MegaSack DRAW - This year's winner is user - rgwb
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Is there any reason that we can't buy my inlaw's house for £10 or even £100000?
It's registered solely in my mother inlaws name so will get mightily clobbered with tax.
House is probably worth £700k, between the siblings we could probably rustle up £500k. Surely you can't have to sell at market price.
Isn't the done thing just set yourself up as a limited company (probably based in Luxembourg), and then buy it through that?
As your tax accountant, that advice will be £500,000 please? 😉
Sounds like a biggish house. When she pops don't tell anyone and stick her ina rocking chair in the loft, overlooking your motel. Wear her clothes a bit too.
Get her to transfer as a gift, (Not sure of the exact process) it to you. So long as she lives for 7 years there is no tax. My Mom did it for me years ago. She still lives in it. I think she has to pay us some sort of nominal rent as part of it but we mostly ignore that.
Get her to transfer as a gift, (Not sure of the exact process) it to you. So long as she lives for 7 years there is no tax. My Mom did it for me years ago. [b]She still lives in it. I think she has to pay us some sort of nominal rent as part of it but we mostly ignore that.[/b]
Brilliant advice. Failed inheritance tax planning and/or fraud. Well done.
🙂
She is 80 so the 7 years is not guaranteed to happen.
Inheritance tax aside, you'd be avoiding stamp duty and would be spotted immediately.
You probably need some sort if trust and advice fromna specialist.
Should be rented back to her at at market rate:
https://www.gov.uk/inheritance-tax/inheritance-tax-planning-passing-on-property
In the OP case I suspect the difference between the sale price and market rate would classed as a gift so subject to tax. You might get away with a few thousand below but not hundreds
Is there any reason that we can't buy my inlaw's house for £10
If your MIL sells you a £700k house for £10, she has made a gift for IHT purposes of £690,990. If she continues to occupy the house after selling it to you at an undervalue, then she will be treated as still owning it for tax purposes.
If she moves out completely, she is in the clear if she survives 7 years.
Frustratingly dim though HMRC are, the rules usually do prevent the most obvious things you can come up with.
🙂
Gifting won't work unless she pays a commercial market rent if continuing to live there otherwise HMRC will see straight through it and come knocking.
Good luck with that uggski.
What position are the release your equity companies in ?
Surely the government want some blood from them?
She still lives in it. I think she has to pay us some sort of nominal rent as part of it but we mostly ignore that.
Gift with reservation then. Good luck with that!
Paypal?
She is 80 so the 7 years is not guaranteed to happen.
If you do nothing, or decide in a year or two to proceed, you're def. fighting against Time.
FWIW, we thought the same re my mum, 5 years ago, when she was 83 and in 'ok' shape - but at least made a start on whittling away at the value liable for IHT. She's now 88 and, although fading, is likely to be around for a bit yet!
Paypal Gift ?
Raffle ?
Lets be honest, even if you do have to pay inheritance tax, with a £700k house you'll still end up with a sizeable amount of money left to you.
BTW - I'm no fan of inheritance tax, why after paying taxes all your life to build your estate should your benefactors have to pay tax again.
Was your MIL married? I'm assuming so, and that he has died already (apologies for the bluntness of this). If he has, did he use any of his Nil Rate Band (this is the amount that you can have in your estate on death before HMRC take a nice slice of tax?
Assuming he didn't use any of this NRB then your MIL will potentially have £650,000 of Nil Rate Band to utilise (her husbands plus hers).
Therefore, you need to consider what value her total estate is and then 40% over and above the £650,000 will be taxed.
Once you've got an estimate of the tax liability it might be worth looking into the costs of putting a Whole of Life plan in place which would be written into trust to pay the tax liability on her death. You/the beneficiaries of her Will then get the whole estate.
NOTE: this is very broad brush, is not advice and you should speak to an adviser in depth about your/her specific situation before taking any action!
