Can I inherit more house and less cash?

ReflexReaction

Hi there! I’ve had so much conflicting information that my head hurts and I don’t know where to turn! I wonder if anyone here can help...

My two siblings and I lost our mother last year. I am an executor of her estate, and we have probate. In her will she left 7% to charity, and the rest equally shared between her three children (us). Her house had no mortgage against it.

Her estate broadly speaking consists of a £435,000 house, and a cash amount of roughly £45,000.  So an estate totalling £480,000, for which we are each owed £160,000 inheritance. We are each going to give a portion to charity to total the 7% dictated in her will, once we have sorted the property.

My two siblings want the equity from the house, and I would like to buy them out, raising the capital via an additional mortgage against my own personal home (this would be a second house,  which I will let out as a long term investment).

My plan was/is to take more house and none of the cash. Therefore in theory I would inherit £160,000 of house, with:

- sibling 1 inheriting £45,000 of her estate’s cash + £115,000 funded by my new mortgage
-  sibling 2 inheriting the full £160,000 from my new mortgage

This would in theory mean I would buy the house from them, not for two thirds of the property’s value (£290,000), but instead I’d be buying it for £245,000. This would save me a significant amount of SDLT. Each sibling would still end up with the same inheritance - £160k each.

I have instructed a solicitor to start the assent & transfer process, with my buying them out for the £245,000 sum, which I plan to pay 3% SDLT on (as it’s a second house).  My solicitors have not raised any objections, although claim they will not offer tax advice and may just blindly be doing what I tell them to do!

i want to ensure what I am doing is legal, and not considered illegal tax avoidance.  It looks like reading this previous thread on MSE, others had confirmed this can be done legally:

https://forums.moneysavingexpert.com/discussion/6038002/stamp-duty-to-buy-out-relatives-from-inherited-house

However I’ve had so much conflicting information from Reddit:

https://www.reddit.com/r/LegalAdviceUK/comments/mcylk5/am_i_legally_allowed_to_inherit_more_property_and/?utm_source=share&utm_medium=ios_app&utm_name=iossmf

Right now I’m stumped. My tax advisor told me I need to get the solicitor to advise me, however my solicitor sent me back in the direction of the tax advisor!

I guess I’m mainly worried that:

a) I’ll have to pay stamp duty on the full price of the house (£435,000) at 3% 
or
b) I’ll have to pay stamp duty on exactly 2/3s of the market value of the house (£290,000)
and not
c) I’ll be able to pay 3% SDLT on a purchase price of £245,000.

do you, kind strangers, have any advice? 

Thank you so much in advance

ReflexReaction

It’s worth my adding that the will did not stipulate we must split the house three ways, it just stipulates the remainder of the “estate” is split equally.

naedanger

If you are paying a tax advisor I am not sure why they are referring you back to the solicitor. Perhaps they are unclear exactly what is being proposed.

The following article may be worth reading:
https://www.theguardian.com/money/2018/mar/12/stamp-duty-share-property-inherited-sdlt

Are you saying your siblings are agreeing to sell their shares of the house for less than the full market value? Or is there a typo and references to £245k should be £275k?

You will also need to pay the charity money direct from the estate, so if £480,000 is the estate's value before the charity is paid then most of the cash in the estate is going to be needed to pay the charity. So this may change some of your figures i.e. you may need to purchase rather than inherit more of the house. Also be aware some of the larger charities pay close attention to bequests and have a reputation for robustly challenging any decisions they don't like. So be sure that the charity are happy with the arrangement as you don't want them raising complaints about "self dealing".

theoretica

The numbers may work out the same, but your way of thinking about splitting the inheritance in three and then each giving the charity their 7% is not right - the executor needs to split everything 4 ways, 7% and three lots of 31%.  So you will only inherit about 148.8k of the house.

Adjusting so you get more house and no cash is commonly done.

xylophone

 In her will she left 7% to charity,

Exactly so!

We are each going to give a portion to charity to total the 7% dictated in her will, once we have sorted the property.

No! The gift (bequest) is from the estate of the deceased.

The estate has therefore been left 7% to the charity and  31% to each offspring.

As executor it is your duty to value the estate, collect the cash/sale proceeds into a separate (preferably exor ) account, pay  any debts,  pay specific bequests and then split the residue.

Surfbabe

The bequests have to be paid out of the estate first so, the charity gets its 7% and you each get 31%. 

Marcon

ReflexReaction said:

Right now I’m stumped. My tax advisor told me I need to get the solicitor to advise me, however my solicitor sent me back in the direction of the tax advisor!


do you, kind strangers, have any advice? 

Get your tax adviser and solicitor to talk direct and come back to you with an agreed answer.

TBagpuss

My understanding is that you pay SDLT on the actual value, so the 2/3 you are buying, but I agree that your tax advisor and solicitor ought to be able to sort this out.

Those saying you need to pay the charity direct from the estate are also correct . It sounds as though the charity should be getting around £33,600 so the easiest way to do it may be to pay them from the £45,000 and then for you to divide up the remaining £11K and pay your siblings from your remortgage. 
The charity may also need proof of the house value and that it is not being sold to you to an undervalue, (or at least that they are getting 7% of the actual open market value) since their entitlement is based on the total estate.