Inheritance tax - gifting house / money
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Sharky2010
Posts: 12 Forumite
in Cutting tax
Hi.
Not sure whether this is the best forum to post on with this query but any advice appreciated! Essentially I currently rent my house from my parents who bought it mortgage free about 4 years ago. We were planning on an extension carried out mainly by my dad (again with any extras, materials etc paid for by my parents). The eventual plan was the house would be given to me as part of my inheritance so my mum and dad benefit from the income now and we are not losing money to a bank etc
Circumstances have now changed due to my dad sadly being diagnosed with terminal cancer and therefore unable to carry out the build. It has also made my dad look more at his finances and wants to sort things out to avoid paying inheritance tax (from my mum's estate) in the future. He will obviously pass everything to her on his death.
We still want to have the extension (this is very important to my dad) but it's how this best happens. He does need to clear some value off his and my mum's estate to avoid inheritance tax! so current thoughts are:-
He gives me and my sister an equal amount of cash and I pay for the extension to be done from this. We would then continue to pay rent to my mum and she would still own the house. However I am unsure how this would work in the future as she would effectively own the part of the house we have paid for as well as the original house?
Transfer part of the house to me and then pay for the extension themselves from their estate. Would this then remove this part of the estate from the amount for inheritance tax etc - what happens with changes in valuations of the house etc?
As you can see I am not very clued up on all this and making these decisions at an already stressful time for our family is really not helping. Does anyone have any advice how we would be best proceeding??
Thanks
Not sure whether this is the best forum to post on with this query but any advice appreciated! Essentially I currently rent my house from my parents who bought it mortgage free about 4 years ago. We were planning on an extension carried out mainly by my dad (again with any extras, materials etc paid for by my parents). The eventual plan was the house would be given to me as part of my inheritance so my mum and dad benefit from the income now and we are not losing money to a bank etc
Circumstances have now changed due to my dad sadly being diagnosed with terminal cancer and therefore unable to carry out the build. It has also made my dad look more at his finances and wants to sort things out to avoid paying inheritance tax (from my mum's estate) in the future. He will obviously pass everything to her on his death.
We still want to have the extension (this is very important to my dad) but it's how this best happens. He does need to clear some value off his and my mum's estate to avoid inheritance tax! so current thoughts are:-
He gives me and my sister an equal amount of cash and I pay for the extension to be done from this. We would then continue to pay rent to my mum and she would still own the house. However I am unsure how this would work in the future as she would effectively own the part of the house we have paid for as well as the original house?
Transfer part of the house to me and then pay for the extension themselves from their estate. Would this then remove this part of the estate from the amount for inheritance tax etc - what happens with changes in valuations of the house etc?
As you can see I am not very clued up on all this and making these decisions at an already stressful time for our family is really not helping. Does anyone have any advice how we would be best proceeding??
Thanks
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Comments
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Sharky2010 wrote: »He gives me and my sister an equal amount of cash and I pay for the extension to be done from this. We would then continue to pay rent to my mum and she would still own the house. ....
Transfer part of the house to me and then pay for the extension themselves from their estate. Would this then remove this part of the estate from the amount for inheritance tax etc
The first would be the worst of all options, I think. The gift of cash (assuming your father dies within 7 years) would be subject to IHT, and the increased value of the house from the extension being built on the house he still owns would also be subject to IHT (or possibly Capital Gains Tax during his lifetime as it's not his main residence).
The second, the part of the house transferred would be a gift and, if within 7 years of death, would also be counted towards IHT.
If he pays for an extension on a house that he owns and rents out shouldn't be a gift, but you will have to be careful that it isn't seen as one to you. Do you have a standard tenancy at fair market value?A kind word lasts a minute, a skelped erse is sair for a day.0 -
If the estate is substantial then your parents would benefit from expert, professional advice concerning their wills.
https://www.step.org/member-directory
The solicitor would deal with the wills and any will trust and would also be able to put them in touch with an accountant specialising in tax.
https://www.moneysavingexpert.com/family/inheritance-tax-planning-iht/0 -
Thanks both.
If my mum gave me the money and the house was from her name (assuming she survived 7years) would this then avoid the issue of IHT?? Sadly we don't expect my dad to survive this period of time.
And I should say I would prefer for him to see a specialist in this but he has always managed his own money (very successfully up to now) and is quite resistant to the idea...0 -
but he has always managed his own money (very successfully up to now)
There is a difference between managing money and understanding the rules concerning CGT/IHT/gifts with reservation of benefits.
What does seem clear is that neither you nor he understand the tax ramifications of what is being proposed.
Errors in these areas can be costly. It really would be best to get professional advice.0 -
[FONT=Verdana, sans-serif]Given your dad's life expectancy it would seem better for him not to make any large gifts and to leave everything to your mum.[/FONT]
[FONT=Verdana, sans-serif]Your mum can then gift you cash, property or whatever.[/FONT]0 -
Yes I would definitely prefer him to speak with someone and have told him this but sadly cannot force it....
He is going to leave everything to my mum but the challenge is we want to start to build the extension asap and it's how this best happens. I think he is also keen to move some money out of their estate asap (his diagnosis has made him more aware of the importance of this as although my mum is currently healthy and fit he now sees how quickly they can change)so it hopefully won't be subject to IHT.0 -
Do your parents currently own the property as joint tenants or as tenants in common?
And the marital home - how is that owned?0 -
Sharky2010 wrote: »Yes I would definitely prefer him to speak with someone and have told him this but sadly cannot force it....
Could you take advice so that you can at least point out the worst pitfalls of anything he thinks of doing?0 -
They are joint tenants on both...0
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Sorry to hear about the situation with your father.
I would echo the advice that he should not try to DIY his inheritance planning.Without professional advice from a STEP qualified solicitor,it is safest to do nothing.
In terms of tax,you will need to consider for the future any CGT liability your mother might incur,as well as the rent you are paying to her being taxable as income.
You and your wife could gift up to £6k a year to your mother between you ,free of tax to her
I believe the gift for the extension could come from your mother alone,and would then be subject to 7 years of her continuing life,but it would be safest to have professional confirmation of this.
Your parents estate is currently free of IHT up to £900k and this will increase by a further £50k next financial year.
I cannot see the problem with the extension.Your father can gift you the money and the worst that can happen is that the gift fails for tax purposes and the percentage of nil rate band available when your mother passes is reduced.If it would make him happy for this to proceed,then go ahead and do it.0
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