How to save IHT on family home and other properties

[Deleted User]

I also posted this on the mortgages section as it has two areas of help needed 

Im single so just one IHT allowance. My properties equity are already way over the IHT allowance ( leave to children - so I think thats £500k ? ) So any money I pay off my mortgage will just increase the equity even more and my two children ( estate heirs) will pay 40% IHT tax on those sums - so it seems like a bad idea to pay anymore off my main residential mortgage. 

Im 55 with guaranteed pensions ( already in payment and well cover affordability ) until I die. 

So with that in mind, what is the longest term possible to stretch to ? I only want a high street interest rate. Current LTV on home about 40%  if that. 

Also anyone else have any ideas how I can reduce the IHT that will be due? 

[Deleted User]

You haven’t said what the split is between cash and property. However it does seem a bit strange to be prepared to pay interest to a lender to save inheritance tax when, for example, the mortgage payments could be gifted and at least get the taper clock rolling. Don’t let the tax tail wag the dog! Can you downsize? 

Jeremy535897

If you pay off the mortgage, you reduce the cash in your estate as well as the debt. Apart from the future interest, they cancel each other out, so your question shows a misunderstanding. However, if you do have spare cash you can give away to children in lifetime, those gifts fall out of your estate for inheritance tax if you live for seven years after making them.

[Deleted User]

[Deleted User] said:

You haven’t said what the split is between cash and property. However it does seem a bit strange to be prepared to pay interest to a lender to save inheritance tax when, for example, the mortgage payments could be gifted and at least get the taper clock rolling. Don’t let the tax tail wag the dog! Can you downsize? 

I realise Ive left out a major bit.

I already pay both my sons £600 a month to overpay on their mortgages ( their’s are higher rates than mine due to their FTB LTV ) 
I want to reduce payments on mine - so I can gift them more (£1000 each ) a month so its getting money out of my estate and into theirs. 

My money is all in properties as Ive just bought another one. 
Id never downsize - my house was built to my specification 20 years ago. 

Cheers for ideas  

[Deleted User]

Jeremy535897 said:

If you pay off the mortgage, you reduce the cash in your estate as well as the debt. Apart from the future interest, they cancel each other out, so your question shows a misunderstanding. However, if you do have spare cash you can give away to children in lifetime, those gifts fall out of your estate for inheritance tax if you live for seven years after making them.

Cheers for help. My answer above may explain. Im currently cash short, equity rich and my monthly income is what I need to offload - so reducing paying off my mortgage so I can pay off theirs instead 
Just wondered if any other ideas I could do 
( net income pm is about £8000) 

Jeremy535897

If you let out properties and pay tax on the rent, you might be better borrowing to buy them, as at least you get a reduction in your basic rate tax bill if you incur allowable finance costs on properties let out. Unfortunately borrowing against rental property to give money to your sons is unlikely to qualify.

[Deleted User]

Jeremy535897 said:

If you let out properties and pay tax on the rent, you might be better borrowing to buy them, as at least you get a reduction in your basic rate tax bill if you incur allowable finance costs on properties let out. Unfortunately borrowing against rental property to give money to your sons is unlikely to qualify.

Both rentals are already at a mortgage of 75% BTL - so those are ok - I have the max equity I can in them. Plan is to sell them in 5 years, pay off the gains tax and mortgage and split the money equally to both sons ..... and hope I live for 7 more years. 

Its slowing down the equity build up on my main house and diverting money into sons mortgages 
Thanks again - I appreciate thoughts and ideas x

Jeremy535897

You can try extending your mortgage, but unlikely to be worth looking at equity release.

macman

You are currently gifting your sons £14,400 from your net annual income of £96,000. That leaves you £81,600 to cover all your other expenditure, yet you say you are 'cash short? Where is all the other income going, or am I missing something? 
Increase your gifting to £24,00 annually and you are still left with £76,000.

[Deleted User]

macman said:

You are currently gifting your sons £14,400 from your net annual income of £96,000. That leaves you £81,600 to cover all your other expenditure, yet you say you are 'cash short? Where is all the other income going, or am I missing something? 
Increase your gifting to £24,00 annually and you are still left with £76,000.

When I say cash short, I mean lump sum cash. Ive just put almost all my savings - £120 k ( including costs ) into another rental. Plan is to sell that in 4.5 years years and split the equity it had, plus hopefully any gain, between my two kids. 

Ive got plenty of monthly money. 

Ive worked out I can give them £1000 each a month and try and get my mortgage capital repayments as low as possible. Just doesnt make sense for every pound I pay off the tax man gets 40%. 

My 5 year fixed rate expires in 11 months hence Im really trying to concentrate now to get a new mortgage that works best. 

Cheers for help 

getmore4less

If you are going to take a CGT hit anyway might be time to look at a restructuring to offload the property to the kids.

If you died tonight what's the IHT hit given the gifting won't be getting any relief from what you have said.