Inheritance tax

Traceyaylmer

Hi, me and my siblings plus spouses so 6 in all, are paying 42000 between us , to pay off my mums mortgage she owes left, but taking over the deeds of whole property.with a trust to say she can live thier till she dies.
My question is the remainder of the value is gifted to us, we havent signed the paperwork yet, is thuer another way without the gifting as we oresume thier will then be inheritance tax?
And if not does the whole property value added on to each couples inheritance value or a 3rd of it?
We aim to sell it when she dies and we all have a mortgage? Please help we are supposed to sign today

user1977

Have any of you had professional advice about whether any of this is actually a good idea? Seems a bit late to ask if you're signing today!

MaryNB

I'm not sure if I'm answering this correctly, your post isn't very clear. 

My question is the remainder of the value is gifted to us, we havent signed the paperwork yet, is thuer another way without the gifting as we oresume thier will then be inheritance tax?

You can buy the property from her outright, which I presume isn't the answer you are looking for. Otherwise, trying to circumvent the inheritance tax law will be seen as tax evasion.

And if not does the whole property value added on to each couples inheritance value or a 3rd of it?

Your mother's estate will have a tax free allowance of £325,000, not £325,000 per person/couple receiving the gift.
If she gives away more than £325,000 within 7 years of her death, the proportion above £325,000 will be taxed. The tax will apply to her estate. (ETA: to clarify, as tacpot correctly pointed out below, tax free allowance rises to £500k for children of the estate)

We aim to sell it when she dies and we all have a mortgage? 

I'm not sure what the question is. Are you all borrowing £42,000 to pay off the rest of her mortgage?


You shouldn't sign today, you don't appear to understand what you are signing up for. Has anybody raised concerns regarding depravation of assets?

tacpot12

The only way to do it without gifting is for you to buy more of the property. If you pay your Mum the market value of the property, then there is no gift from your Mum to you. 

If the property is worth less than £325,000, no inheritance tax will be payable, so you don't need to worry. If the property is worth less than £500,000 you might want to stop the transaction today and take advice, as if the property is gifted to you and your siblings, no inheritance tax will be payable BUT if the property is gifted to you and your spouses then inheritance tax will be payable on the portion of the estate that is over £325,000.

The spouses should not worry too much about the house not being left to them, providing they are married, because what their spouse owns is also their property, and their names can be added to the title after the IHT bill is settled.

Please be aware that I'm not an expert with Inheritance Tax and the above is just my understanding of the rules. You need to get professional advice if the value of the property and anything else that might form your mother's estate is above £325,000. 

Traceyaylmer

Hi everyone thank you for your advice, been trying to ask the solicitor for 2 days, they not mentioned this , it was only because mums solicitor wrote it in the email we knew that apart from the 42000 the rest is classed as gifted
We are paying the solicitor 14 thousand each couple from savings to equal 42 as we wanted to help her out as she owes that on the property and has to be payed by tomorrow in fact.
We thought we were just buying it and owning the deeds, didnt know about the gifted bit and realised it means we will have inheritance tax to pay.
1 siblings morgage of her own home is 800 thousand.
My question was is thier another way or is it automatic that the remainder of her value of property is classed as gifted?
And if worth 150,000 at present is 50 thousand added each to our estate or the whole value each couple.
No we are not signing untill clear

AdrianC

Traceyaylmer said:

it was only because mums solicitor wrote it in the email we knew that apart from the 42000 the rest is classed as gifted
...
We thought we were just buying it and owning the deeds, didnt know about the gifted bit and realised it means we will have inheritance tax to pay.

I think you might need to take a step back and get a better understanding of IHT.

Inheritance tax is paid from and by the estate of a dead person, if their estate is large enough - so if they had enough money and assets...
It's not paid by anybody alive.
It's paid by the estate before inheritances are distributed to family members.

If somebody makes a large gift in the 7 years before they die, that gift may be partially included in their estate for IHT, depending on how long before their death it was made.

MaryNB

Traceyaylmer said:

Hi everyone thank you for your advice, been trying to ask the solicitor for 2 days, they not mentioned this , it was only because mums solicitor wrote it in the email we knew that apart from the 42000 the rest is classed as gifted
We are paying the solicitor 14 thousand each couple from savings to equal 42 as we wanted to help her out as she owes that on the property and has to be payed by tomorrow in fact.
We thought we were just buying it and owning the deeds, didnt know about the gifted bit and realised it means we will have inheritance tax to pay.
1 siblings morgage of her own home is 800 thousand.
My question was is thier another way or is it automatic that the remainder of her value of property is classed as gifted?
And if worth 150,000 at present is 50 thousand added each to our estate or the whole value each couple.
No we are not signing untill clear

If the property is worth £192k (£150k + £42k) or £150k total your mother is well below the tax free allowance threshold. I presume if you are paying off the rest of her mortgage she doesn't have many other assets.
Unless she has other assets you expect to inherit that bring the total above £325k, you have nothing to worry about with regards to inheritance tax. 

When you take over the house will you be joint tenants or tenants in common? The former means you own the whole property as a group, tenants in common means you each own a defined share in the property. Do not sign anything until you have figured that out. It will have huge implications.

If any of you purchase a property while you own that house it could affect the rate of stamp duty you pay.

You need to make sure you mother is not depriving herself of assets. If the local council think she gave you the house to avoid care home fees, they'll still count the value of the house when assessing her. If she can't afford a care home because she gave away her house the council may not help.

youth_leader

Is your Mum widowed?  If so, she 'inherits' her husband's £325K allowance, ie £650K before inheritance tax.  

Traceyaylmer

Hi, yes i need to read up about IHT
We presumed we are taking over the deeds and its ours so wouldnt affect iht if she dies.
 a trust is in place so mum can live thier till she dies, could be 30 yrs odd ..and would want to sell it once she does, 
Is iht still to be paid once she dies and or we sell it so confusing sorry

MaryNB

Traceyaylmer said:

Hi, yes i need to read up about IHT
We presumed we are taking over the deeds and its ours so wouldnt affect iht if she dies.
 a trust is in place so mum can live thier till she dies, could be 30 yrs odd ..and would want to sell it once she does, 
Is iht still to be paid once she dies and or we sell it so confusing sorry

You taking over the deeds doesn't not remove IHT obligations. It is still her gifting you her property.

IHT is not paid if:

• She dies more than 7 years after you take over the property
• She dies within 7 years but her entire estate plus any gifts given during those 7 years is worth less than £325k (or £650k, see youth_leader's post above)
• You purchase the property from her at market rate.

IHT is only paid when she dies. You will probably be liable for Capital Gains Tax when you sell it. 

MaryNB

Do not sign anything until you fully understand

• IHT obligations when your mother dies
• CGT obligations on selling
• Stamp Duty when you buy other property while still owning your mother's house
• Whether you will be a joint tenant or tenant in common
• Depravation of assets

There may be more issues. These are the ones that come to mind so far.