Self build mortgage and Inheritance tax?

1pudding1

1pudding1

1pudding1

Associate
Joined
25 Jul 2003
Posts
1,241
Location
Cornwall/Bristol
Hi, hope somebody can help with a few questions on the off chance someone on here is knowledgeable in this area.

I plan on building my own house next year. We have planning permission already. The house is to be built on a piece of land the father in law owns 25 miles from his main residence, and that he bought last year with planning permission already approved on it, for £100k.

Initially, in order to get a self build mortgage, I thought the best way is to have the land gifted to my wife, and then we can use that as equity for a self build mortgage? However father in law is concerned about inheritance tax if we do that, and has suggested keeping the land in his name and then him acting as a guarantor on our mortgage, using the land as equity, if that's even possible?

If we did have the land transferred to our name, and the worst did happen to the father in law, all his assets would be passed to the mother in law. In this case we would still not be liable for any IHT then I assume, unless the worst should happen to her with 7 years of the gift of land?

Any suggestions on the best way forward? How to avoid any tax issues and use the land as equity to get the best self build mortgage?

Thanks.
 
1pudding1: Have you been to 'The National Self Build & Renovation Centre' at Swindon,
great place for advice & ideas for self builders, they have financial/legal advisors help there, & they do free one-to-one consultation.

http://www.buildstore.co.uk/mykindofhome/index.html


Wish you posted this earlier, as I only just come back from the skips,could have gave you over 700 issues of Build It & other self build magazines I've had lurking here & had to go.
 
Last edited:
If he gives it to his daughter, there is potentially tax to pay if he dies within 7 years of the gift (this reduces each year).

If he keeps it, there will be potentially tax to pay if he leaves it to her in his will. There will be no tax to pay if he leaves it to his wife.

Then you're back to the same situation with the mother.
 
csmager said:
If he gives it to his daughter, there is potentially tax to pay if he dies within 7 years of the gift (this reduces each year).

If he keeps it, there will be potentially tax to pay if he leaves it to her in his will. There will be no tax to pay if he leaves it to his wife.

Then you're back to the same situation with the mother.
Click to expand...

This.

However there is a threshold of £325k each. So if the father passes away and his estate passes on to his wife, then he will also be giving his threshold to her, so the total would be £650k tax free. Depending on what his left to whom, and the value, whatever exceeds that there will be tax needed to pay on it.

EDIT: As far as I'm aware and please correct me if I'm wrong, cash gifts can only be gifted of £3k a year by a party to another. I'm not sure about material possessions.
 
Vita said:
EDIT: As far as I'm aware and please correct me if I'm wrong, cash gifts can only be gifted of £3k a year by a party to another. I'm not sure about material possessions.
Click to expand...
You can gift what you like. This limit is before it becomes a Potentially Exempt Transfer (i.e. only exempt if they live for 7 years).

There's also exemptions for normal/habitual payments out of income (not capital) that might exceed this.
 
csmager said:
You can gift what you like. This limit is before it becomes a Potentially Exempt Transfer (i.e. only exempt if they live for 7 years).

There's also exemptions for normal/habitual payments out of income (not capital) that might exceed this.
Click to expand...

Thanks for clearing that up. :cool:
 
There's no disadvantage to gifting the land now and there could potentially be a IHT advantage if he lives for a few more years. The rule isn't a flat 7 years, it's tapered.

Taper Relief reductions

3 to 4 years - 20%
4 to 5 years - 40%
5 to 6 years - 60%
6 to 7 years - 80%
 
This is almost the situation i am looking into myself although a little different.

My inlaws are almost due to retire and my father in law wants a project to do over the next few years and they have been thinking about moving house and buying something a little run down to do up and sell again.

I talked this over with my wife and I think we are going to sell our house as well and then we can afford to get a much bigger house and all move in together.

My in laws have no mortage on there current property and so would look to gift us a sum of money to put towards the new property. The dont want any share in the new house becuase it will ultimatly be left to us anyway I just wondered if this is legally possible in a round about way while taking advantage of any tax savings we can make?

We will be looking to use some of the money from the sale of thier house to build an extention to the house we buy and doing the house up to a very good standard and then moving again and rinse and repeat at least until my father in law has had enough but he seems to think we could this every 18months or so over the next few years and hopefully we will be reducing our mortage and increasing our house size along the way.
 
Last edited:
We had a similar problem. In the end my father inlaw gifted us the land, hes still alive! We couldnt see anyway round the tax problem either. The mortgage company will want to see copies of the deeds for the land in your name. We went with birmingham midshire, they were really good, no long wait for the money transfered and their inspectors came out pretty prompt aswell.
 
Thanks for the advice. Yes Im actually going to Buildstore on Friday to talk to them there about finance. Shame about the mags, would've come in handy, but Ive got a years worth of Home Building & Renovation mags from the father in law to keep me going ;)

I didn't know that the £325k allowance would be combined into £650 tax free Vita, thanks for that. Will look into that to make sure, but if thats true, then Im sure we'd be fine should the worst happens and they both pass away within 7 years.

It does seem like the easiest way is to transfer the land to my wife and then use that for the equity for the self build mortgage.

Cheers :)
 
You must log in or register to reply here.
Back
Top Bottom