inheritance tax - confussed

aviii

my parents have made a will leaving the house to me and my sister when they both decease.
The house is around £400k.

there will likely still be an outstanding mortgage on it that me and my sister will have to payoff.

will it be a case that we will have to pay the mortgage and an Inheritance tax on the property?
the market value of the property although the house has not been paid off.

They have been told that whether they paid off the mortgage or not, the kids will not pay inheritance tax.

i am under the impression that any inheritance over £250k is subjected to being taxed.

we are looking at options:
- should we help our parents pay off the mortgage, then get them to sign the property over to us, while they are alive - would this make any difference?

We have no intention of selling the house, as our parents worked hard to have this house.

AdrianC

aviii wrote: »

i am under the impression that any inheritance over £250k is subjected to being taxed.

Currently £325k per person, and rising each year. Last year's budget said that it'll be £500k per person by 2020.

If you have a £400k property, but a £200k mortgage, that's £200k equity - which is what counts.

We have no intention of selling the house, as our parents worked hard to have this house.

Which is all very well and good - they've lived there and enjoyed it - but they won't be using it any more, will they...?

Either way, it doesn't matter - IHT is on the value of the property at the date of death, whether you sell it or keep it to live in or keep it to rent out or keep it and open it as a museum to your parents.

theartfullodger

To help us answer this, could you please let us know what the inheritance & other relevant tax regimes will be when they eventually, sadly, each die?

metamatic

Isn't the house exempt from inheritance tax now?

I'm sure the rules on this have changed recently.

Also, I believe the limit is actually 325K and not 200K.

davidmcn

Unless your parents' demises are thought to be imminent I'm not sure it is useful to do much planning based on current tax rules.

AdrianC

aviii wrote: »

we are looking at options:
- should we help our parents pay off the mortgage, then get them to sign the property over to us, while they are alive - would this make any difference?

Oh, and as far as this bit goes - currently IHT has a sliding scale reduction for gifts over 7yrs. But if they need residential care, it may very well be deemed deprivation of assets.

Bimmermad

From what I know there is no inheritance tax to be paid if this property will be your primary accommodation. Also if your parents have gifted the property to you and they go on to live 7 years after giving the house in your name then you will also not be required to pay any inheritance tax.

G_M

Bimmermad wrote: »

From what I know there is no inheritance tax to be paid if this property will be your primary accommodation. Also if your parents have gifted the property to you and they go on to live 7 years after giving the house in your name then you will also not be required to pay any inheritance tax.

What does "From what I know" mean?

Either you know (I don't think you do), or you don't (so what's the point?)

The proposed 'primary home' rules
a) don't apply till 2017
b) don't exempt the whole value of the home - only the 1st £175K

Gifting the home and then surviving 7 years would not exempt the property from inheritance tax if the parents continued to live in it - that would be a 'gift with reservation' (ie a clear attempt to avoid IHT)

Do the wills say that

a) you inherit the property free of debts/mortgage? ie the Executer must pay off the mortgage first out of other assets in the estate befoe passing over the property mortgage-free?
or

b) you inherit the property? ie as it is, with a mortgage attached to it?

This needs to be clearly indicated in the will. I hope they had a proper solicitor draw up the will - it's easy to get this (and other things) wrong.

As regards Inheritance tax - are there any other assets? Car? Boat? Plane? Jewelery? bank account? Death insurance? Investments? Premium bonds?

all of the above, and more, could push the value of the estates up over the current 9or future) inhertance tax allowance limits.

-taff

aviii wrote: »

there will likely still be an outstanding mortgage on it that me and my sister will have to payoff..

Why do they not have life insurance? It's relatively cheap and then when they die, no mortgage......

silvercar

-taff wrote: »

Why do they not have life insurance? It's relatively cheap and then when they die, no mortgage......

It is only "relatively cheap" if you are young. Take out life insurance when you are 80+ and you will find it expensive. Even at 70+ it is not going to be cheap.

davidmcn

-taff wrote: »

Why do they not have life insurance? It's relatively cheap and then when they die, no mortgage......

Maybe they do. Only really a need for it if somebody else lives in the house (not clear from the OP whether they do). Otherwise just sell the house to clear the mortgage.