Inheritance Tax - passing on proceeds of sale of home to children

Tezap

Hi,
Sorry if this has been asked before.
Does someone still get the extra £175k allowance if their will passers on the proceeds of sale of the family home to children (ie the home is sold within the estate and the children just get money) or would the children need to actually inherit a proportion of the family home in order to benefit from the full £500k allowance?
Please can you post a reference for the answer as I want to be 100% certain on this.
Thank you!
Tezap

HappyHarry

Tezap said:

Hi,
Sorry if this has been asked before.
Does someone still get the extra £175k allowance if their will passers on the proceeds of sale of the family home to children (ie the home is sold within the estate and the children just get money) or would the children need to actually inherit a proportion of the family home in order to benefit from the full £500k allowance?
Please can you post a reference for the answer as I want to be 100% certain on this.
Thank you!
Tezap

Yes, if the children inherit funds that were from the proceeds of the deceased's residential property then the RNRB can still be used.

https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Tezap

HappyHarry said:

Yes, if the children inherit funds that were from the proceeds of the deceased's residential property then the RNRB can still be used.

https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Thank you my mother recently died and left everything to my father.

They own 2 properties - the family home worth around £800k and an incomplete one which is worth nearly £1m which he plans to move into.

My father is looking at doing a deed of variation to pass £500k from the sale of the £800k family home to myself and my sister @ £250k each. The sale would happen within the estate and should use my mother's full £500k allowance.

It would leave him with a £1m property and £300k cash with just his own £500k allowance.

Does all of that sound ok? Is there any better way to do it?

Thanks again,
Tezap

Marcon

Tezap said:

HappyHarry said:

Yes, if the children inherit funds that were from the proceeds of the deceased's residential property then the RNRB can still be used.

https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Thank you my mother recently died and left everything to my father.

They own 2 properties - the family home worth around £800k and an incomplete one which is worth nearly £1m which he plans to move into.

My father is looking at doing a deed of variation to pass £500k from the sale of the £800k family home to myself and my sister @ £250k each. The sale would happen within the estate and should use my mother's full £500k allowance.

It would leave him with a £1m property and £300k cash with just his own £500k allowance.

Does all of that sound ok? Is there any better way to do it?

Thanks again,
Tezap

There could be other possibilities, which may or may not be 'better'. Given the amounts involved, wouldn't it make more sense for him to take proper professional advice rather than relying on his son asking for free 'advice' from random strangers on an internet forum, none of whom is insured to give 'advice' - and would in any case be answering on the basis of next to no knowledge of your father's situation? Could be a false economy which would cost him dear...

Tezap

Marcon said:

There could be other possibilities, which may or may not be 'better'. Given the amounts involved, wouldn't it make more sense for him to take proper professional advice rather than relying on his son asking for free 'advice' from random strangers on an internet forum, none of whom is insured to give 'advice' - and would in any case be answering on the basis of next to no knowledge of your father's situation? Could be a false economy which would cost him dear...

He has already spoken to his accountant for the house build and his solicitor who has quoted £300 to write the deed of variation. He's not relying on me asking this question - it's for my benefit to double check everything looks ok.

Keep_pedalling

A deed of variation in this instance is not the best option it saves no tax just eats up her NRBs reducing the amount of amount transferable to your father’s estate to zero.

A straight forward gift of £500k actually has a chance of falling out of his estate if he has a reasonable chance of living another 7 years potentially saving £200k of IHT. Surviving 3 years will also reduce it a bit as taper relief kicks in at that point on any amount above £325k  

Keep_pedalling

One other point, using a DoV will require a full IHT return in order to claim the RNRB, it’s just a pointless exercise.

Tezap

Keep_pedalling said:

A deed of variation in this instance is not the best option it saves no tax just eats up her NRBs reducing the amount of amount transferable to your father’s estate to zero.

A straight forward gift of £500k actually has a chance of falling out of his estate if he has a reasonable chance of living another 7 years potentially saving £200k of IHT. Surviving 3 years will also reduce it a bit as taper relief kicks in at that point on any amount above £325k  

Thanks that's a really good point. I wonder why his accountant and solicitor didn't mention this.

Tezap

Chatting about this with my dad it would seem best that if he is trying to gift £500k of value as early as possible to try and outlive the 7 year inheritance tax it might be best if he gifts us each a % share of the £800k family home that will be eventually sold. I understand that there would be no stamp duty (there is no mortgage, we already own our own homes so for us this would be a second home)?

This seems better than if he waits until he completes the £1m new build and then completes the sale of the home which could all take 1-2 more years. I guess there's the potential we could be liable for capital gains tax if it goes up in value before being sold.

The only complexity is that my mum is still named as a joint owner of the family home and he is in the slow process of applying for probate on her estate. At what point in the probate process would he be allowed to make the gift?

Would the property need to be reregistered in his name (as my mother's beneficiary) first?

On his death would he still get the full £1m from his and my mum's combined inheritance tax allowance even though he has moved into another property they owned and sold the original family home?

Thanks,
Tezap

Sea_Shell

Nothing is guaranteed.

All we know is what the current rules are.

Bear in mind that the IHT rules and allowances might change, over time.

Olinda99

would your father continue to live in the family home after gifting a percentage ? If so, unless he pays you market rent, the 7 yr clock won't start until be moves out.