Can I give my parents £150K to clear their mortgage?

molan

My parents owe about £150K on their mortgage and are struggling with the repayments.

Rather than help them out on a month by month basis I considered giving them the money on the basis that one day I'll inherit the house (I'm an only child so no pesky siblings to contend with!).

Obviously there's a degree of risk involved and my parents could decide not to pass the house on to me but I'd like to go through other potential tax related issues before crossing this aprticular bridge.

I'm sure there are limits on the amount of money you can give someone else without incurring tax charges but not sure how these work?

I also know that there used to be a limit on how long you lived after making a gift in order for it to be clear of inheritance tax (7 years?).

I did have a quick look on the Govt tax site but everything I found seemed centred around inheritance tax rather than simple gift giving.

If anyone has any thoughts on this or can point me in the right direction then it would be much appreciated!

never_enough

Not sure about the tax implications for the giving but you need to consider long term implications too. What would happen if their home needed to be sold for their health care in the future? You could set up a joint ownership trust between the three of you, it would also relieve inheritance tax implications. Or just buy the house from them?

lewisgirl

IHT exemptions for cash gifts to family are here:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/InheritanceTaxEstatesAndTrusts/DG_10010612

It looks to me like a tax-exempt gift of £3000 each year, used to help with the mortgage payments, would be a better idea than paying it all off at once, especially if you might need that capital yourself some time.

One of the directgov pages has a useful paragraph about signing over the house to children and expecting it to be IHT-exempt. It's not, unless the owner charges their parents a "full commercial rent". However, you could both charge your parents rent AND give them a tax-exempt gift of £3000 per year - might balance out.

ravravrav

I'm impressed by the fact that you'd have £150K to give to your parents in one go - do what the above poster says, just give in small tax-exempt sums!

molan

ravravrav wrote: »

I'm impressed by the fact that you'd have £150K to give to your parents in one go - do what the above poster says, just give in small tax-exempt sums!

It's earning sod-all in savings at the moment and I'm happy in my own house so I thought doing the parents a good turn would be both a nice thing to do and a decent investment as I'd get to own the house just in time for my own retirement (with any luck!).

Looks like it's not really an option anyway - what a crazy tax system that says you can't give money to people that you've earned through hard work and already paid 40% tax on whilst earning it.

medders2604

I'm pretty sure you can do this with no IHT implications. Check with a financial advisor though.
Each person is entitled to a nil rate band of £312,000 (2008-2009) every 7 years and 1 day.
So as long as you do not die within 7 years of the gift it will not be liable for IHT.
If you do die within 7 years there may be a reduced amount of IHT payable on a sliding scale depending on amount of time between the gift and date of death.
It can be affected by any other gifts made in the last 7 years on in the next 7 years though.
Have you done any other gifting in last 7 years at all? Over and above the £3,000 annual exemption that is?

RedBern

can you look into the house being part of a Trust? We own our house, but on the death of either of us, their share will go into the "Family Trust" - the other partner will have full access to everything - then on the second death the whole of the house will be in Trust for the children to divide between them. So could you have a 3 way Trust?

molan

medders2604 wrote: »

I'm pretty sure you can do this with no IHT implications. Check with a financial advisor though.
Each person is entitled to a nil rate band of £312,000 (2008-2009) every 7 years and 1 day.
So as long as you do not die within 7 years of the gift it will not be liable for IHT.
If you do die within 7 years there may be a reduced amount of IHT payable on a sliding scale depending on amount of time between the gift and date of death.
It can be affected by any other gifts made in the last 7 years on in the next 7 years though.
Have you done any other gifting in last 7 years at all? Over and above the £3,000 annual exemption that is?

Only other gifts have been usual Xmas present sort of stuff, no individual amount greater than about £200.

Stevenj214

You can give as much as you want, as long as you don't die within the next 7 years however when it is time for the assets to be passed back to you, IHT could be due if your parents haven't planned for it.

Another alternative would be for you to buy the house off them now, with a legal agreement in place that they can live there rent free for the rest of their lives.

Susan_Frost

I think the biggest danger is the "sell to pay for health care" issue. The way things are going, and this is not a moan, but I think unless someone can live in their own home until they die, with little government care support i.e. home helps, then the government will have it off them. And you will not necessarily have a lot of say - social services, I think, can actually get power over their assets.

The buy it from them yourself option sounds good. Even if you have to rent it back to them at "the going rate" you can gift them £3,000 each year to pay for it. Plus they would have the money you paidthem for the house. As long as the government get the tax from the "rental", I imagine they would be happy.

Bird in the hand, and all that. If it is yours, then it is yours.

medders2604

So no gifts in last 7 years and as long as you don't plan to do any more gifting in the next 7 years there will be no problem at all.
If anything did happen to you within the 7 years the amount of the gift would be added back into your estate when calculating if your beneficiaries need to pay IHT on your estate. The amount of the gift would be the amount you gave your parents minus 2 times the annual exemption (you can carry it forward for one year if not used) so if you give them £150,000 the gift value would be £144,000 which would be added back into your estate if anything were to happen to you.
However if this does happen the amount of IHT payable is reduced on a sliding scale as I said earlier. If you want to look up the sliding scale the typw of gift you are considering is called a potentially exempt transfer and there will be plenty on HMRC website about it. (sorry I can't post links)
Hope that helps.
Do make sure you get it all in writing to protect yourself though. (yes I know they are your parents but I have heard of plenty of problems that have changed family circumstances) also make sure the solictor that deals with it all also looks into the implications if either of them need long term care and the local authority make them sell the property, you need to know you will get your share back before they deduct care fees if that happens.