Can I reduce my IHT bill by doing this?

skillboy88

Would this work as a way to save IHT?

Situation..

• House valued at £1,000,000
• No mortgage

Solution to cut IHT...

• I find a way re-mortgage the house (assume that I can satisfy the lenders conditions to pay back the mortgage) and take out say £500,000.
• I withdraw the £500,000 in cash from the bank gradually (assume that I am somehow able to).
• I give the cash to friends and family.

Based on the above, I believe the net value of the house is reduced from £1,000,000 to £500,000.

Does this save £200,000 in IHT upon my death (£500,000 x 40%)?

Thoughts?

JGB1955

The £500K will be considered to still be in your estate unless you survive 7 years after gifting it. Trying  to hide the gift by paying out in cash would be fraud.  You CAN gift £3K per annum without attracting IHT ...but it would take you more than a lifetime to dispose of the £500K that way!

skillboy88

JGB1955 said:

The £500K will be considered to still be in your estate unless you survive 7 years after gifting it. Trying  to hide the gift by paying out in cash would be fraud.  You CAN gift £3K per annum without attracting IHT ...but it would take you more than a lifetime to dispose of the £500K that way!

So re-mortgaging my house to the tune of £500,000 and giving it away by bank transfer and then surviving for 7 years could be a good alternative to gifting my house instead and then continuing to live in it whilst paying a market rent?

In other words, it allows me to keep ownership of my house yet at the same time reduce the value of the house for IHT purposes?

pjcox2005

skillboy88 said:

JGB1955 said:

The £500K will be considered to still be in your estate unless you survive 7 years after gifting it. Trying  to hide the gift by paying out in cash would be fraud.  You CAN gift £3K per annum without attracting IHT ...but it would take you more than a lifetime to dispose of the £500K that way!

So re-mortgaging my house to the tune of £500,000 and giving it away by bank transfer and then surviving for 7 years could be a good alternative to gifting my house instead and then continuing to live in it whilst paying a market rent?

In other words, it allows me to keep ownership of my house yet at the same time reduce the value of the house for IHT purposes?

But presumably mortgage rate of around 2% per annum, so after 7 years you've already paid 14% out so "saving" is down to 26%. Live longer and that reduces further. You've then got the point that the house presumably would need to be sold to settle the mortgage outstanding unless heir has cash to repay the mortgage which could cause issues if trying to stay there. 

Have you worked out what your actual IHT liability is likely to be, including who it's being left too. I presume no spouse but otherwise spousal exemption applying for example.

Keep_pedalling

Dead people don’t get IHT bills.

Why do you say my house and I give the £500k away. According to another thread you are married, surely that should be our house and we give?

macman

How have you calculated a current IHT liability of £500K?

jimbo6977

The short answer to the question is "no". If you've just thought of a wizzo scheme, someone else will have thought of it umpteen years ago and HMRC will have caught up with it a few years after that.