I've just been through all of this writing out a will. Though as she is single I'm not sure how this would work, however;
We've been advised to ensure that our property is registered as tenants in common. This splits the value of the property 50/50 (if two of you) and can be done for £100 through land registry. This means that you are halving the tax liability of the property as it ends up becoming 2 entities.
option 1 is to put these in to residential trusts with provision for people to stay living in it should you wish. This in theory, then allows you to keep passing the share through the bloodline avoiding tax.
Option 2, pay the tax on anything over the 2 x 350K point, in this case 300k @ 40% = £120K
Those that state selling the house to an off-shore account, will still be hit with a 5% fee as it would be considered business use (£50K).
edit, commercial SD, is 15%, so 150K,
Well as I said. The house was gifted to all members of the family on an equal basis. (4 of us) She did it a long time ago when Dad died as she wanted to sort things out. She is now 89 so has lived a lot longer than she thought. My older brother handles all the details. I don't know the exact details as I was living abroad and left it to him. All I know is it will be sold when she dies and the proceeds shared.
just to follow on from mcobie, HMRC will want to see evidence from the Probate solicitors (if used) that this was/wasn't used. HMRC will tie you up if YOU cannot prove NRB hasn't been claimed.
She inherited the house 50 years ago and her husband was never put on the deeds. (funny family ,I know!)
Ps both parents are still alive.
In that case, I would get the tenants in common thing sorted, then each of the parents can leave an equal share whilst halving the tax liability - it can be done in a matter of days.
Land registry -Form SEV. Then get the Wills re-written, amended.
Might be worth looking into as you could still be liable for the tax. Certainly don't think you have done it for ages so you've got away with it now. This could still come back at you
Well as I said. The house was gifted to all members of the family on an equal basis. (4 of us) She did it a long time ago when Dad died as she wanted to sort things out. She is now 89 so has lived a lot longer than she thought. My older brother handles all the details. I don't know the exact details as I was living abroad and left it to him. All I know is it will be sold when she dies and the proceeds shared.
From .gov linked above:
[i]If you don't pay a market rent, the gift will be considered a 'gift with reservation of benefit' and the house may be subject to Inheritance Tax.[/i]
Good advice above, the doubling of the NRB is your most valuable tool.
Some good advice above but given then numbers being discussed, it's well worth paying for proper advice from a professional who will understand the specifics of your situation.
In short though, as above, HMRC like getting their money and have (almost all of) the obvious loopholes covered.
HMRC will want to see evidence from the Probate solicitors (if used) that this was/wasn't used.
If you don't use probate solicitors the executor of the will completes the HMRC forms.
You are all missing the obvious solution...... The OP just has get divorced and then marry the MIL. When the old girl goes on her merry way the OP will not be liable for the tax as he is her spouse.
It could get a bit messy a Christmas with the kids not knowing if he is their Dad or Gramps but think of the savings 😀
Might be worth looking into as you could still be liable for the tax. Certainly don't think you have done it for ages so you've got away with it now. This could still come back at youFrom .gov linked above:
If you don't pay a market rent, the gift will be considered a 'gift with reservation of benefit' and the house may be subject to Inheritance Tax.
I never really thought about it to be honest. Just assumed it was all taken care of. Will ask for a few more details from Bro.
why after paying taxes all your life to build your estate should your benefactors have to pay tax again.
Because the beneficiaries of the will are getting a large amount of free money that they didn't earn.
So they're paying tax on what someone else has paid tax on.
Point is it's a different tax, some agree with it, some don't - but it comes out of the estate of someone who can't care anymore. May lefties think any inheritance is bad as creates greater inequality over time.
Because the beneficiaries of the will are getting a large amount of free money that they didn't earn.
@kona are you a parent ? Do you think it's better the government take what's left after they have taxed you all your life rather than it go to your kids ?
I detest IHT. The real crime is it's paid by the "small people". The wealthy can easily and legally avoid it and no amount of law changes and nashing of teeth is going to change that. For example there is no IHT on farms for the very understandable fact that a farmers son cannot afford to pay 40% of the value of the farm on his father's death. So the wealthy buy farms and estates, job done.
why after paying taxes all your life to build your estate should your benefactors have to pay tax again.Because the beneficiaries of the will are getting a large amount of free money that they didn't earn.
