Borrowing money & Inheritance Tax

troubleinparadise

VfM4meplse wrote: »

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....

I appreciate that, and it wasn't being suggested for today, but perhaps for the future once things have settled a little.

Levi_Khan

We're all going to Loch Lomond in July, staying in very expensive log cabins with saunas and hot tubs, my Dad wanted to go there for his 70th birthday and arranged all this after his treatment for prostate cancer was successful.

We'll be scattering his ashes up there as he loved the peace and quiet

But it will be a party as me and my wife, my brother and his wife, their 6 kids and the rest of the family in Scotland will be there

Malthusian

I echo other posters that have said there is little to stop her simply making gifts. It is worth remembering that houses go up in value and the nil rate band does not, given the figures we are talking about... but the introduction of the residential nil rate band probably eliminates any concern there. Especially if she is very elderly / in poor health as post #5 suggests.

Just to answer a couple of questions for completeness, although the answers are largely moot:

Levi_Khan wrote: »

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?

If she lent you £100,000 to pay off your mortgage then £100,000 would be removed from her estate and instead she would have an asset worth £100,000 - the loan - added to it. As and when you paid it back the same happens in reverse. So no effect on her assets.

You could perfectly legitimately sell part of your house to her for £100,000, but then instead of £100,000 in cash she would have a share in someone else's house worth £100,000. Again no change to her overall assets. This could cause all sorts of issues in paperwork, tax and potential family strife so would likely be a bad idea.

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.

None of what you suggest is even close to being illegal, it just wouldn't have the effect you were hoping for. But due to the size of her assets you have little reason to go down this path anyway.

da_rule

You say your mum isn't 100% so she may not even be legally able to enter into a deed of variation. Also, as everyone else has said she will likely be under the nil rate band so it will probably not be a concern if she just makes the gifts to you herself. They will be chargeable to inheritance tax for 7 years from the date they are made, but after 3 years they are subject to tapering relief so the amount that is chargable is reduced by 20% every year.

Malthusian

da_rule wrote: »

You say your mum isn't 100% so she may not even be legally able to enter into a deed of variation.

Not based on anything the OP has said. She would only be unable to enter into a DoV if she lacked capacity. The OP has described her as grieving, not in great health and possibly with limited knowledge of finance and thus confused by contradictory advice from people who may not know much more than she does. But none of that approaches a lack of capacity.

Also, as everyone else has said she will likely be under the nil rate band so it will probably not be a concern if she just makes the gifts to you herself. They will be chargeable to inheritance tax for 7 years from the date they are made, but after 3 years they are subject to tapering relief so the amount that is chargable is reduced by 20% every year.

If I had a pound for every time someone got this wrong I could give it all to a relative and be one of the few people to actually be potentially subject to taper relief.

Taper relief only applies if your total gifts in the last 7 years are more than £325,000. Otherwise, they fall within the nil rate band - your recent gifts sit underneath your assets in the calculation - so there is no taper relief because HMRC says there is no tax to pay on them. Even if your total gifts are over £325,000 you only get taper relief on the excess over that.

It is therefore very rare for taper relief to apply on gifts - only for very rich people who have made very large gifts - and that is not going to be the case for the OP's mum.

If the OP's mother inherited her husband's entire estate then she also inherited his nil rate band, so for £325,000 read £650,000.