inheritance tax - confussed

Keep_pedalling

As the house sounds like their only major asset, you parents are well below the joint nil rate band that currently stands at £650,000.

It would be foolish for them to transfer the property over to you and lose control of their major asset, and it could cost you in the long run as you could be hit by capital gains tax when it was eventually sold.

Keep_pedalling

davidmcn wrote: »

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.

Or if a surviving partner could not afford to keep up the payments after the first dies.

TBagpuss

As things stand at present, if thye died now, you wouldn't [ay any IHT on the hosue as even mortgage free, it's woth £400,000 and they each have an IHT alloawance of £325,000 so you would only pay tax if the value were over £650,000

Obviously if they have other substantial assets as well as the house then you may have to pay tax if the total value of the assets is over £650,000.

The mortgage and any other debts would have to be paid out of the estate before it is distributed and IHT is paid on the net estate, ater the debts are paid, not on the gross estate.

If you and your siblings inherited the house and then did not sell it for some time, you might become liable for CGT on any increase in value between when you inherit and when you ultimately sell, although again you each have a personal allowance.

Tax rules do change so of course may be diferent by the time this becomes relevant.
It is worth bearing in mind also that most things which people can do to reduce potential IHT liability have their downside - they have to have genbuinely given away assets or control over them, so from your parnets perspective, it may well make better sense for them to retain control over their own assets, even if this potnetially results in a slightly higher tax bill when they are gone, rather than trying to reduce tax which won't affect them as they won't be around by the time it is due, and risk putting themselves in a position where they can't do, or can't afford, something they want becuase they have given away or tied up assets.

aviii

thanks,


just to answer some of the questions:
the house is the only assets my folks have.


there is about £70k mortgage outstanding - I am pretty sure they will not pay this off when the past away.
finance was never there strong side.


so when they pass away - yes - the kids will be left with a debt etc - which my folks feel guilty about.
but, hey - its something that we will deal with.


I am not sure if this is true - a family friend say that we pay off the mortgage for our parents - then as our parents own the house they can sell for what every they want - ie they could sell it to us for a £1..


that would be too easy.. right..? else everyone would be doing it.

G_M

Selling the house to you for £1.00 would mean gifting you the other £399K.

See previous post regarding gifts.

You need to either do a lot of research into this complex area of law (wills & probate, inheritance tax planning etc) or get specialist advice.

start with

http://www.ageuk.org.uk/money-matters/money-management/inheritance-tax/

https://www.citizensadvice.org.uk/tax/inheritance-tax/inheritance-tax/

http://www.which.co.uk/money/tax/guides/inheritance-tax-explained/

davidmcn

aviii wrote: »

I am not sure if this is true - a family friend say that we pay off the mortgage for our parents - then as our parents own the house they can sell for what every they want - ie they could sell it to us for a £1..

that would be too easy.. right..? else everyone would be doing it.

Well, not everyone wants to buy their parents' house, especially if it involves finding the money to pay off their mortgage.

jellie

aviii wrote: »

so when they pass away - yes - the kids will be left with a debt etc - which my folks feel guilty about.
but, hey - its something that we will deal with.

But you won't be left with a debt - you'll be left with a property, the sale of which will more than cover the outstanding mortgage, leaving a large sum for you to inherit.

Hoploz

You say when the parents die the children will be left with a debt.

That is not correct. It is your parents debt, and it will be repaid out of their estate. Neither the debt, nor the house, will be the child's. The children will (probably) be beneficiaries of the balance left over once the debt is repaid.

Keep_pedalling

Is this actually a mortgage or did they raise some money through an equity release scheme?

If it is a interest free mortgage then there will be a date it needs to be paid off probably well before they die but if it was equity release then that may not be able to be paid off until the house is sold due to death or a move into a care home.

Do not even think about taking full ownership of the house, it is their only asset, and although it is nice to get an inheritance, they may very well need the money to make latter life comfortable and worth living.