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  • FIRST POST
    • freemaestro
    • By freemaestro 19th Mar 17, 1:41 PM
    • 3Posts
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    freemaestro
    Difficulty understanding inheritance tax implications on gifted house deposits
    • #1
    • 19th Mar 17, 1:41 PM
    Difficulty understanding inheritance tax implications on gifted house deposits 19th Mar 17 at 1:41 PM
    I have so far read the basics about inheritance tax i.e £325,000 threshold and 7 year cooling off period. However I am struggling to understand how this works in practise in few scenarios.

    1. Given I buy a house worth let's say £500,000 with gifted deposit of £200,000 from parents and the remaining on my savings and a mortgage. What sort of IHT rules will be applied to that £200,000 gift deposit? Will I have to pay IHT on that given the total value of house exceeds £325,000 which in my case is £500,000?

    2. How about the same case as above but the value of the gift deposit is now let's say £400,000 as opposed to £200,000?

    So I am wondering all of a sudden I will have to sell the house to pay off tax

    3. Also another scenario is what happens I was gifted £50,000 in one year and I have spent it all on buying stuff or just on an expensive lifestyle and that 7 year period hasn't passed since I received that amount. Will I be in negative debt ? or given I have my own savings, will I have to use my own saving to pay off an inheritance tax ?

    Thanks!
Page 2
    • Keep pedalling
    • By Keep pedalling 20th Mar 17, 11:16 AM
    • 3,936 Posts
    • 4,291 Thanks
    Keep pedalling

    Who has been advised properly? That not only do you have to pay rent, you have to keep increasing it as well? I thought I did everything correctly, but there is always some small print they will trip you up with.
    Originally posted by Pincher
    Hardly small print, and any IFA or tax advisor would point that out without fail.

    From what you say your mother does not appear to be very wealthy, would her estate be anywhere near her nil rate band anyway?
    • Malthusian
    • By Malthusian 20th Mar 17, 2:45 PM
    • 3,291 Posts
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    Malthusian
    This fantasy of professionals don't mess up is laughable.
    Originally posted by Pincher
    Nobody says that professionals don't mess up. The point is that when they do mess up they are liable for redress. When you DIY and mess up, nobody is liable except you.
    • Pincher
    • By Pincher 20th Mar 17, 3:52 PM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    Somebody who actually got advised and have come through this stuff unscathed, please step forward.

    I have a feeling the Probate Office and HMRC are not so alert, so some people get through unchallenged. If they get a new regime that decides to really turn the screw, the professionals will just advise me to throw my mother out.

    But make sure she doesn't die for seven years.

    More and more people will get caught up in this situation.
    If it's not your parents, it could be you.
    • Pincher
    • By Pincher 20th Mar 17, 4:02 PM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    Nobody says that professionals don't mess up. The point is that when they do mess up they are liable for redress. When you DIY and mess up, nobody is liable except you.
    Originally posted by Malthusian
    I think you'll find the will and inheritance planning was done between the deceased and the lawyer/account/adviser, many years ago. You are assuming it's easy for the Executor to sue the "professional", who may not even be trading any more.

    I find it amusing that all the lawyers and accountants suddenly became LLPs around 15 years ago. Limited Liability Partnerships. Somebody will come along and tell us how generous the pay out will be if you sue a LLP, no doubt.
    • bigadaj
    • By bigadaj 20th Mar 17, 8:31 PM
    • 10,692 Posts
    • 6,982 Thanks
    bigadaj
    I think you'll find the will and inheritance planning was done between the deceased and the lawyer/account/adviser, many years ago. You are assuming it's easy for the Executor to sue the "professional", who may not even be trading any more.

    I find it amusing that all the lawyers and accountants suddenly became LLPs around 15 years ago. Limited Liability Partnerships. Somebody will come along and tell us how generous the pay out will be if you sue a LLP, no doubt.
    Originally posted by Pincher
    If you we successful in suing, or even enforcing a compliant, then the pi insurers will pay up if the firms are unable to do so.

    Assuming you are using legitimate, regulated companies that is.
    • Pincher
    • By Pincher 20th Mar 17, 10:48 PM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    The rest of the assets fit into the inheritance threshold pretty well, but if this one property isn't exempt when she passes away, I am looking at £400k~£500k in taxes.

    I did too good a job redecorating her room and bathroom.
    She really doesn't want to leave.
    I would gladly spend the £400k on five star retirement homes, but no, she doesn't want to live with strangers: I would volunteer for the Mars mission if I cold save £400k in taxes.

    Additional nil rate band going up to £175k 2020/21, which will help. So, pray a lot, that she will stick around until 2021.
    • Keep pedalling
    • By Keep pedalling 21st Mar 17, 5:45 PM
    • 3,936 Posts
    • 4,291 Thanks
    Keep pedalling
    Based on those figures the house must be worth in the region of £1.25M, so I dread to think what the market rent on that would be.

    The wise move would have been to downsize and gift you cash, but however much tax the estate ends up paying you still have a very large sums of money coming to you, that is assuming she does not out live her.
    • Pincher
    • By Pincher 21st Mar 17, 9:42 PM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    My latest fantasy is to have her buy the house back with a 90% mortgage.

    The £1million debt would wipe out all her assets. Sweet dream.

    Five year fixed at 2% is £20k a year. Since I will have the £1.1million cash, I can buy some income fund that pays 3%, which will cover the repayment.

    Who would lend £1million to an 88 year old?
    • grey gym sock
    • By grey gym sock 21st Mar 17, 11:08 PM
    • 4,130 Posts
    • 3,633 Thanks
    grey gym sock
    Who would lend £1million to an 88 year old?
    Originally posted by Pincher
    you could
    • Pincher
    • By Pincher 22nd Mar 17, 10:35 AM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    you could
    Originally posted by grey gym sock
    Too obviously a tax avoidance scheme.

    Spoke to Metro Bank, they have a Private Banking operation that requires £1million of "business" to qualify. So, depositing £1million to get ~1.2% qualifies, so does borrowing £1million.
    • Motormad
    • By Motormad 22nd Mar 17, 10:52 AM
    • 82 Posts
    • 32 Thanks
    Motormad
    A massive thanks to you Pincher for bringing this 7/14 year rule to my attention again.I remember reading about this before but thanks to your links I now think I understand them at last.Im still trying to understand the taper relief rules as the obvious thing to believe is that it is a simple percentage reduction in the original gifted amount which is the wrong assumption completely.I share your disgust at these complicated rules which are so hard to understand and remember as you grow older but on the bright side it led me to realise I should retire early or start spending my savings.
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