Inheritance tax situation - advise needed :)

qprjames

This is my first post, so my apologies if I have posted in in the wrong section.
I want to check on an Inheritance tax situation my family has. I'm ignoring the 7 year rule for the moment and just focusing on this moment in time right now.

My father passed away a few years ago, and left all his money AND the family house to my mum.
So now my mum has the house (which is valued at 1,000,000 - no mortgage) and she has a total of 300,000 in money (shares).
so I assume therefore that (assuming the full 500,000 allowance was passed onto my mum during probate) my mums allowance would then be 1 million? therefore 40% inheritance tax payable on the remaining 300,000 share money?
Is this correct?

Further question - she has no wish to keep hold of this remaining 300,000 and would rather the kids don't get hit with the eventual 40% tax - so she wants to give it away now rather than later. She is happy to give this amount now to the kids (3 of us). 
Is there any reason for her NOT to do this? We would make it a verbal condition amongst the family members that this money would be on hand, in the unlikely event she ever needs it back straight away - i.e. for medical treatment etc. so for example, it would not be able to be invested into a property etc - only shares or in cash. Essentially we are just trying to safeguard the money from the 40% tax levy.

Jeremy535897

On the facts you have set out, I believe you are right in assuming that £1 million of your mother's estate can potentially be exempt from inheritance tax, but it could be affected by a number of factors, including:

• whether your father made any gifts in excess of exemptions in the seven years prior to his death
• whether your mother survives for seven years after making any gifts in excess of exemptions
• whether the "verbal condition" you describe makes any gift by your mother a gift with reservation
• whether your mother continues to live in the house, or downsizes

The family should be considering whether it is realistic that mother can continue to support a £1 million house with no capital reserves. How will she pay for repairs? As she gets older will she want to stay there?

xylophone

Making the gift  would reduce your mother's NRB  by £300,000 if she died within seven years .
Otherwise it becomes an exempt transfer.
https://moneytothemasses.com/tax/inheritance-tax-iht-taper-relief-on-gifts-explained

Keep_pedalling

That would leave her with a million pound house and no savings or emergency fund which would be a pretty dumb thing to do unless she is thinking of downsizing as well.

Verbal agreements are not worth the paper  they are not written on, and it sounds like this is really a gift with reservation kept hidden by putting nothing in writing. 

Grumpy_chap

Your mother needs money to live on.  She can't eat the house.  You don't mention whether she has a good pension.

Your mother needs to retain funds for rainy day (fix the roof) or something nice (holiday, new kitchen).

Giving the money away with a condition that it will not be spent and available for your mother if she needs it is a gift with reservation so not reduced from the estate for IHT purposes.

If your mother is passing the money on to avoid nursing home fees, this may be deemed deprivation of assets.

Given your mother has a reasonable sized estate, it might be worth her taking professional advice.

qprjames

Grumpy_chap said:

Your mother needs money to live on.  She can't eat the house.  You don't mention whether she has a good pension.

She has a 40,000 pension each year (with cpi increase). sorry I should of mentioned this. so luckily she won't need to eat the house!!

And yes this would be a 'verbal agreement'. Nothing is to be put in writing. People might frown at that, but a verbal agreement is as good as a written agreement as far as our family is concerned.

qprjames

......I should also note that she lives a very frugal lifestyle. this is out of choice. It would be very very unlikely that she would ever need to draw on the 300,000.

Jeremy535897

qprjames said:

Grumpy_chap said:

Your mother needs money to live on.  She can't eat the house.  You don't mention whether she has a good pension.

She has a 40,000 pension each year (with cpi increase). sorry I should of mentioned this. so luckily she won't need to eat the house!!

And yes this would be a 'verbal agreement'. Nothing is to be put in writing. People might frown at that, but a verbal agreement is as good as a written agreement as far as our family is concerned.

Don't forget you are not necessarily dealing with the people you think you are dealing with. You won't necessarily outlive your mother. Accidents happen, and verbal agreements don't count when you are dealing with executors or new heirs .

getmore4less

Should get proper tax planning advice rather than an attempt at DIY tax evasion with fake gifts. 

The house is likely to become an IHT issue if allready around £1m

xylophone

Had you looked at the link in my previous?

The gift of £300,000 would be a PET - it would only become exempt after seven years.
In the meantime, it reduces your mother's NRB to £25,000.

Thus, if your mother died within seven years and her estate consisted solely of the £1m house, (left to direct descendants),  £25,000 + £175,000 RNRB + £325,000 (TNRB) + £175,000 (TRNRB) would be tax free - therefore IHT due on £300,000.

If the value of the house had increased, more IHT would be due.
See also https://www.canadalife.co.uk/adviser/news/inheritance-tax-how-to-declare-and-who-pays#:~:text=Some%20gifts%2C%20known%20as%20potentially,to%20benefit%20from%20taper%20relief.

getmore4less

Clearly not a PET,
a gift with reservation.