Help please with IHT question and property

[Deleted User]

A bit of background: due to a chronic health condition I have to work part time, relying on a civil service pension taken much earlier than planned to bridge the financial gap. I’m also 57, single and have a large mortgage.

Among my considerations for changing my work pattern (as well as my health) were that my mum is disabled, has dementia and is now 88 and living at home with my dad. Dad has a heart condition, arthritis and multiple other problems and is 87 but, bless ‘em, they keep lurching on. I am a part time carer for them both and act as taxi driver for multiple health and other appointments for them.

Dad has told me that on their deaths I will inherit a sum of £600k (after other legacies and IHT), which is wonderful. However, my current home has become unsustainable due to problems with neighbours. My neighbours make my life hell with constant noise and aggression, but that’s a separate issue altogether.

Now, my question... I’m thinking of asking my dad to help me buy a house. For me, the benefits would be: less noise, less outgoings, better quality of life = better health, financially freer, so I could consider giving up work and spending more time helping my parents.

What do I need to consider before putting this to my dad? How would this affect IHT? Would my IHT on, say a £300k advance on my inheritance reduce over time, ie, if my parents are still here in 2, 3, ...7 years would my liability reduce?

And if my dad wanted to own the property as part of his estate (is this possible?) how would this work?

What else should I be thinking about?

My dad is still very financially savvy, so I’d have to put a robust business case to him!

As an aside, I have a brother who does quite literally nothing for my parents and never has done, but will also inherit £600k on their death.

Yorkshireman99

Deleted_User wrote: »

A bit of background: due to a chronic health condition I have to work part time, relying on a civil service pension taken much earlier than planned to bridge the financial gap. I’m also 57, single and have a large mortgage.

Among my considerations for changing my work pattern (as well as my health) were that my mum is disabled, has dementia and is now 88 and living at home with my dad. Dad has a heart condition, arthritis and multiple other problems and is 87 but, bless ‘em, they keep lurching on. I am a part time carer for them both and act as taxi driver for multiple health and other appointments for them.

Dad has told me that on their deaths I will inherit a sum of £600k (after other legacies and IHT), which is wonderful. However, my current home has become unsustainable due to problems with neighbours. My neighbours make my life hell with constant noise and aggression, but that’s a separate issue altogether.

Now, my question... I’m thinking of asking my dad to help me buy a house. For me, the benefits would be: less noise, less outgoings, better quality of life = better health, financially freer, so I could consider giving up work and spending more time helping my parents.

What do I need to consider before putting this to my dad? How would this affect IHT? Would my IHT on, say a £300k advance on my inheritance reduce over time, ie, if my parents are still here in 2, 3, ...7 years would my liability reduce?

And if my dad wanted to own the property as part of his estate (is this possible?) how would this work?

What else should I be thinking about?

My dad is still very financially savvy, so I’d have to put a robust business case to him!

As an aside, I have a brother who does quite literally nothing for my parents and never has done, but will also inherit £600k on their death.

There are various possibilities. You and your dad need to take paid for profeesional advice from a specialist in IHT planning. Any other suggestions from here will be worth what you pay for them!

p00hsticks

Deleted_User wrote: »

What do I need to consider before putting this to my dad?

You need to think about where that inheritance currently is. Although your father may be able to leave you and your brother £1.2 million between you when he dies, if that sum mainly comes from the value of the family home that he and your mother are living in, or various life policies etc then he simply won't have the cash available to give to you while he is living.

getmore4less

Would moving in with them be an option?

Tom99

[FONT=Verdana, sans-serif]If a lot of the £1.2m+ assets are not tied up in the family home then it is worth looking at IHT planning. Any gift below the Nil Rate Band would still be taxed at 40% for the next 7 years.[/FONT]

nom_de_plume

Deleted_User wrote: »

What do I need to consider before putting this to my dad? How would this affect IHT? Would my IHT on, say a £300k advance on my inheritance reduce over time, ie, if my parents are still here in 2, 3, ...7 years would my liability reduce?

And if my dad wanted to own the property as part of his estate (is this possible?) how would this work?

Inheritance tax liability would reduce over the years to zero after 7 years on a gift. He would also have to sign a document that the sums are a gift with the solicitor as a part of the purchase process. See this link for current HMRC rules on gifts.

If he were to own the property and let you reside there, it would form a part of his estate and be 100% included in any IHT calculations.

getmore4less

nom_de_plume wrote: »

Inheritance tax liability would reduce over the years to zero after 7 years on a gift. He would also have to sign a document that the sums are a gift with the solicitor as a part of the purchase process. See this link for current HMRC rules on gifts.

If he were to own the property and let you reside there, it would form a part of his estate and be 100% included in any IHT calculations.

No taper relief on a £300k gift

Tom99

getmore4less wrote: »

No taper relief on a £300k gift

That's correct, taper relief only applies to the amount of gifts over the Nil Rate Band (eg £325K) gifted between 3 and 7 years before death.

Gers

Tom99 wrote: »

That's correct, taper relief only applies to the amount of gifts over the Nil Rate Band (eg £325K) gifted between 3 and 7 years before death.

https://www.gov.uk/inheritance-tax/gifts

People you give gifts to will be charged Inheritance Tax if you give away more than £325,000 in the 7 years before your death.

The 7 year rule

If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before you die.

Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.
Years between gift and death Tax paid
less than 3 40%
3 to 4 32%
4 to 5 24%
5 to 6 16%
6 to 7 8%
7 or more 0%

I was the recieptent of PET monies of under £325K, all done and documented via an IFA.

Tom99

Gers wrote: »

I was the recieptent of PET monies of under £325K, all done and documented via an IFA.

[FONT=Verdana, sans-serif]In that case if you received your gift within 7 years of death it will all be used to reduce the Nil Rate Band and will not be subject to taper relief.

[/FONT] [FONT=Verdana, sans-serif]For example a gift of £100k 6 years before will reduce the NRB from £325k to £225k and therefore push an extra £100k of the estate at death into the 40% tax rate. Effectively then your gift of £100k will be taxed at 40% not the 8% you might think by looking at that table.

[/FONT] [FONT=Verdana, sans-serif]That .gov guidance note is extremely misleading because it fails to mention that gifts up to £325k are set against the Nil Rate Band.[/FONT]

Keep_pedalling

Gers wrote: »

https://www.gov.uk/inheritance-tax/gifts



The 7 year rule

If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before you die.

Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.
Years between gift and death Tax paid
less than 3 40%
3 to 4 32%
4 to 5 24%
5 to 6 16%
6 to 7 8%
7 or more 0%

I was the recieptent of PET monies of under £325K, all done and documented via an IFA.

Unfortunately that HMRC link is confusing, taper release only applies to any part of gifts over the nil rate band, so in reality it apply to very few gifts. If you do gift significant amounts and providing you are not to ancient and in good health you can cover an untimely death through a term insurance policy made in trust to your benificiaries. This can be a cheap option for a couple to pay out on th3 second death only.