Returning gifted money to avoid inheritance tax.

Jeffnospam

I have power of attorney of my fathers affairs. 2 years ago my father moved in with me and gifted me the sale price of his house and has signed a document to that affect.

At the time I was going to use the money to buy a bigger property but we made minor alterations to our house to accommodate him but he said for us to keep the money in case we ever needed it.

The money has sat in a savings account in my name ever since and has not been touched.

If my father died before 7 years I would be liable for inheritance tax so on his death could I return the money to his estate, which I am executor of, as I am the sole beneficiary to his will, which is valued below £325,000?

zygurat789

Jeffnospam wrote: »

I have power of attorney of my fathers affairs. 2 years ago my father moved in with me and gifted me the sale price of his house and has signed a document to that affect.

At the time I was going to use the money to buy a bigger property but we made minor alterations to our house to accommodate him but he said for us to keep the money in case we ever needed it.

The money has sat in a savings account in my name ever since and has not been touched.

If my father died before 7 years I would be liable for inheritance tax so on his death could I return the money to his estate, which I am executor of, as I am the sole beneficiary to his will, which is valued below £325,000?

You will not pay the IHT it will be paid by your father's estate before it is distributed to the beneficiaries.
For gifts within the 7 years before death, a percentage depending upon age of gift, is added back to the estate for IHT purposes so if you repaid all the gift it could increase any IHT liability.
If the total estate, which will include any gifts added back, is less than £325,000 there will be no IHT

Keep_pedalling

The gift is part of the estate whether you returned it or not so it does not make any difference as far as IHT is concerned.

Is he a widower? If so there any unused part of his wife's estate which could take the allowance up to £650k.

SeniorSam

Jeff, there would only be your Mother's allowance if she passed her estate to your Father, in which case there would be an IHT allowance of both nil rate bands.

You have nothing to worry about as far as tax or the actions taken by your Father and I feel that he has been very smart in the arrangements he has made with you.

If he also has any bank accounts in his name, it may be prudent to make those into joint accounts with you, so that when he does die, they automatically become yours.

Sam

Jeffnospam

Thank you so much for your answers. He is a widower so with his unused wife's estate it would be below £650,000.

One further question if you don't mind. Not sure if anyone can even answer it as this is not really a tax question.

My father was the executor of my mothers Will. Everything was left to my father and was in joint names including the house and all savings but he never filled out any forms or paperwork in relation to his roll as the executor. In fact he did nothing. Did he do anything wrong by not contacting the tax authorities or anyone as their total assets including the house came to around £240,000.

Keep_pedalling

Hi Jeff, with everything in joint names there really was no need to do anything, so there is nothing to worry about there.

Jeffnospam

So to recap the helpful answers here just so it is 100% clear in my mind.

Mum died and left everything to my dad. Everything they owned was in joint names.

Because of this my father’s limit is now £650,000.

My dad’s total assets were around £220,000 but he gifts £180,000 to me.

Dad then dies and I return his £180,000 to his estate so his estate is now worth £400,000.

There is no inheritance due so the full value of his estate will pass to me which is actually £220,000 but for tax purposes is valued at £400,000.

Keep_pedalling

You would not have to return the money to the estate just declare the gift when administering the estate. Hopefully your father has many years ahead of him so that £180k becomes tax exempt after 7 years and would need no declaration.

What you probably need to do however is look at your own situation in that your gift and future inheritance will push you over the IHT tax limit. So if you have your own children you should think about using your £3000 annual allowance to help them, and it is advisable to get some independant professional advice on Inheritance tax planning, and to something more productive with that £180k currently earning peanuts in a savings account.

Pollardi

My father has savings totalling £100k. His house is worth £225k.

This takes him to the inheritance tax threshold of £325k if he owned the whole house. But he does not.

My father's partner( they were not married) died 12 years ago and left her half of the house to her daughter. Her daughter was put onto the title deeds after she died. She therefore owns half of the house, but my father lives in it alone. On his death, he leaves his half to me, his daughter and I go onto the title deeds as a joint owner with her.

Question; on his death, would my fathers estate just be valued at £100k( his savings) and £112.5k ( half the value of the house), or would the whole value of the house count, for tax purposes?

He wants to gift me £50k now, but I'm worried about the tax implications.

Many thanks for any help.

Keep_pedalling

He is well under the threshold as only half the house belongs to him and that is what counts as far as his estate is concerned, so for IHT purposes there is advantage of him gifting you the money at this time, and he may need it in the future if for instance he needed get major house repairs carried out.

So unless you are in need of financial help, I would leave things as they are for now.

zygurat789

Keep_pedalling wrote: »

He is well under the threshold as only half the house belongs to him and that is what counts as far as his estate is concerned, so for IHT purposes there is no advantage of him gifting you the money at this time, and he may need it in the future if for instance he needed get major house repairs carried out.

So unless you are in need of financial help, I would leave things as they are for now.

I think that is supposed to be as above