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

Nidge

Keep_pedalling said:

Nil rate band and residential nil rate band. For a widow inheriting everything from her husband, both are transferable from to estate.

Keep_pedalling said:

Nil rate band and residential nil rate band. For a widow inheriting everything from her husband, both are transferable from to estate.

Ok thanks, but I don’t understand how/if that will affect/benefit me.

Keep_pedalling

Nidge said:

Keep_pedalling said:

Nil rate band and residential nil rate band. For a widow inheriting everything from her husband, both are transferable from to estate.

Keep_pedalling said:

Nil rate band and residential nil rate band. For a widow inheriting everything from her husband, both are transferable from to estate.

Ok thanks, but I don’t understand how/if that will affect/benefit me.

Well as her sole beneficiary you inheritance won’t be reduced by IHT.

Nidge

Keep_pedalling said:

Nidge said:

Keep_pedalling said:

Nil rate band and residential nil rate band. For a widow inheriting everything from her husband, both are transferable from to estate.

Keep_pedalling said:

Nil rate band and residential nil rate band. For a widow inheriting everything from her husband, both are transferable from to estate.

Ok thanks, but I don’t understand how/if that will affect/benefit me.

Well as her sole beneficiary you inheritance won’t be reduced by IHT.

Ok cool, is that because it’s already passed from my dad to her (in layman’s terms)?

xylophone

Could you please explain the abbreviations? 

Did you read the link in my post above?

Malthusian

badger09 said:

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)

Actually it's likely to be no kind of lie of any colour, as her estate will be back over the IHT threshold with a few years of house price inflation (notwithstanding that not all houses grow in value). 4 years at 7%pa would do it.

There is however not a lot she can do about it without selling the house and spending / giving away some of the proceeds. (Or reinvesting in extreme-high-risk IHT-exempt investments, but it's unlikely she has the stomach for those.) Trying to give the house to the OP without giving the house to the OP as proposed originally will not work.

Nidge

Well now I’m even more confused (doesn’t take much any more).

xylophone

Well now I’m even more confused (doesn’t take much any more).

John Smith is an only child.

His mother is a widow.

When Dad died, he left all his assets to Mum.

The family home (which Mum still owns and occupies) is worth £800,000.

Mum also has £10,000 in the bank.

Mum dies on 5th June 2020 - her estate is worth £810,000.  She has made no gifts outside her exemptions in the past seven years. Her will leaves her entire estate to her son John Smith.

She has her own Nil Rate Band, This is £325,000.  She has her main residence NRB. This is £125,000. She has her late husband's NRB. She has his NRB. Total to set against IHT £1m.

Thus her estate ( worth £810,000) would pay no IHT.

Now let's suppose that Mum doesn't die in 2020 but at some later date. Her will leaves her entire estate to her son.

The house has increased in value to £1m and her savings to £20,000. There have been no changes to the value of the bands or the rate at which IHT is levied.

Now Mum's estate is worth £1.02m.

IHT of 40% of £20,000 is due on the estate.

Nidge

Brilliant, thanks everyone. She’s much more content now.

badger09

xylophone said:

Well now I’m even more confused (doesn’t take much any more).

John Smith is an only child.

.............................

She has her own Nil Rate Band, This is £325,000.  She has her main residence NRB. This is £125,000. She has her late husband's NRB. She has his NRB. Total to set against IHT £1m.

Thus her estate ( worth £810,000) would pay no IHT.

...................................

£175,000?

xylophone

£175,000?

Yes of course, typo! Thanks.