Inheritance tax avoidance options - any advice ?

starlightscamper

Hi,
Following the death of my father in January, my mother (aged 71 & in good health) has inherited everything, & I am in line to inherit everything from her when she passes away.

The worrying thing for us, is that I am currently looking at a big inheritance tax bill at that point, so we need to do something ASAP to minimise this, if possible.

Mum owns her home (value £350,000), a rental property (value approx (£350,000), a property in the process of being renovated which was left to her by her Uncle (value once complete approx. £120,000), and has approx £100,000 in the bank.

Mum is already gifting me £3000 per tax year, and is considering turning over the rental property to me (in the hope that she lives for 7 years plus), but can anyone advise what other options we have to avoid the IHT bill in future (mum is very frugal & doesn’t like spending!) ??

Could she buy a car or caravan & put them in my name, or would this result in tax implications for me or her??
Should she pay for holidays etc for us (whether she goes with myself & my partner or not), just to use up some of her money??

Thanks in advance for any help or advice you could offer us ! Feels like time is ticking, & we need to do something (my dad wanted to avoid paying tax at all costs...he has, but he’s left a big issue for me !!!128516;)!

le_loup

Clearly this is worrying you to distraction - give lots to charity - perhaps one that cares for poor people - then you can sleep peacefully.

kidmugsy

starlightscamper wrote: »

Following the death of my father in January, my mother (aged 71 & in good health) has inherited everything

Mum owns ... a property in the process of being renovated which was left to her by her Uncle

Your mother might like to use an Instrument of Variation which effectively modifies your father's will and redirects part of his wealth to you (or perhaps to a Discretionary Trust where you and your mother would both be beneficiaries, and very likely both be Trustees).

She could also do one for your Uncle's will, if she can carry it off within two years of his death.

By the way, I am at a loss to see why you are facing a big IHT bill. Can you explain?

getmore4less

You need to explain why you think there is a big bill on less than £1m

xylophone

It appears that your father left all his estate to your mother?

https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

Your mother's estate would potentially be able to use his IHT allowance, giving (currently) a tax free allowance of £650,000.

In addition to this, if she is leaving the family home to you, the estate will benefit from your father's and her family home allowance.

https://www.which.co.uk/money/tax/inheritance-tax/guides/inheritance-tax-for-married-couples-and-civil-partners

Your mother can also make regular gifts from income.

https://www.howardkennedy.com/media/504667/gifts-out-of-income.pdf

https://moneytothemasses.com/tax/inheritance-tax/the-10-best-ways-to-avoid-inheritance-tax

Your mother can take specialist advice from an IFA.

https://www.unbiased.co.uk/life/family-matters/inheritance-planning/

She can take advice concerning her will.

https://www.step.org/about-us

noh

As others have already said. What big tax bill?
In the circumstances you have stated and if the value of the estate is as stated then the potential IHT would be less than £8000 if your mother died this tax year and left everything to you. It would be zero if she died next tax year.

Keep_pedalling

Turning over the rental property could be a mistake as that could land her with a capital gains tax bill to pay.

Although her estate is more than likely to pay little or no IHT, she really should cut that risk by stop being so frugal and splashing out a bit more on herself.

agrinnall

You aren't looking at any sort of inheritance tax bill (big or small) because it's not paid by the beneficiaries, it's paid by the estate before disbursement.

starlightscamper

Thanks everyone for your comments & help / advice.

From everything we have read online prior to me posting my original message, it appears that when my mother passes away, leaving her estate to me, I would only have the £325,000 tax free allowance, and anything above this would be taxed at 40%. Am I wrong?

As for not wanting to lose 40% of the estate, & me sounding greedy to some of you who have commented ....this is because my father has worked extremely hard all of his life (physically), & was fighting Cancer for the past 10 years of his life, so was unable to enjoy the money he accumulated. He went without for most of his life to get to where he was in a good financial position, & he hated the idea of paying tax (or me having to pay out of his estate!). I don!!!8217;t want the money / property....I just want my dad back with me (something that no amount of money can buy!).

My mum wants to do something now to help avoid IHT, so if anyone has any suggestions, I would be grateful to hear them.

Thanks in advance

starlightscamper

Keep_pedalling wrote: »

Turning over the rental property could be a mistake as that could land her with a capital gains tax bill to pay.

Although her estate is more than likely to pay little or no IHT, she really should cut that risk by stop being so frugal and splashing out a bit more on herself.

Hi,
Thanks for your response!
Please could you explain in more detail why mum would end up with a capital gains tax bill if she were to turn the rental property over to me? Thanks !

starlightscamper

getmore4less wrote: »

You need to explain why you think there is a big bill on less than £1m

Hi,
Thanks for your reply.
From what I have read online, I understood that I only get £325,00 tax free, then there’s 40% to pay on anything over this.
Mum used dads tax free allowance to avoid paying IHT but I would only have my own allowance wouldn’t I ?
Any further advice / clarification would be greatly appreciated!
Thanks !