House from parents

becmarv

Hi all,

Sincere apologies if this is the wrong place to put this post but I am lost of where it should go.

My partners mother bought her house 25 years ago, when she bought the house it was less than £100,000 (how lovely) and it's now gone up to £450,000 due to London expansion and the building of the cross rail.

He is her only child and it is just the two of them, she has said that she has left the house to him in her will as the mortgage is all paid off (yippee).

What my partner and his mother don't realise however is inheritance tax will require a large sum of money to be paid.

What we want to know is firstly how much is he looking to pay for the house?

How does this need to be paid, is it one lump sum or can it be like a monthly direct debit?

We plan to buy our own house and use his family home as a supplementary income and private rent, if not of course we will sell the home, but my partner is fearful he will have to pay roughly £80,000 for the house and this just wouldn't be something we could afford.

What are the ways around this?

Of course these are the values now, his mother is not of ill health and we haven't bought our house yet so we aren't worried about it happening in the next 10 years, but we don't want a shock when it does if that makes sense.

Thanks in advance for your help.

kingstreet

How much is he looking to pay for the house?

This doesn't fit with the rest of the post. Please clarify your plans.

becmarv

I mean how much inheritance tax is he likely needing to pay.

The mortgage is paid off but if she leaves it to him in her will he will incur inheritance tax as the house is over the threshold value.

csgohan4

Nice article on here

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

davidmcn

becmarv wrote: »

I mean how much inheritance tax is he likely needing to pay.

The mortgage is paid off but if she leaves it to him in her will he will incur inheritance tax as the house is over the threshold value.

It's only a problem if he actually needs to keep the house. If he doesn't want to keep the house (or can't afford to pay the IHT) then he sells it. There would need to be IHT paid in the first place to get probate but you can get bridging loans for that.

Also bear in mind that people tend to have sold their house before they die anyway (to downsize / go into nursing home etc) so this may be irrelevant when the time comes.

becmarv

Ideally we didn't want to sell the house straight away and his mother certainly doesn't either.

Depending on the home we buy and other factors we may want to live in it ourselves or private rent the house.

kingstreet

The current nil rate band is £325,000 and anything over that is taxed at 40% but the estate is all her assets not just the property. The estate pays the tax, not the beneficiary.

Any cash assets could/would be used to settle the Inheritance Tax bill prior to the distribution to any beneficiaries.

amnblog

If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren, your threshold will increase to £425,000

becmarv

The threshold will be £425,000 so at the current price it will be 40% on the £25,000 difference.

So I am working that out as £10,000 to pay. But you've lost me on the estates bit

Pixie5740

becmarv wrote: »

The threshold will be £425,000 so at the current price it will be 40% on the £25,000 difference.

So I am working that out as £10,000 to pay. But you've lost me on the estates bit

If your MIL has a substantial estate then she really ought to seek professional advice about tax planning instead of attempting to DIY it.

Your MIL appears to be the legal owner but who is the beneficial owner? That's important to establish in terms of SDLT for you and letting the property.

kingstreet

All of your assets, property, cash, chattels become your estate.

Inheritance tax is based on the total value of your estate and is paid by the estate, not by the beneficiaries.

So, when someone dies their Executor has to add it all up, deal with HMRC then they settle the residue (what's left) on the beneficiaries.

It is not as simple as your boyfriend being handed a £450k house and paying the Inheritance Tax on that himself.