Best Way to Avoid Inheritance Tax

sheramber

Is her deceased husband's nil rate band available to her?  That adds another £325, 000 to her exemopt amount.

Also  RNRB is available which is £175,000.

So you nan could be well under the limit for any inheritance tax payable on her estate.

https://www.gov.uk/government/publications/inheritance-tax-nil-rate-band-and-residence-nil-rate-band-thresholds-from-6-april-2021/inheritance-tax-nil-rate-band-and-residence-nil-rate-band-thresholds-from-6-april-2021

kempiejon

FreeBear said:

That doesn't work. You may find inheritance tax being levied in the overseas jurisdiction and at home, so ending up paying twice.

Never? Gotta pick your jurisdiction, pretty sure overseas property doesn't attract UK IHT. but yes also your scenario will apply sometimes. But we digress.

propertyrental

All good points above, but to clarify:

Is the plan that you buy her house from her ? What will she do with the money (which if kept will form part of her Estate  for IHT)?

Or she gifts it to you (a Gift With Reservation so still within the Estate)?

Since I assume you/sister don't live n the house, CGT would depend on the increase in value between the date you took ownership and the date you sold.

debbimse

Yes I have just done quite a lot of research on CGT and I have more of an understanding on this now and really shouldn't be any kind of factor, we would be selling the house immediately after her death anyway as we both already have our own houses, so there should be no increase in value at all.

No there is no plan to buy the house, she will be in the house till death or being looked after in one of our houses, it will not be in our possession until her will comes in to play and my sister and i will be sharing the estate equally.

It was really just to see if the best option is for her to gift us the house now, and we change the house deeds, or wait to inherit when she passes in hopefully years to come, as we were not fully educated on IHT and thought we could be paying a lot of money on this eventually.

Hoenir

debbimse said:

It was really just to see if the best option is for her to gift us the house now, 

Then it transfers into both of your hands at zero cost. When the property is subsequently sold. The entire gain (split between the two of you) would be subject to Caital Gains Tax. There's no loopholes to exploit. CGT has been around for many years. 

propertyrental

debbimse said:

Yes I have just done quite a lot of research on CGT and I have more of an understanding on this now and really shouldn't be any kind of factor, we would be selling the house immediately after her death anyway as we both already have our own houses, so there should be no increase in value at all.

No there is no plan to buy the house, she will be in the house till death or being looked after in one of our houses, it will not be in our possession until her will comes in to play and my sister and i will be sharing the estate equally.

It was really just to see if the best option is for her to gift us the house now, and we change the house deeds, or wait to inherit when she passes in hopefully years to come, as we were not fully educated on IHT and thought we could be paying a lot of money on this eventually.

So a Gift With Reservation. Google it.

And if transferred into your names now, CGT due on increase between now and sale. (not death and sale)

Bookworm105

debbimse said:

Would paying capital gains tax be more than this if she was to transfer it in to our name now?

great joy, The single most stupid thing people do when DIY'ing their IHT avoidance

she will live there until she dies, but will no longer be its owner
it is not your home, but you would be owners of it because she gave it to you and you did not pay even 1p for it

that is called the double tax whammy
She: the property still forms part of her estate at date of death because she made a gift with reservation of benefit - she continued to benefit from her gift because she lived there. So it never left her estate and is still subject to the IHT £325k threshold so her estate may still have to pay IHT

You: are liable for CGT on any gain from the market value at date of receipt of gift to market value at date you sell it. You cannot avoid paying CGT on that (even thought it was a free gift)  and CGT will soon be 40% rate anyway

Albermarle

, we are a close family and she will be looked after by us in our homes when the time comes, she won't be made to go in to a home for example (she is 90 currently) and would continue living with us and we would care for her / get carers if needed, so we don't feel there is any reason the home would not be hers at the time of death

Nice sentiments, but just be aware that she still might need to go into a home in certain circumstances.
Also as she owns her own home, she will have to pay for all care either at home, or in a home. If she has no ready cash, the local authority will run up a debt against the value of the house and reclaim this when it is eventually sold. 

Keep_pedalling

It would be incredible foolish for her to transfer the house now. Her estate is well below the level of IHT because of the transferable allowances from her husband and her own residential NRB.

She may need her house to pay for residential care at some time in the future so you are rather counting you chickens here, and please don’t think her giving her home away will avoid that because there is a thing called deliberate deprivation of assets that applies to that wheeze. 

DE_612183

_Penny_Dreadful said:

horsewithnoname said:

Just pay your tax. Tax avoidance is only for rich people 🙄

Rubbish. Anyone with an ISA benefits from tax avoidance as do people with private pensions, especially those in the higher tax brackets.  Next you’ll be trotting out the, “pay your fair share,” line which nobody does as people pay what is legally due and not a penny more.

In this case it’s unlikely IHT will be due as the estate is under £1 million and even if it were due it wouldn’t be the OP’s tax to pay but that of the deceased’s estate. If you want to maximise the amount of tax paid by the OP then you should be encouraging them to create a CGT liability by having the property transferred now because as @Bookworm105 points out transferring your main residence into someone else’s name to avoid IHT, which is often unlikely to be due anyway, is the single most stupid thing people to when DIY’ing estate planning. 

I agree - you could take it to the point of using your personal tax allowance is avoiding paying tax...