Inheritance Tax - implications for allowances if selling a house before death

jf20938

Hello,

I've looked to see if this had been covered here before but I didn't find anything.  

Declining health means that widowed 83-year-old Mother-in-Law needs to move from her 100%-owned bungalow to a sheltered residence.  At this time she doesn't need intensive support but my wife is worried that her deterioration is increasing and she'll need to move to a full Care Home within 5 years, maybe sooner.  We had originally expected that MIL would sell & purchase whatever property she needs at each stage, ending perhaps, in a privately-owned flat in a high-support Care Home. 

But until we have a better understanding of her longer-term needs, my wife - who has LPoA - is considering that MIL rents a sheltered flat now and we make further decisions down the road.

Her house is worth about £400k and her savings/investments are around £250k.  As the total is below £2M, I understand that, on today's rates, her Estate would pay Inheritance Tax above £500k. However, I'm concerned that the sale of her house could bring it down to £325k - either immediately or after some period set by HMRC. Could someone explain how or if that might happen? I didn't find an answer on HMRC's site either.

Thanks,

John.

PS - I know there are other considerations here - an increased allowance arising from long-deceased Father-in-Law, the income that MIL will need, gifts to family, future care bills... and so on, but I want to keep my question to the trap that we're about to fall into (or not!).

getmore4less

Look up residential nil rate band downsizing rules they cover this situation.

Rodders53

Read this... https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Keep_pedalling

Is she a widow?

jf20938

getmore4less said:

Look up residential nil rate band downsizing rules they cover this situation.

Thanks. I needed those terms to do a proper search. 

Rodders53 said:

Read this... link....how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Oh yes, thank you. That's just what I wanted. Having failed to find it myself, I'm now wondering if I need a Care Home now too!

Keep_pedalling said:

Is she a widow?

Yes she is. I'm guessing that your question relates to an increased allowance which might come, belatedly, from her late husband.  I suppose that's not a variable though - when the time comes, either the Estate benefits or it doesn't.

Keep_pedalling

jf20938 said:

getmore4less said:

Look up residential nil rate band downsizing rules they cover 

Rodders53 said:

Read this... link....how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-

Keep_pedalling said:

Is she a widow?

Yes she is. I'm guessing that your question relates to an increased allowance which might come, belatedly, from her late husband.  I suppose that's not a variable though - when the time comes, either the Estate benefits or it doesn't.

I am not sure what you mean by that. Under the current rules her husband’s RNRB is transferable as is any percentage of his NRB he did not use up. If you ignore these because the rules might change you also have to ignore all the current rules including the rules that allow your mother’s estate to claim her RNRB because the rules might change on that as well.

As it stands her marital status reduces or eliminates any IHT liability at all, and that is all you can work unless you have  a magic crystal ball.

getmore4less

I think the point is will their be qualifying property to make use of any RNRB .

jf20938

I am not sure what you mean by that...

 I meant that the rules around transferring unused Nil Rate Band are really only applicable when MIL's Estate is wound up after she shuffles along.  Any transfer of Residual Nil-rate Band from her husband would be utilised by her Executors, if available and if applicable, at that time. There is nothing I know I can do now to influence that so, in a sense, yes - I'm ignoring it.

In contrast, her leaving property ownership (sell and then rent) is a decision to be taken now.  My question was around any consequences, under current legislation, of doing so.  The link provides me with a good answer to that question.