Mortgage with parents and Inheritance Tax

delluver

We have a mortgage with my parents who haven't written a will and if they die all of a sudden they will be well over the inheritance tax threshold. We own our house as tennants in common with them with everything written up. I presume we will be taxed 40% on their share that we haven't paid off if they die before the term's up or will my other 2 siblings share the tax on the 1/3 of what they inherit that we haven't paid back?

Thanks

margaretclare

Why haven't your parents made a will?

I am firmly of the belief that everyone, whatever their age or personal circumstances, should have a valid will in place, updated when necessary.

You say 'you presume'. You can't presume anything! Your parents need to take proper advice on this and to get a will written for each of them.

You're assuming (or presuming!) that you and your siblings will inherit your parents' estate. Your parents may possibly have other ideas, but in any case, they do need to make their wills ASAP.

One of the experts who posts on here is called localhero, and I'm sure he will put you straight about a few things.

Margaret

Andy_L

No you will be taxed 40% on the value of the estate above £300k. Since both your parents have that allowance the equity in the house would have to be worth over £1.5mill for you to start paying IHT (assuming all 5 of you are tennents in common)

But has Margart says they need to write wills.

delluver

They haven't made a will as their money will be split in 3 to us 3 kids. My partner and I's house is split 3 ways in common, him, me and them.

CLAPTON

You need to be very precise about this:

Are you saying the house in which you live is owned by four people as tennents in common.. you, your OH, your mother and your father?
and you have two siblings.
Or are they living in it and you somewhere else or what?

If one of your parents dies their estate will be divided by law unless they have a will.

So currently on the first death after tax, debts, costs etc then
the first £125k goes to the remaining spouse (assuming they are married)
of the rest, half is distributed amoung the children (i.e. a three way split)
and the other half is held in trust for the children but the spouse has a life time access to the interest).

On the second death, the person will presumably own quarter of the house plus the 125,000 plus any other money they hold... so the IHT will depend upon how much this is.
The residue will then be split three ways.

Without knowing how much each of their estate will be its impossible to estimate the IHT.

Time for you to do some serious reading.

delluver

My Partner and I live in this property with our child. We are tennants in common with my parents, not my siblings.

At the moment their share is 90k. They own over £600k in estate.

margaretclare

delluver wrote: »

They haven't made a will as their money will be split in 3 to us 3 kids.

Well, assuming they don't both die at the same time (unlikely) and they die intestate i.e. without having made a will, then, as Clapton says, there are rules of inheritance and the surviving spouse gets the first £125K. So you cannot assume that the estate of both of them will come to the 3 of you.

Anyone who wants their estate to go specifically in the way that you suggest, needs to get it written into a will.

Are you suggesting that whichever parent dies first should leave his/her estate to the 3 siblings and nothing at all to the surviving spouse? Not a very nice thought.

It seems that your parents have not thought this through properly, and they should do so without delay.

Margaret

CLAPTON

If their estate is evenly divided between them and asssuming this house is include in the 600k and there are no joint accounts then each own 300k.

As there is no will then :

On the first death no IHT is payable because the IHT allowance is 300k.
So the serviving partner inherits 125k of the estate plus the interest for life on a further 82.5k (half of 175k), the three offspring inherit 82.5K approx (or 27.5K each).

In principle if there is insufficient actual money to pay out the 27.5k to the siblings then they could enforce the sale of the house.

On the second death their estate will be 300k plus the inherited 125k = 425k so IHT will be payable on the 125k (at 40% = £50k) leaving net 365k split three ways.

The siblings again could force the sale of the house if there is insufficient cash to pay their share.

But this is a complicated situation so you really need to discuss this with your siblings and parents. It may or may not be benefical for them to draw up a will depending upon whether they are happy with this outcome.

Do some research on this yourself.

delluver

margaretclare wrote: »

Well, assuming they don't both die at the same time (unlikely) and they die intestate i.e. without having made a will, then, as Clapton says, there are rules of inheritance and the surviving spouse gets the first £125K. So you cannot assume that the estate of both of them will come to the 3 of you.

Anyone who wants their estate to go specifically in the way that you suggest, needs to get it written into a will.

Are you suggesting that whichever parent dies first should leave his/her estate to the 3 siblings and nothing at all to the surviving spouse? Not a very nice thought.

It seems that your parents have not thought this through properly, and they should do so without delay.

Margaret

I did mean if they died both at once. No, they haven't thought it through and can be very lazy when it comes to things like this!

delluver

CLAPTON wrote: »

If their estate is evenly divided between them and asssuming this house is include in the 600k and there are no joint accounts then each own 300k.

As there is no will then :

On the first death no IHT is payable because the IHT allowance is 300k.
So the serviving partner inherits 125k of the estate plus the interest for life on a further 82.5k (half of 175k), the three offspring inherit 82.5K approx (or 27.5K each).

In principle if there is insufficient actual money to pay out the 27.5k to the siblings then they could enforce the sale of the house.

On the second death their estate will be 300k plus the inherited 125k = 425k so IHT will be payable on the 125k (at 40% = £50k) leaving net 365k split three ways.

The siblings again could force the sale of the house if there is insufficient cash to pay their share.

But this is a complicated situation so you really need to discuss this with your siblings and parents. It may or may not be benefical for them to draw up a will depending upon whether they are happy with this outcome.

Do some research on this yourself.

I would settle up with my siblings and buy out whatever was left to them as I'd be able to afford this with inheritance... but will it be taxed, ^600k not including this £90k we are paying off.

CLAPTON

delluver wrote: »

I would settle up with my siblings and buy out whatever was left to them as I'd be able to afford this with inheritance... but will it be taxed, ^600k not including this £90k we are paying off.

Sorry i dont understand your question.. I've already explained what tax will be payable on each death (I've excluded the possibility that they die at the same time). The tax comes from the estate before distribute of the inheritance.