Father in Law GIVING us money for a deposit.... any implications?

holly_hobby

Redouble wrote: »

We live in forces accommodation, my in laws reside in the house. Is that the reason we will have to pay CGT then? Because we don't and never will live in that house?

Yes thats correct, if you did ever reside in the property your liability would change.

Redouble wrote: »

ETA it is and was their primary residence

I am sure your Sols have already looked at this, BUT if your parents in law have a potential for IHT issues, then as they still reside in the property, despite the gifted deposit of 100k, allowing you to effectively purchase it from them, their "donation" of the 100k is classed as a gift with reservation (as they are still enjoying benefit of the gift), and as such will form part of their estate on death, which may increase any IHT liability, or take the estate over the nil rate IHT band and expose it to duties.

If their residual estate is unlikely to be liable to IHT, than the above is not a factor for their executor to worry about - just a point worth mentioning.

Hope this helps

Holly

Redouble

Immediate members of your family can be the primary occupyers (sp?) in a home you are mortgaging and you can just get a 'normal' mortgage (as we have)

Redouble

holly_hobby wrote: »

Yes thats correct, if you did ever reside in the property your liability would change.



I am sure your Sols have already looked at this, BUT if your parents in law have a potential for IHT issues, then as they still reside in the property, despite the gifted deposit of 100k, allowing you to effectively purchase it from them, their "donation" of the 100k is classed as a gift with reservation (as they are still enjoying benefit of the gift), and as such will form part of their estate on death, which may increase any IHT liability, or take the estate over the nil rate IHT band and expose it to duties.

If their residual estate is unlikely to be liable to IHT, than the above is not a factor for their executor to worry about - just a point worth mentioning.

Hope this helps

Holly

Eep, I'm afraid I don't get it

We were told they won't be Liable for IHT (I don't know why, this has been a looooong and painful journey and my brain pretty much dumped all the information ASAP )
my in laws are still 'young' (early 60s) which apparently eased some issues (??)
Is IHT based on value of the estate? I can't remember!
I know I am not putting up a very good show of my intellect here, but truly none of this makes sense to me, I just can't compute it


ETA : how bloody ungrateful am I?!
Thank you so much for the replies, really appreciate it xx

holly_hobby

IHT is an estate tax applied if the net (i.e after discharge of all debts) value of the deceased's estate, exceeds the nil rate IHT band at the time of death (which is currently 325k). (increased by effective use of the reliefs between married couples).

Ages of the individuals have absolutely no relevance on either the appliction of IHT, the pivotal figure it kicks in at, or whether its payable at all i.e- someone just 23 yrs could die and their estate have an IHT libility, as its solely the net value of the deceased's estate that determines any charge.

If your solicitor has told your parents in law that there is unlikely to be any IHT issues, then thats been based on value of their estate (which is not only property, but all other capital, assets and chattels), at the time the advice was provided.

Remember, that as they have retained benefit from their gift of 100k (by continuing to live in the property depsite its change of ownership), this will be included in their estate for IHT calc purposes and the calc of any payable duties.

But they would be wise to keep an eye on this, without knowing how far away they are from the nil rate band, if they do obtain valuable assets (or their value increases), come into money, etc, in the future, this may take them over the nil rate threshold and duly expose their estate to the dreaded IHT calc ! So may be worth just keeping an eye on this .

With respect to the OPs post, there should be a record kept of the gift (no not a legal requirement, but ordinarilly a lender one, either way from a personal point of view, it is certainly both wise and prudent financial and forward planning).

If the Donor becomes the deceased within 7 years of the 30k gift (and if his net estate exceeds the nil rate IHT band of 325k, assuming no added spousal relief), then the 30k will be assessed as continuing to form part of the estate, and will be subject to an IHT calc - how much the estate will have to pay in duties, is dependant upon how many of the preceeding 7 yrs have elapsed since the gift was made.

PETs and potential liability to the Donors estate, may easily be catered for by the effecting of a gift inter vivos policy - a qualified practionioner will be able to advise and assist.

Hope this helps

Holly

Redouble

holly_hobby wrote: »

IHT is an estate tax applied if the net (i.e after discharge of all debts) value of the deceased's estate, exceeds the nil rate IHT band at the time of death (which is currently 325k). (increased by effective use of the reliefs between married couples).

Ages of the individuals have absolutely no relevance on either the appliction of IHT, the pivotal figure it kicks in at, or whether its payable at all i.e- someone just 23 yrs could die and their estate have an IHT libility, as its solely the net value of the deceased's estate that determines any charge.

If your solicitor has told your parents in law that there is unlikely to be any IHT issues, then thats been based on value of their estate (which is not only property, but all other capital, assets and chattels), at the time the advice was provided.

