Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

kingsix

Hello all, wondered if anyone had ideas on the inheritance tax as my Mother has left her own house to my brother, worth about £220k and her other house to me worth about £140k ( which I rent off her ). As the total is above the inheritance threshold, where would the tax be paid from?
thanks for any ideas!

SeniorSam

Hi Kingsix,
The IHT threashold is £325,000 for each person, but if your father passed on first and left his assets to your mother, then his nil rate band allowance is also available, so £650,000 in all before tax.

In other circumstances, were there to be any tax payable, then the executors of the estate need to account for tax before distributing the estate to the beneficiaries. If my assumptions are correct, the executors need to account to the revenue to obtain a grant of Probate, which allows them to distribute the estate.

Hope this helps

Sam

savenovice

Hi,

My mom passed away earlier this year (she was a resident Indian citizen throughout her life). All of her assets and those of my father who passed away 14 years ago are in India. The total value of inheritance will be far below the GBP 325000 threshold for UK inheritance.

I was wondering what the tax implications are for me as a resident British citizen.

Also if we sell the family house (in India), we'd probably have to pay capital gains tax in India, would we need to pay that in UK as well?

Any websites, books, advice appreciated as I am unable to find any relevant topics.

Thanks,

-Ravi

John_Pierpoint

Who are the executors?
You are playing "piggy in the middle" between the world's two most complicated tax systems.
Under English law (we are not necessarily talking that other country north of the border) the executors own the assets as trustees. It would not surprise me if the same applies in India.
So your best bet might be to trawl the ex-pat sites for people who have migrated to England.
When the executors have reached a sensible view of the tax and legal situation in India then you and they will need to decide on what is best to do in view of the tax and legal situation here in England and your own personal plans.
As Lord Kelvin once said:

“When you can measure what you are speaking about, and express it in numbers, you know something about it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts advanced to the stage of science.”

Parisian

Hi All,

Any advice would be much appreciated

My father and mother legally separated in the 80's and my father went off to live in the States. However their house remained in joint names under a joint tenancy, with a debt of my fathers left on it as a caution. My father died in 1999. In the last year I have cleared this debt and transferred ownership of the home in my mothers sole name.

My mum is now for the first time in a position to say that she outright owns a home (without any debt) to the value of £325k *hurrah*

I am aware that the Inheritance Tax threshold is currently £325k and the value of my mothers home value is likely to rise above the current inheritance tax threshold (as I am currently doing some renovations on it).

What is the best way of 1. planning for reduced IHT contributions 2. Avoiding the home being sold in the future for care home costs (she is disabled, but there is no current indication for needing a care home)?

(I have seen threads here which disagree with avoiding care home costs - however, I have put alot of money into the home and clearing the debts and do not wish to see the home being sold without choice in the matter).

I have spent hours searching the internet but I still have no idea what to do! I see there are a number of options for setting up trusts - is this an option for us? If so, any ideas which one? What's the best way of sorting this all out?

Thankssss v. much

John_Pierpoint

The legislation has been designed to make giving away part of a house and continuing to live in it virtually impossible. You would certainly need to post a lot more information about the property and the circumstances of Mother and you and your siblings.
What was the deal when your mother divorced and when your father's executors were asked to remove the legal charge?
When it was imposed he obviously was able to prove some sort of de facto claim over the property?
Does the land have any redevelopment "hope value"?

Parisian

John - is your reply to me?

My parents legally separated (not divorced, not sure why) in the 80's. At the same time, my fathers business went into liquidation and a number of banks/companies tried to secure debts on to our home. Only one was actually successful, and it was for a relatively small amount that did not accumulate interest over the years.
My father fled to the States whilst being pursued by these debtors. He died intestate abroad in 1999, with no other assets apart from owning the home in a joint tenancy with my mother still (which he had never pursued in his lifetime), and a small life insurance policy. My mother was too scared to notify anybody, and left it well alone. In the last year I have removed the legal charge on the home from the company that put it there (long story, but very happy that it has now gone), and after that applied at the Land Registry to remove my fathers name (as it was a joint tenancy, we did not require Probate).

