Inheritance Tax Help!

thecrazy1_2

I am hoping someone can guide me before I find a financial advisor or similar.

My father is getting very confused and paranoid about money. His current situation is that he is 72 and owns a house jointly with his wife, although they live apart. he owns another house in his own name, which he rents out to a family member and he lives in a rented flat himself.


He wants to transfer the joint house into his wife's name only and then leave his sole house to her in his will and then any other assets will be divided between two children.


Both houses are worth about £500,000 - £600,000 and assets of maybe £80,000


I am confused about inheritance tax. I know they each have an allowance but would it benefit both of them if the joint house was in his wife's sole name or would that affect the inheritance tax allowance?


Also would this be a problem when she dies?


I did read an article about Nil rate band and resident nil rate band. just need a simplified explanation.

Thanks

poppy10_2

This might help
https://www.moneysavingexpert.com/family/inheritance-tax-planning-iht#married

Keep_pedalling

Do you mean both houses are worth £500-600 each or that is the combined value of both houses?

Tom99

[FONT=Verdana, sans-serif]Whatever your father leaves to his wife will be free from IHT (if they remain married) and she will also inherit and NRB and RNRB he does not use.[/FONT]
[FONT=Verdana, sans-serif]So using your figures there would be no IHT on the £80k and wife would have a NRB of £325K + £325K - £80K = £570k and a RNRB of £125k + £125k = £250k so a total of £820k.[/FONT]
[FONT=Verdana, sans-serif]However if they have been separated for over a year then CGT needs to be considered if 50% of a property he does not occupy is gifted to wife now.[/FONT]
[FONT=Verdana, sans-serif]If that is the case it may be better to make sure the jointly owned property is held as joint tenants, then that property will pass on your father's death to wife free of both CGT and IHT.[/FONT]

Thecrazy1

£500,000 - £600,000 each house

Keep_pedalling

Thecrazy1 wrote: »

£500,000 - £600,000 each house

In which case your parents joint estates will be in IHT territory but only on the second death, so transferring the house into single ownership does not help, although it will give your perants a fairer distribution of assets.

As all the major assets are tied up in property it is going to be difficult to lower the estate value without generating a CGT issue. The fact that he currently owns property but rents will result in a much higher tax bill if he is the second to die as his estate will not be able to claim the primary residence nil rate band.

The best things he can do to reduce any IHT is 1. Stay married, 2. Take up residence in the home he currently rents out, or move back in with his wife.

They will still have a potencial IHT concern, but I would treat that as excess money I could spend on making sure my old age is a comfortable one.

thecrazy1_2

Thanks. That helps a lot. Moving back into the property he owns is not an option for him, neither is moving back in with his wife. For health reasons he rents a flat by the sea and his daughter rents the house in London from him.


I guess it is the CGT which is the problem.