Property Inheritance tax

markdirect

Hi

1)

My parents wish to downsize as retired now, but are unsure about any tax implication when they sell there only house (currently they live in). Its worth about 2 million so if they buy a smaller boungalow for 500k how is the surplus funds treated. I thought as only main residence this was tax free. Can anybody advise.

2)

My parents also wish to set aside money for children ( my sister and myself , and grand children so far as possible to minimise any in heritence tax due.) Can anybody advise about this

many thanks

Mark

downshifter

My mother did this, though not with a view to avoiding IHT.

She downsized and gave £50k to each of her 4 children to do as they liked with it. IHT rules still apply as far as I'm aware, and if she dies within 7 yrs of giving the money to us, it will be added to her estate and tax payable. She's now nearly 83 and it's over 2 yrs since she did this. She's going strong so it's unlikely tax will have to be paid as fortunately she looks like living well beyond the rest of us! But the sliding scale will apply until the 7 yrs is up. The rest of the profit from her house has been put into her 'nursing home fund'!

It's not a way of avoiding IHT but is an absolutely wonderful way of giving to your children, we're at stages in our own lives where we really really appreciate it. (Our own kids at college, buying their first homes, new babies etc) So why don't you ask if they can give the money to your now rather than put it into a trust fund or whatever for after they die? If they give it to you now, then stay alive for 7 more years, then there's no tax on it. A bit more complicated if there are 2 of them but the principle still applies.

I can't see how you can avoid IHT like this, your parents really should be getting good legal advice in order to minimise tax payable because the estate could be clobbered hard if they get it wrong. There's lots you can read up around this, I'm sure people will give you some useful links, and it has been discussed on here before.

DS

00ec25

1. the main residence is tax free - the £1.5 million they will have left over from the sale is theirs to do with as they please. No tax due on it

2. as downshifter says if they give any of that money to anyone else (be they family or friends) then it is a "partially exempt transfer" and if they die within 7 years of the gift then the value of the gift will be added back (using a sliding scale) into the value of their estate at the date of death and the estate may end up paying IHT. IHT is all explained very clearly on the HMRC website, go read it! http://www.hmrc.gov.uk/inheritancetax/index.htm

Nonetheless, you should be getting professional advice, there are many ways to reduce IHT but few to eliminate it, and a public forum is not the best place to get legal advice regarding dispositions of those sort of sums of money, especially if you go down the trust fund route!

you should also take professional advice about the potential impact of the deprivation of assets rules if they give the money away, albeit given their apparent wealth it's unlikely they will end up in a council run care home - to which these rules mainly relate.