IHT question

JonathanStewart

Tricky question (maybe)

MY parents live in a house which up until a year or so ago was in both names. It is now only in my mothers name.

My mother is prepared to put the house under my name and her name. She has no further assets.

What are the IHT tax implications of all this?

Would the house go directly to my father with no tax to pay (the house is worth approx 500k), if my mother died regardless of the fact that his name is not on the house? (thats what we want to happen btw, we arent looking to short change him, we just have personal reasons for wanting the house to be kept under either my mothers name or my mothers name and my name)

CLAPTON

what does the will say

you would get better overall advice if you gave the reasons for not wanting your father's name on the deeds

what would you mother's estate be worth in total

JonathanStewart

CLAPTON wrote: »

what does the will say

you would get better overall advice if you gave the reasons for not wanting your father's name on the deeds

what would you mother's estate be worth in total

there is no will - at present. what we would like is for the house to be in my name with my father still living in the house if my mother died first - preferably with no IHT to pay as a result.

Mothers estate total value - 500k

I have my own (mortgaged) property that I live in at present.

reason for excluding my fathers name from deeds - my father has substantial debts to his name - could these be extracted from a potential sale of the house on my mothers passing?

no one would trust the house to be in my fathers name if it were to pass to him on my mothers passing - my father included!

can debtors take hold of an unmortgaged property and force a sale?

CLAPTON

quite complex
you really need expert advice as you might find your fathers creidtors can claim, you pay full IHT and you pay cgt too.

the law under intestancy rules is as follows:
http://www.adviceguide.org.uk/index/your_family/family/who_can_inherit_if_there_is_no_will___the_rules_of_intestacy.htm

google around for more information

if a creditor of your father so choses, they could sue in the courts and possibly 'undo' your father's removal from the deeds as it would clearly be seen a deliberate atttempt to avoid paying his debts.

however if your mother does transfers the ownership so you and she are joint tenants then although you become the legal owner if she dies and this is outside probate;
however HMRC will include the value in her estate for IHT purposes as she still retains benefiical ownership (i.e. she will live there with paying a open market rent to you)
so for IHT purposes it would be ineffective

also if your mother ever wants to move and so sells the property, your half will be liable to capital gains tax



how much does your father owe? it might be cheaper to pay his debts off and avoid IHT




so get professional advice

JonathanStewart

CLAPTON wrote: »

quite complex
you really need expert advice as you might find your fathers creidtors can claim, you pay full IHT and you pay cgt too.

the law under intestancy rules is as follows:
http://www.adviceguide.org.uk/index/your_family/family/who_can_inherit_if_there_is_no_will___the_rules_of_intestacy.htm

google around for more information

if a creditor of your father so choses, they could sue in the courts and possibly 'undo' your father's removal from the deeds as it would clearly be seen a deliberate atttempt to avoid paying his debts.

however if your mother does transfers the ownership so you and she are joint tenants then although you become the legal owner if she dies and this is outside probate;
however HMRC will include the value in her estate for IHT purposes as she still retains benefiical ownership (i.e. she will live there with paying a open market rent to you)
so for IHT purposes it would be ineffective

also if your mother ever wants to move and so sells the property, your half will be liable to capital gains tax



how much does your father owe? it might be cheaper to pay his debts off and avoid IHT




so get professional advice

apart from the debt issue

if the property remains in my mothers name only with my father out of it

in practice does it transfer directly without IHT to my father after my mothers death? as it is the sole residency

CLAPTON

the rules for intestancy are as described in the link in my previous post

so if the estate is 500k

the husband gets 250,000 with no IHT as spouses are not liable for IHT
and the rest is divided inot two ... half goes to children and half in trust for his life

as the amount is less that 325,000 no IHT applies but I know little about trusts

but why not make a will; inheritance to spouse is IHT exempt

John_Pierpoint

As father is "not good with money" it would be better to leave him a life interest (Interest in Possession Trust) then he cannot spend it.

There is nothing "exotic" about the Interest in Possession trust, it is the default situation for the half estate over 250K left to the spouse in the intestacy rules. A house does not have any income to worry about so no need to do trust tax returns each year.

JonathanStewart

just to get this straight

if my mother made a will and gave him the house in it

there would be no issue (other than potential pursuance of debt by 3rd parties)?


and if she did not make a will the tax man would definitely come knocking?

getmore4less

No will no IHT
Not at £500k anyway

£250k to spouse exempt
£250k below nill rate band.

John_Pierpoint

So make a will and leave him a life interest if mum wants to be sure where the house will go after her husband's demise - assuming she goes first. The life interest should be IHT free when mum goes and will probably be covered by the spouse (and legal partnership) transfer of percentage of unused nil rate on the second death.

Alternatively do nothing and dad will get half the house as a life interest and the children will own the other half - the children will be liable to any CGT on their half if the house is sold. (once upon a time there was a second CGT tax free house if it was used to house elderly parents, but that tax relief is now long gone for new cases).
The do nothing now option risks continuing attempts by creditors to get their debt satisfied by dad's half of the property.