So now she is left with this 325k house (but not much else in terms of assets). My mother has two children - myself and my brother (who lives abroad).
She is disabled (registered blind) with some ongoing mental health problems - but has capacity to make decisions regarding her property. I tend to help her with alot of her affairs, and my brother is not really in the picture. I feel that in her old age she might need to go into a care home, although there is no indication of this at the moment.
Any idea what the options for us could be. We are willing to consider:
1. Staying in the house, and using any legislation/ trusts etc. I am keen to somehow secure that her home does not get sold for care home costs, if possible.
2. Or even say selling the house to help distribute the assets. We are willing to consider many options - selling up and buying a smaller place for her, me buying a larger place for the both of us using proceeds from the sale plus a mortgage in my own name. However from some superficial reading I am aware of the difficulties with the benefit in kind/deprivation of assets. Additionally, she is on benefits, so I am not sure how selling her home and gifting me the money would work?

Or do I just have to accept that the house will go up in value, and so we would have to pay 40% on anything inherited above 325k? And even before that, the house may need to get sold for care home costs?

& Finally - what do you mean by asking if the land has any redevlopment/hope value?

Thankyouuuuu

John_Pierpoint

Hi Parisian,

Would I be right in assuming you are female and living in the family home in England & caring for your handicapped mum?

Most of your information is outside my skill and experience; but let us start from the end of your posting.

Hope Value: As the value of a home in this overcrowded island mainly resides in the site or more accurately the Local Council's land used regulations for the site; there is always the "hope" that a change in the policy/regulations might create a tax free windfall akin to a lottery win.
I don't know where the £325k house is, but that sounds to me like a detached house if it is not inside the M25.
The most obvious example is (say) a corner house with a big garden, where a new house could be built at the bottom of the garden.
Perhaps the existing house has a large roof space and would make 3 flats?

As your father appears to have been still married to your mother and if you can PROVE he died penniless (but for half a property) then your mum should have inherited 100% of a nil rate band, when her death occurs. even though her husband might have been "domiciled" in the USA [Domiciled roughly means: gone abroad with the intent of never coming back to live here].
These links demonstrate how even the simplest of concepts can be changed into pages of bureaucratic arbitrary rules

They do seen to be favourable to UK spouses, even when the partner's family are overseas.

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM43042.htm
http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm43000.htm
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM43005.htm

Finally, you are right to be concerned about the post code lottery that is care and health care of the elderly.

All I can say from experience of two elderly relatives towards the end of their lives, the phrase "Are they self funding" gets trotted out almost before "Good Morning and How are You" - from that limited experience, I would expect dissembling and not a clear explanation of the rights and obligations of both parties.

They won't be able to turn you out onto the street, and the majority of people DON'T go into care.

I think the problem is that findings in individual cases, don't automatically create precedents and hence the Post Code and Health Care lottery. Invisible problems are the most contentious, such as dementia.
Is that an illness or just old age?

Have you waded through this thread:
https://forums.moneysavingexpert.com/discussion/comment/52768793#Comment_52768793

At least there are well established organisations for the blind that can advise & support you.
They are better funded than many such organisations, now that blind people are a much smaller fraction of the population, than they used to be in earlier times.

You can also always come back here, if you need to check specific problems as they arise.

John.

localhero

Parisian,

Your mother will be entitled to uplift her inheritance tax allowance (known as the nil rate band) by 100% based upon the information you have provided. Irrespective of where your father was domiciled when he died, IHT will only bite at 40% over £650,000 in her case, and so as things stand, that is not the threat to her estate.

Liability for paying for long term care bites at 100% of any capital owned in excess of £23,250 - and that includes the family home.

There are some things that will work and some things that won't work to protect her capital from this threat. Most legal professionals and armchair experts will tell you that anything she does would be construed as `deliberate deprivation of capital`, which isn't necessarily correct.

I am not in the business of educating my fellow legal professionals what the rules are, suffice to say that your mother needs to get herself in front of a clued up legal professional sooner rather than later if she wants to protect her assets. The solution will not be cheap - but then neither is full time care. This is a highly specialised area of law, so do your homework properly.

I hope that helps.

Parisian

Thank you, John.

Thankyou localhero for contributing. I was initially worried that their legal separation may interfere with the nil rate band - so thank you for clarifying that part.

I've been looking at this "estate planning" to avoid care home costs for a couple of months now - all my internet searchs largely bring up strategies like couples changing their tenancy type, and some mention of setting up trusts (but examples given are for couples with both currently alive, with some previously successful options of trusts which have not been able to be contested by social services in court as deliberate deprivation). I seem to find nothing very thorough or helpful despite many hours of reading.

I am happy to do the homework and also to seek the correct (even if costly) legal advice. However, I genuinely don't know where to start with it. Any advice on good homework sites/information to read? And any advice on how to choose legal help/where to go? I myself am a doctor and am well aware of the differing quality/approaches amongst professionals in all fields!

Thanks again to you both