Father's flat - mitigating IHT

Okrib

Been browsing for a while, and now in need of some advice, so hoping people can offer help.



My father owns a flat worth circa £1m in London, with a small mortgage outstanding. He wants me to take over this mortgage to make things easier for him financially (which I am fine with). He wants to mitigate IHT as much as possible but also wants to remain living in the flat. I am an only child and my mother died almost 10 years ago. I am the currently the sole beneficiary of his will – though I now have two children and he might amend it as I believe it is efficient to leave bequests when you skip a generation?

Would the best solution be for him to gift me a percentage of the flat up to the nil rate band? Would that enable me to get a mortgage on it, and thus pay off the balance of his mortgage? What are the options in terms of IHT mitigation with him continuing to live in the flat?

Thanks for any help!

xylophone

http://findlaw.co.uk/law/tax/taxes/inheritance_tax_taxes/9485.html

https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

http://www.mills-reeve.com/new-inheritance-tax-allowance-for-the-family-home--as-good-as-it-sounds--ellie-milner-09-01-2015/

With regard to your "taking over the mortgage". do you mean that your father wishes you to give him the money to pay the mortgage or provide the money in a lump sum to pay off the mortgage?

Either way, this should be structured as a loan repayable from your father's estate?

Your father should take professional advice.

http://www.step.org/member-directory

kidmugsy

"What are the options in terms of IHT mitigation with him continuing to live in the flat?" He'd have to pay you a realistic rent for the part of the flat you owned, otherwise it'd be a Gift with Reservation - so your lawyer is likely to tell you.

Avoiding IHT on financial assets is a lot easier than avoiding it on owner-occupied property. Note: if you lend money to your father to let him clear the mortgage, you might like to agree with him that you'll take a charge over the property. That way it's a secured loan, which is a good idea if there's a lot of money involved. Or if there's a risk that your father might get old and muddled.

Keep_pedalling

Sounds like your father is asset rich but cash poor, so I'm assuming his total estate is around £1M, in which case when the new property allowance comes in next year there will be little IHT to pay (this assumes you parents never divorced, and you mother's full nil rate allowance was passed to your father)

The only real way for your father to improve both his finances and any IHT liability is to cash in has one big asset and spend some of it.