IHT and In Laws

jtotheb

My in-laws are carrying out some IHT planning at present and I’m after some advice as to whether this is a valid approach.

We’re looking to buy a new house and my in-laws would like to live in our current house. If they sell their current house, can they gift us the proceeds of that sale in order that we can then buy a new property? The plan would then be that they live in our current house and pay us an appropriate amount of rent.

I appreciate that we would then own 2 x properties (and be subject to the 3% surcharge on the new property we buy).

Is there anything else we need to consider (obviously the 7 year rule would apply for IHT on the gift)?

Thanks in advance

Tom99

[FONT=Verdana, sans-serif]That seems a very bad deal for your in-laws. With a house they will be able to leave £1m free of inheritance tax in a couple of years.

[/FONT] [FONT=Verdana, sans-serif]If they have other assets apart from the house which take their current estate way over £1m it might be sensible to gift some of those other assets now, but not the house.[/FONT]

Linton

Have the in-laws got sufficient income and savings to pay the rent for the rest of their lives? Are they likely to be reliant on any benefits? What happens if you go bankrupt, divorce or die and the house needs to be sold? Presumably they could be faced with looking for rental accommodation in their late old age. What happens if they become disabled and their home needs to be adapted? What happens if they want to or have to move elsewhere? How old are they?

Seems to me to me that unless they are very wealthy this scheme will involve them taking unnecessary risks. And if they are very wealthy they could give you some of that wealth instead rather than play house games.

Plus on your side you will be paying income tax on the rent and have to follow the legal requirements of being a landlord.

So a bad idea for everyone concerned in my view.

xylophone

Why don't your in laws buy your house, enabling you to move?

Keep_pedalling

You have another thread with a similar idiotic idea. In that one you say they are cash rich, so why the hell dont they simply give some of their liquid assets away.

jtotheb

They have other two other rental properties that they could sell if necessary (owned outright) plus about £250k in isas and also shares. They live off the income of the rental properties plus pensions.

My FIL is one of those people that are great at getting advice but very poor at acting on it. He!!!8217;s been discussing IHT for about 20 years!

They are in their 70s.

Finally, he is obsessed with our house which he sees as his dream house that they could live in for the rest of their lives. Yes, they could just buy our house but he would have to pay about £70k in SDLT.

Tom99

jtotheb wrote: »

Finally, he is obsessed with our house which he sees as his dream house that they could live in for the rest of their lives. Yes, they could just buy our house but he would have to pay about £70k in SDLT.

That makes your house worth about £1.25m, is that about right?

kidmugsy

jtotheb wrote: »

they could just buy our house but he would have to pay about £70k in SDLT.

That's peanuts compared to the potential cost of half-baked DIY IHT planning.

jtotheb

Tom99 wrote: »

That makes your house worth about £1.25m, is that about right?

About £1M. He would have to pay the 3% surcharge if he bought our house due to other properties he owns.

Tom99

jtotheb wrote: »

About £1M. He would have to pay the 3% surcharge if he bought our house due to other properties he owns.

But no extra 3% if they sell the current home to buy yours.

Keep_pedalling

Sounds like you are also well in to IHT territory, so any gifting your in laws do should probably skip a generation.

There comes a point where instead of continuing to accumulate wealth, you should start to dispose of it, not only through gifting but by being generous to your selves. IHT is good thing if it prompts people into making that change, but lots of people just cannot change old habits.

Keep enough back to see you comfortably through your dotage, the rest spend or give away,