Remember, that as they have retained benefit from their gift of 100k (by continuing to live in the property depsite its change of ownership), this will be included in their estate for IHT calc purposes and the calc of any payable duties.

But they would be wise to keep an eye on this, without knowing how far away they are from the nil rate band, if they do obtain valuable assets (or their value increases), come into money, etc, in the future, this may take them over the nil rate threshold and duly expose their estate to the dreaded IHT calc ! So may be worth just keeping an eye on this .

Hope this helps

Holly

Thank you, it is very helpful (albeit scary!) information. The house is their
only asset. My stepFather in law will inherit a small amount from his mother (she is in a care home and if I understand it correctly, there is a point in which the money she has, from the sale of her home, that they willhavetostop taking the care home fees. Something like 20k? So that will take their assets to £150k (including the house).

Anyway, I will shush now. Massively appreciate the help and huge apologies to the OP for taking over your thread

CLAPTON

holly_hobby wrote: »

If the Donor becomes the deceased within 7 years of the 30k gift (and if his net estate exceeds the nil rate IHT band of 325k, assuming no added spousal relief), then the 30k will be assessed as continuing to form part of the estate, and will be subject to an IHT calc - how much the estate will have to pay in duties, is dependant upon how many of the preceeding 7 yrs have elapsed since the gift was made.


Hope this helps

Holly

this is only so if the PETs are more than 325,000 and only apply to the element that is above 325,000
in this case there is no indication that the PET will be more than 30k

holly_hobby

CLAPTON wrote: »

this is only so if the PETs are more than 325,000 and only apply to the element that is above 325,000
in this case there is no indication that the PET will be more than 30k

If you die within seven years and the total value of gifts you made is less than the Inheritance Tax threshold, then the value of the gifts is added to your estate and any tax due is paid out of the estate. (as I have stated in my earlier post)

However, if you die within seven years of making a gift and the gift is valued at more than the Inheritance Tax nil rate band, Inheritance Tax will need to be paid on its value, either by the person receiving the gift or by the representatives of the estate.

If you die between three and seven years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as 'Taper Relief', which as I say may be provided for by a gift inter vivos arrangement.

My earlier post (on a re-read) did not make this clear .... hope this resolves that.

H

michaels

I think the CGT comes in because the house will be owned by you and you will not occupy it so it is effectively 'btl' even though you are unable to have a btl mortgage because the renters are your relatives. However the big problem seems to be that rather than purchasing the house for 130k and thus any gain being the increase from 130 you are actually buying it for £30k (the gift from your relatives being in the form of a discount on the purchase price) thus rather than only being liable for CGT on the sale based on any increase over 130k you are liable for it on any value realised over 30k.

Tax wise this seems a very expensive way of your parents making the gift and I would have thought there must be a better way to achieve the transaction to reduce your future tax liability.. In effect what you would want to acheive would be to purcahse the property for £130 using 30k mortgage and 100k gifted from your parents but the problem is this 100k would not exist until after the sale had gone through.

Is there no other way you could raise the 30k on a short term basis (personal loan, credit cards) so that your relatives could pay off their mortgage and gift you the entire property and you could then get a 30k mortgage and pay off your temporary 30k borrowing?

reehsetin

xylophone wrote: »

Father- in- law should write you a signed and dated letter (and keep a copy for himself to be stored with his will) stating that he is making you/your spouse an outright gift of the sum of £30000.

This is what we did

CLAPTON

michaels wrote: »

I think the CGT comes in because the house will be owned by you and you will not occupy it so it is effectively 'btl' even though you are unable to have a btl mortgage because the renters are your relatives. However the big problem seems to be that rather than purchasing the house for 130k and thus any gain being the increase from 130 you are actually buying it for £30k (the gift from your relatives being in the form of a discount on the purchase price) thus rather than only being liable for CGT on the sale based on any increase over 130k you are liable for it on any value realised over 30k.

Tax wise this seems a very expensive way of your parents making the gift and I would have thought there must be a better way to achieve the transaction to reduce your future tax liability.. In effect what you would want to acheive would be to purcahse the property for £130 using 30k mortgage and 100k gifted from your parents but the problem is this 100k would not exist until after the sale had gone through.

Is there no other way you could raise the 30k on a short term basis (personal loan, credit cards) so that your relatives could pay off their mortgage and gift you the entire property and you could then get a 30k mortgage and pay off your temporary 30k borrowing?

maybe, maybe not

if redouble wants proper advice they need to post up the full facts (preferably on a new thread)

as they are in the armed forces special rules apply to property owned but not actually lived in that may apply in this case (or may not)
Basically the cgt rules are different for people who are required to live in accommodation provided by their employer