Inheritance Tax- can my mother gift me a property to be sold immediately so I can purchase another?

LC81

Hi everyone!! My Mum owns her house outright, worth £450,000, and is unwell (heart failure) and needs to move in with me to be looked after, and will be gifting the proceeds of the sale of her house towards a property we will buy together. My Mum isn't likely to live another 7 years and I'd like to avoid paying inheritance tax. Is there a potential way? Perhaps the below?

Mum is selling her house for £450,000 and moving in to a house with me which we are purchasing together, worth £675,000. Mum will put in £450,000 from the sale for her house and I will get a mortgage for the additional £225,000. The new house will be in my name. Since Mum is contributing £450,000 presumably it will be seen as a gift and the amount above £325,000 will be liable for inheritance tax. Could a way around it be that Mum gifts the current property to the me now (since its property not cash and worth under £500,000 it shouldn't be liable for inheritance tax) and then I'll sell it right away, once I own it, and purchase the new house. Is this possible? Would it mean that 0 inheritance tax would be owed? Is there a minimum amount of time I would have to own the house before selling or could I sell immediately? Is there any easier way? Thanks so much for any help!

Keep_pedalling

As she would be living in the gift this would be classed as a gift with reservation, so will not fall out of her estate in 7 years.

Several other major issues with this plan, including deliberate deprivation of assets should she need care in the future and her long term security (what happens to happens to her if you pre decease her, go bankrupt of you have a major falling out?) Yes consider moving in together but for her sake ownership should by joint.

What other assets does she own? Is she a widow? These questions are important as her estate may not even have a IHT issue. A house owning widow with children can leave up to £1M tax free.

p00hsticks

LC81 said:

The new house will be in my name.

Why ? Surely the easiest way is for you and her to co-own the new house, and then for her to leave you her share in her will.

I don't think that her 'gifting' you the money will help - it sounds like it would be a 'gift with reservation of benefits' as she is going to be living in the house you buy with the money she gives you, and therefore the gift will still considered to be part of her estate for IHT purposes.

What is the total of her estate likely to be ? What about her husband ? Is he alive and , if dead, when did he die, how big was his estate and who did he leave it to ? If her estate is mainly the value of her current house and the intention is for you to inherit then chances are that no IHT would be due even if she didn;t gift you anything now.

Flugelhorn

As others have said, her estate may not be liable for inheritance tax 

Just be wary though that if you can't look after her and she needs residential care then there may be the issue of deprivation of assets to consider

Brie

If she gifts you the money or if you own a house together then it's possible that it will need to be sold to pay for any care she might need, assuming she doesn't have other assets with which to fund it.

The only way you would know you could remain in the house without it being sold is that if you are at least 60.  If that was the case then social services would simply put a lien on it so that when you sell it they will recoup their ££. 

theoretica

Look in more detail about the residential nil rate band - it can still be claimed in some circumstances even if the house was sold.  https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold