Hypothetical Inheritance Tax question

dzug1

That really boils down on what you are prepared to pay for sentiment - entirely your call

System

dzug1 wrote: »

That really boils down on what you are prepared to pay for sentiment - entirely your call

Not really. Even if you hated the house and as executors you sold it straight away, you would still have to pay the tax bill.

All it boils down to is you inherit some money, you decide to buy a house, do you want house A (expensive) or house B (affordable) ?

zygurat789

Pheath20 wrote: »

My father is in a care home seriously ill and my mother is of advancing yrs and also not in great health so 7 yr gift isn't really an option. The house is in London in a good location and will definitely mean that my brother and I will need to pay IHT when assets calculated. However I've huge sentimental attachment to the house and area and didn't necessarily want to sell it immmediately after the 2nd parent passes to raise the cash to pay the IHT bill but interest on annual payments for IHT is 3% if we were to spread it over 10yrs is v high. Even though it's still a bit premature just thinking of future options really.

Are you thinking of keeping this house and not living in it?
On a £1m house the IHT would be £140,000. This would seem to be a smallish mortgage.
Where are you both living at the moment?

troubleinparadise

Assuming the house passes to your mother, is there not also a situation that she may need to raise funds for care home fees if she too becomes in need of residential care?

You have indicated that there isn't much in the way of other assets (otherwise you would be able to pay the IHT without selling the house/raising a loan yourselves), so what will be providing your mother with her living and potential care funds?

Sorry, those are very intrusive questions, but perhaps need to be thought about first before worrying about how to keep a house in the family that might actually be needed to support your mother, and which until your parents' demise remains as their asset.

xylophone

http://www.hmrc.gov.uk/inheritancetax/paying-iht/find-money-to-pay/index.htm
might be worth a look.

Pheath20

The IHT if we had to pay it today could be anywhere between 300-400k so other than selling the house no way to pay such a large amount as one lump sum, although annual installments might just be a possibility obviously with interest at 3% we're talking v large sums. Mum is currently living in the house and if she needs a care home then the house would have to be sold or a loan raised on it in order to raise fees (although she has savings to pay for care home fees for a little while).
In an ideal world I would have loved to have lived in the house for a duration rather than selling it immediately but it could be just too expensive. My brother and I currently have our own places shared with partners (I'm renting).

CLAPTON

are you saying the estate will be about 1.6 million?

grey_gym_sock

would you and your brother both want to live in the house at the same time?

could you cover the 300-400k by a combination of (a) using most of both your existing net assets (including the equity realizable by selling any properties already owned) and any other assets inherited and (b) taking out a mortgage secured on both your incomes?

of course, this is all just a thought experiment, as your parents may need/want to use their assets for other purposes first.

and taking on the largest mortgage your incomes will allow may not be sensible.

if only 1 sibling was going to live there, how long would the other want to own half a house they weren't using? or would they want to be paid rent or to be bought out?

Pheath20

Clapton - that's right, at least that.
Greygymstock - it's unlikely my brother and I would want to live in the house at the same time but the suggestions you make are certainly worth us mulling over. I'm not sure yet my brother's stance if i were living in the house but my hunch is he'd want to sell much quicker than me (guess there's also Capital Gains Tax to take into account if we hold onto it too long).
Thanks so much everyone for all your help, you've given me a lot to think about.

holly_hobby

Here's HMRC guide on instalments in respect of a house -http://www.hmrc.gov.uk/inheritancetax/paying-iht/yearly-instalments/#2 .

If IHT was later abolished (unlikely !) or the nil band threshold raised, it won't be on a retrospective basis, so parents estate's liability would be un-changed in any event.

IHT is on a net estate in excess of nil rate band (currently upto 650k for 2nd death spouse, with full unused tsf available and made, for 1st deceased spouse).

CGT for you would be the diff on value at time of surviving owners death and sale, less permitted deductions, reliefs and unused annual cgt exemptions.

How about having a chat with a HNW adviser on this ? Whom you can freely discuss figs with, and they examine and plan stratergy for IHT mitigation and estate management.

Hope this helps

Holly x