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Inheritance tax - parents offsetting my mortgage

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  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    Teepee: there's also an allowance that lets them give you a nice present just before you marry IHT-free.
    Free the dunston one next time too.
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
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    you don't say how old your parents are but unless they are likely to die within 7 years then they can give you anything they like and it will be IHT free
  • System
    System Posts: 178,340 Community Admin
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    kidmugsy wrote: »
    Teepee: there's also an allowance that lets them give you a nice present just before you marry IHT-free.

    I know, already married unfortunately! :T
    This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com
  • System
    System Posts: 178,340 Community Admin
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    edited 29 December 2012 at 3:54PM
    CLAPTON wrote: »
    you don't say how old your parents are but unless they are likely to die within 7 years then they can give you anything they like and it will be IHT free

    They are mid sixties, so yes would hope they live much longer. However my dad doesn't want to give large lump sums of money as doesn't want my mum to have to ask for money back from us later etc...

    On a separate note I have been on a tax forum where have been told that the 'lost ' interest would be liable for IHT! I really don't see how this is possible. Maybe I should get my parents to speak to a tax advisor after all, but I can't see how I would end up declaring to hmrc how much interest I have saved on the mortgage each year. It's a shame hmrc will not confirm this for me directly.
    This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com
  • it's debatable whether the "lost" interest is a gift at all. since they've never received this interest in the first place. but only would have done if they hadn't agreed to the offset arrangement.

    if it is a gift (and i'm not sure either way), then it's fine so long as their normal living expenses (+ any other gifts) are covered by the remaining income which they actually receive. there would be a problem if they're depleting their capital by making gifts.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    edited 29 December 2012 at 5:08PM
    iht on the interest

    What is their justification for that? got a link?

    if it was an interest free loan repayable on demand there would be no tax implications.

    next that tax forum will be saying there is tax due on the interest saved on an unused overdraft:rotfl:.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    it's debatable whether the "lost" interest is a gift at all. since they've never received this interest in the first place. but only would have done if they hadn't agreed to the offset arrangement.

    if it is a gift (and i'm not sure either way), then it's fine so long as their normal living expenses (+ any other gifts) are covered by the remaining income which they actually receive. there would be a problem if they're depleting their capital by making gifts.

    The closest equivilent is an interest free loan repayable(in part or full) on demand(ie they just take their money back).

    One thing to remember with gifts, there are few if any gifts that make an individuals IHT situation worse.

    IMO the biggest risk is gifts use up the nill rate band reducing the transferable amount for a couple.
  • System
    System Posts: 178,340 Community Admin
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    iht on the interest

    What is their justification for that? got a link?

    if it was an interest free loan repayable on demand there would be no tax implications.

    next that tax forum will be saying there is tax due on the interest saved on an unused overdraft:rotfl:.

    Yes, here is the link: http://www.taxationweb.co.uk/forum/inheritance-tax-parents-offsetting-my-mortgage-t39733.html

    I think my final reply (i.e. what happens if my parents actually gave me 100k and I paid it off my mortgage) has probably answered my own question though although it is disconcerting when supposed professional puts doubt into your mind!
    This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    My own guess is that the family offset mortgage is one of those anomalies that government may well turn a blind eye to, unless people take it up on a large scale. When you consider the madness of government allowing, and even encouraging, pension contributions by salary sacrifice, than these mortgages seem awfully small beer.
    Free the dunston one next time too.
  • CLAPTON wrote: »
    I see no basis for any tax liability either now or future inheritance tax.

    Your parents are giving you an interest free loan; no tax is payable.
    In any event interest wouldn't be considered capital and so would not be subject to IHT.

    I agree with Clapton. You cannot be taxed on interest which has not been paid. The 3% saving is notional and not actual.

    You could ask the bank for an R85 certificate of interest to clarify what interest has been paid or "saved".
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