Inheritance tax-“Buy” house from mum in advance?

Nidge

Hey gurus,

my mum is getting stressed for some reason about the inheritance tax that I will have to pay when she passes away.

I’m an only child and I am the named sole beneficiary on her will.

her house is owned out right and probably worth somewhere in the region of £800,000.

So, could I “purchase“ the house from her at an agreed price, and then she simply gives me the money back and carries on living in the house?

And if we did that, would that eliminate the question of inheritance tax?

Thanks all.

xylophone

her house is owned out right and probably worth somewhere in the region of £800,000.

Is your mother a widow? Was the whole of your father's estate left to her?

It may be that with her own nil rate band, residence nil rate band, and transferable NRB and RNRB there will be  no IHT to pay (or less than she fears).

https://www.bequeathed.org/wills/inheritance-tax/nil-rate-band#:~:text=The%20residence%20nil%20rate%20band%20is%20also%20available%20if%20you,death%20to%20your%20direct%20descendants.

Malthusian

Leaving aside the issue of whether IHT is even payable -

It is a transparent attempt to circumvent the "gift with reservation" rules and wouldn't work. Unless she paid you a commercial rent (and if she has spare money to do that, she could just gift it to you now, potentially taking advantage of the IHT exemption for gifts out of regular income).

The fact that she is supposedly giving you £800,000 of house proceeds rather than £800,000 of house doesn't make any difference. At the beginning you will have £800,000 and no house. At the end you will have £800,000 and a house. You aren't enjoying the exclusive benefit of your extra 800k (call it whatever you want) because your mother is living in the house for free. It would be considered a gift with reservation and the value would be added back into your mother's estate.

Even if she did successfully give the money away to you, there are plenty of other questions to consider, e.g: What if you divorce? What if you pre-decease her? What if she requires care?

getmore4less

They have that loophole covered so won't work.

Start by working out if there will be any IHT then you look at the options if there is. 

Marcon

Nidge said:

Hey gurus,

my mum is getting stressed for some reason about the inheritance tax that I will have to pay when she passes away.

I’m an only child and I am the named sole beneficiary on her will.

her house is owned out right and probably worth somewhere in the region of £800,000.

So, could I “purchase“ the house from her at an agreed price, and then she simply gives me the money back and carries on living in the house?

And if we did that, would that eliminate the question of inheritance tax?

Thanks all.

Wouldn't work. Point out to her that you'd get a hefty slug (possibly all) free of IHT and that the estate (not you) would pay any IHT. As you are the sole beneficiary that's a game of semantics, but oddly enough it can prove comforting to some people, so might be worth a go.

Nidge

Thanks everybody.

She is a widow and my father left everything to her and as the only child her will specifically leaves everything to me.

Keep_pedalling

Nidge said:

Thanks everybody.

She is a widow and my father left everything to her and as the only child her will specifically leaves everything to me.

In which case her estate is under £1M so will have no IHT to pay, as two lots if NRB and RNRB can be used, so luckily your madcap scheme.

i have assumed here that she does not have other assets over £200k, but if she does should should be looking at gifting some of those rather than the house.

Nidge

Keep_pedalling said:

Nidge said:

Thanks everybody.

She is a widow and my father left everything to her and as the only child her will specifically leaves everything to me.

In which case her estate is under £1M so will have no IHT to pay, as two lots if NRB and RNRB can be used, so luckily your madcap scheme.

i have assumed here that she does not have other assets over £200k, but if she does should should be looking at gifting some of those rather than the house.

No other assets.

A few £s in the bank (under £10k).

badger09

Nidge said:

Keep_pedalling said:

Nidge said:

Thanks everybody.

She is a widow and my father left everything to her and as the only child her will specifically leaves everything to me.

In which case her estate is under £1M so will have no IHT to pay, as two lots if NRB and RNRB can be used, so luckily your madcap scheme.

i have assumed here that she does not have other assets over £200k, but if she does should should be looking at gifting some of those rather than the house.

No other assets.

A few £s in the bank (under £10k).

Try to persuade her to spend some money on herself. She can afford to!

You could tell her it will avoid having to pay IHT (which is only a tiny white lie as it doesn't sound as though estate will be liable)

Nidge

Keep_pedalling said:

Nidge said:

Thanks everybody.

She is a widow and my father left everything to her and as the only child her will specifically leaves everything to me.

In which case her estate is under £1M so will have no IHT to pay, as two lots if NRB and RNRB can be used, so luckily your madcap scheme.

i have assumed here that she does not have other assets over £200k, but if she does should should be looking at gifting some of those rather than the house.

Could you please explain the abbreviations? 

Thanks again.

Keep_pedalling

Nil rate band and residential nil rate band. For a widow inheriting everything from her husband, both are transferable from his to estate, giving the ability to leave £1M tax free.