Inheritance Tax

[Helen Barber]

Just looking for some free advice rather than paying someone at the minute.

My mother has just divorced and is currently living with us. We would all like to move to a bigger house once my Mother receives her settlement, from her divorce = £200k

If my Mother say invests 180k into a new property with me and my wife would we have to pay tax on it in the future?... Or could the government take it out the property if she needed health care etc?

Is she maybe best to gift us the 180k as soon as she receives it, with the 7 year rule to avoid tax having to be paid.

My mother has left us in her will everything, so alongside my Mother just wanting to understand what the best course of action is.

Thanks

 

[Chris Wilson]

Your mother needs to consider her future security in a property not in her name, should you and your wife divorce at some later date. Whilst this may be something you cannot contemplate a similar situation befell acquaintances of mine and it was a legal mess, with the mother potentially left financially crippled.

 

[danlightbulb]

https://www.gov.uk/inheritance-tax
https://www.gov.uk/inheritance-tax/passing-on-home


Threshold for tax could be £325k or perhaps £500k in your circumstance, so you might be fine.

 

[Martynt74]

It's a tricky one. I would've thought that the government couldn't make as much of a claim on the money gifted for health care given there's a reasonable reason for doing so and not just to try and move assets on to avoid paying it in the future. Assuming of course that your mother is currently fairly fit and healthy and not in need of care.

As @Chris Wilson mentions though, there are other factors to be considered and it may make sense for her to be included on the deeds.

Inheritance wise i would say you're fine.

 

[Raymond Lin]

My memory on IHT is hazy but unless they changed things, what i remember is Taper Relief is your friend, 1 time lifetime gift, 7 years terms (sliding scale).

 

[SpeedFreak]

Seem like this all falls within the IHT allowances. In which case the best thing to do is name you as sole beneficiary in her will. Adding your wife to any document is an unnecessary complication and gifting the house to you before she passes seems a risk, especially if she needs to live in it.

 

[Martynt74]

Seem like this all falls within the IHT allowances. In which case the best thing to do is name you as sole beneficiary in her will. Adding your wife to any document is an unnecessary complication and gifting the house to you before she passes seems a risk, especially if she needs to live in it.

I think the issue though is that they need the money now to be able to buy the new bigger house.

 

[EddScott]

Couple of things:

Main IHT threshold is £325K
There is an additional allowance for when a residence is passed to immediately family of £175K (this was initially "Main residence" but this seems to have been dropped. Have never seen anyone use anything other than main residence thus far.
You would probably want to own the property as "tenants in common" with each person's share of the purchase price being used as a % of ownership.
This would not protect your mothers share from any claim the local council may try to make on the estate - or during lifetime to pay for care fees.
This would protect all parties share in the property in lieu of a breakdown in relationship - although I'm not sure whether if married parties brought unequal amounts to the party, those unequal amounts would hold in divorce settlements.
I believe the rules as to what is and isn't claimed is deliberately woolly as it is up to individual councils as to how hard they want to chase people for it - I could be wrong here though. I've never had to go through the mechanics of it.
You may even be able to have your mother give you a gifted deposit of her share and not put her on the deeds which may avoid a claim for care in the future - although this does leave her vulnerable and there's the moral question too.

As an aside - the 7 year rule taper relief only applies to gifts once all gifts have exceeded £325K (you can't apply a taper on something that is within the 325K threshold)

 

[SpeedFreak]

I think the issue though is that they need the money now to be able to buy the new bigger house.

Ah, missed that.

 

[PlacidCasual]

If you need a mortgage the tenants in common thing is going to be difficult. It is unlikely the mortgage company with your mother on the deeds but not responsible for the mortgage. At least that is the advice I have received for wanting to do something similar.

 

[Voltar]

Just looking for some free advice rather than paying someone at the minute.

Would have thought with potentially big sums of money and potential tax implications you’d want to go get some proper advice rather than go to a computer forum…

many variables in play with your scenario but hope you can find a way of doing what’s best for your mother.

 

[pepp77]

If you need a mortgage the tenants in common thing is going to be difficult. It is unlikely the mortgage company with your mother on the deeds but not responsible for the mortgage. At least that is the advice I have received for wanting to do something similar.

I spoke to L&C when I had this situation, was buying via right to buy from the council, so as mum was the tenant she had to be on the purchase with me as the addon. However my mum was 62 at the time and just about to retire so I got L&C to sort me a mortgage where my mum was on the mortgage and deeds, but only my finances were used to secure the mortgage. This was only a £112k mortgage so was easily able to cover the costs on just my income.

 

[mattyfez]

Yes, speak to a solicitor, you'll need wills drawing up correctly anyway to make sure everything is as you want it with no ambiguity. i.e what happens if you divorce, or if you or the wife die before the mother etc. etc.
They will also be able to advise on tax implications at the same time.

Any good solicitor will give you a free consultation, so speak to a few to get a feel for which sounds better to deal with.

 

[dowie]

Just as a general point you can't just give away a property (or share of a property) and then carry on living in it and expect it to be exempt from IHT, she would need to pay rent at market rate if she wanted to lives there and have it count as a potentially exempt transfer after 7 years otherwise it's a gift with the reservation of benefit and still included in the estate.

It's a bit moot in this case as the amount concerned is lower than the IHT threshold and it's not necessarily a property (or share of a property) she'd be giving away if she's just going to gift you £180k in cash, that is a bit risky for her if that is basically almost all of her wealth.

If she has to go into a care home shortly after gifting you guys her assets then a local authority might well object to that I guess if it's just some years in the future type risk then not so much. The other risk is what happens if you divorce - you'll potentially lose half of your bigger home and therefore half of the additional 180k equity provided by your mother.

 

[booyaka]

Love it - complicated situation - but wants "free advice" from internet.

Go and get some proper advice based on your situation and requirements...

You have a number of things you need to consider:

IHT, Long Term Care planning, Gifting of assets to name but a few. You don't mention things like your children, future children etc - Without proper advice based on your circumstances, financial situation etc - you run the risk of making a total mess of it all.

@dowie has outlined the basics - But some proper planning based on your full financial situation is required if you are concerned about the situation.