (not sure how you would prove that) then all of you dad's NRB would transfer to your mum so she would have £650k NRB.[/FONT]

Tax and inhertitance tax query

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