Borrowing money & Inheritance Tax

Levi_Khan

Hi All,

I hope this is the right place to ask this question.

Last September my father passed away from liver and pancreatic cancer, he was given 2 weeks to live but lasted 3 (although the last week was in a hospice and he wasn't 'with it')

My parents managed to sort out all the funeral arrangements and also sort out his financials the best they could in the short space of time.

My Dad left my mother close to £525k, this includes the house which is worth around £300k

My Dad didn’t think about changing his will at the time but myself and my brother don’t have a problem with that as it all goes out mother.

What he did want to do was this:

1. Set up trust funds for all his grandchildren, 6 in total (All 6 are from my brother)
2. Settle my mortgage without telling my wife (he loved surprising people like that)
3. Make sure my mother has enough income to live on.

Now point 1 is in hand and is being done as I type, point 3 has already been done and my mother has enough money coming for her to live very comfortably for the rest of her days (even though she misses him terrible as do we all)

But point 2 is something we cannot seem to get round due to the Inheritance Tax issue.

We know my mother can only 'gift' 3k a year but is there a way we could get round this?

Could we 'borrow' the money from her and arrange some sort of payment scheme which would complement her income?

Could she legitimately purchase part of our house for the outstanding mortgage amount?

Does anyone have any ideas?

I hope this doesn't sound illegal as it is the last thing my Dad would want this as he was an honest, hardworking man and no one wants to disappoint him or his memory.

Can anyone suggest anything?

Thank you all so much in advance

Linton

It would be cleaner to use a Deed of Variation. If all people adversely affected agree (and you mother would seem to be the only person in that category) a will can be changed up to 2 years after the death. So you can change your fathers will to pass the money directly to those people who your mother wants the money to go without affecting your mothers own tax situation in any way. See here

PS If the £525,000 including house represents your mothers total wealth the £3K gifts rule wouldnt come in as she her estate wouldnt be liable for inheritance tax anyway.

Suggest that for these sums of money you or your mother should be getting professional advice.

securityguy

Unless your mother has a further £125k in her own name from prior to your father's death then your mother's estate isn't subject to IHT if she dies in the next four months (Value less than £650k). That number rises hugely in April, transfer of family house to children or grandchild has a £1m exemption). So why are you worrying about this?

Your mother can probably give away what she likes, and can almost certainly do so after April.

Linton correctly says that a deed of variation might be needed in some circumstances, but given the values involved, it's hard to see what the benefit would be.

Keep_pedalling

There is no £3k limit on gifts, you can give away what you like. The only people this rule effects are those who fail to live 7 years after making the gift and whose estate falls into IHT territory.

Whether you need to do a deed of variation or not depends on the value of your parents combined net worth.

Levi_Khan

Thanks for your reply but my it would be a miracle if my mother lasted another 7 years!

I think that's what she is worried about but we keep telling her not to worry about it since she wont be around....

securityguy

But from the facts you have posted, her estate isn't liable for IHT anyway, so why is she worried?

Levi_Khan

She's been told so many different things by so many different people I think she's just getting herself confused....

Plus she's not 100% at the moment either, i'll let her know I talked to the people that know what's happening!

Thanks again

securityguy

For a married couple, both of whom die before April 2017, IHT only arises if the estate left by the second to die is worth in excess of £650k.

After April 2017, that increases significantly if the main asset is a house and the beneficiaries are children or grandchildren. Details here: http://thetimebank.co.uk/blog/2015/12/2017-iht-rule-changes/

TBagpuss

As others have said, this is unlikely to be an issue in your mum's case but if she is worried, then she can take advice from a solicitor. Look for one who is a member of STEP.

It would be possible to do a deed of variation which effectively amends the will, so it would be treated as though your dad had set up the trusts and and left you a lump sum to clear your mortgage.

It doesn't look as though that would actually be necessary but it it would help your mum to worry less it might be worth it for her peace of mind!

troubleinparadise

If you think it would be a miracle if your mother lived for another 7 years, why don't you tell her to stop worrying about the very unlikely event of having to pay IHT given the outline of her assets you've given, and just get on and enjoy her family.

She could throw big family parties, or take you all away on some lovely holidays, if she wants to reduce her capital, and then you could all have lovely memories of your time with her.

VfM4meplse

troubleinparadise wrote: »

She could throw big family parties, or take you all away on some lovely holidays, if she wants to reduce her capital, and then you could all have lovely memories of your time with her.

Its been all of 5 months and the poor family is still grieving. I daresay it might not be party time for a while yet....