Inheritance Tax Article MoneySavingExpert.com Discussion

Lan

Hi
Not sure this is the right place to ask, but I wonder if all you could help me out?
Yesterday I received a cheque for £15,000 from a friend as a gift.
Do I have to pay tax on it?
My husband works full time, and I just recently finished a very very small business.

Tiggs_2

no, its a gift.

Lan

:beer:

That's a relief, been worrying about it all night!
Thanks very much Tiggs!

Sisters boss, who is a solicitor, said so too this morning when she asked when she went into work.

New car here we come!!!!

Jess

Can anyone help please. I am concerned that I may be liable to inheritance tax when my mother dies (not for a long time yet I hope) and would be grateful for any advice/information.

As a way of avoiding inheritance tax when my father died 5 years ago he left his half of the family home to me with the proviso that my mother lived in it for as long as she wanted. The house is worth well over £500,000 (no we're not rich it was bought by my grandparents for £200 - some investment - in a area where house prices are now crazy). My mother will in due course leave her half to me. This arrangement was set up by a solicitor in 1999 to avoid tax but I am now concerned that it may not be correct and I will have a huge bill to pay in due course.

Any advice please.

elliebean_2

Hi Jess,

When you say he left it to you with the proviso that your mother could live in it for as long as she wanted, it sounds like it was left as a 'life interest trust'. Is that right? If so, your mother has what is called an interest in possession, so the value of the whole house will fall into her estate on her death and so be liable for inheritance tax.

Tiggs_2

yep - sounds pretty simple.

house worth £500k and in your mums estate...her NRB is nearly £300k (or soon will be) so she is £200k over @ 40% = £80k tax

however, you wont pay a penny...its your mums money and her tax bill - you just inherit less.

Jess

Thanks Elliebean, That's what I was afraid of. Was that arrangement ever a way of cutting down on inheritance tax or were we badly advised I wonder?

asdaprice

Jess
My understanding is that your mum can now, while she is alive, pass her surplus income to you, as long as doing so doesn't reduce her standard of living - were you aware of that, and if you are interested perhaps someone here with a better brain than mine could explain it to both of us

Jess

The point is there is no spare income. Mum's just a OAP who happens to live in a house in a desirable place. All her 'wealth' is tied up on the bricks and mortar so she has nothing to giver anyone unless she sells up and buys something smaller and that is not an option

andyd

When you say he left it to you with the proviso that your mother could live in it for as long as she wanted, it sounds like it was left as a 'life interest trust'. Is that right? If so, your mother has what is called an interest in possession, so the value of the whole house will fall into her estate on her death and so be liable for inheritance tax.

Just to clarify elliebean,if his fathers Will left half of the house to Jess(assuming the joint tenancy had been split)but didn't refer specifically to his mum being allowed to live in it till her death,why would that create an interest in possession?

If a request that Jess's mum could remain in the property was referred to in a separate letter of wishes wouldn't that avoid an interest in possession and thus mean that the half share given to Jess in his fathers Will would avoid IHT when his mum subsequently psases away ?

Thanks.