I'm sure Charles will be flogging Buck House when Her Maj pops off.
So they're paying tax on what someone else has paid tax on.
Not when said money come from house price inflation, as it the case for the vast majority of cases.
Besides it's not like it's the only tax that is like that. If I get work done on by a tradesman (at overly inflated prices obviously) it comes from my net income so I've paid tax on it and yet that tradesman also has to pay tax on it.
I forced my mum to sell me her house for a pittance, then have been charging her over market rate (so as not to upset the taxman). All this is to avoid inheritance tax like you...
It's OK though - she's only 55 and still works, so can afford to pay me.
DrP
(Some/all of this cruel venture may be made up!)
Not when said money come from house price inflation, as it the case for the vast majority of cases
@gonefishin - countries around the world (all I can think of) do not charge capital gains tax on your primary residence, thinking of money made form house price appreciation as somehow not earned and thus not legitimate is very muddled. The same applies to IHT and thinking it's legitimate as the money comes from house price appreciation.
I'm sure Charles will be flogging Buck House when Her Maj pops off.
@Zippy the Queen doesn't own Buck House so it would not be part of her estate. As I posted above the rich don't pay IHT as they plan for it, its a tax on middle class and/or the un-informed.
@DrP - perhaps you login should be "Dr J&H". You'll be telling us next she pays rent-in-kind by doing drug trials for you. 😉
I detest IHT. The real crime is it's paid by the "small people". The wealthy can easily and legally avoid it and no amount of law changes and nashing of teeth is going to change that.
^ This.
+2
In answer to the OP, one way to arrange things would be for you to buy the property at a low price, and then charge a proper rent. The low price makes it a potentially exempt gift, so your mum has to survive 7 years to be fully clear of IHT tax, but it starts to get discounted at 3 or 4 years. The fair market rent means it's *not* a gift with reservation.
Eg you pay 120,000 and she then starts to pay 12,000 pa rent. So you'll be giving her enough money for 10 years rent anyway, you can change the numbers to suit yourself. After 7y there should be no tax to pay on her death, other than what you inherit out of the 120,000 (and other assets of course).
On the other hand, your new house will accrue a CGT liability based on any increase over future years, but this will almost certainly be much lower than IHT.
If any financial pros want to correct possible misunderstandings in the above, please do so!
@gonefishin - countries around the world (all I can think of) do not charge capital gains tax on your primary residence, thinking of money made form house price appreciation as somehow not earned and thus not legitimate is very muddled. The same applies to IHT and thinking it's legitimate as the money comes from house price appreciation.
YOU do not pay CGT on the sale of YOUR home that You've bought with YOUR money that's true. In the case of IHT however you receive an asset that someone else has paid for and effectively given you. That's a very different thing.
Question for those using the gift and rent route to avoid.
Should your parents require lengthy care home treatment as they near the end of their days, will you put your hand I your pocket to pay for this out if the assets that would have otherwise scored against the means test. Or are you happy for the costs to be picked up from general taxation?
@olddog - homecare treatment if necessary, lengthy or otherwise, should be provided by the state. Full Stop. It should not be means tested.
Olddog I would hope that their lifetime of NI payments would cover that.
Olddog I would hope that their lifetime of NI payments would cover that.
But it doesn't, and the current rules are that a means test applies and those that don't use IHT avoidance cop for it. That is the reality.
For your argument to work we should pay more tax and have fully funded nursing home care - fine by me.
olddog, I think councils are quite aware of side routes such and gift and leaseback - they're certainly clued up on it here.
FWIW, I would expect to pay, yes, if my parents had given away assets that would/could otherwise have been used to pay care fees.
So they're paying tax on what someone else has paid tax on.
Much like paying council tax with your taxed salary.
Should your parents require lengthy care home treatment as they near the end of their days, will you put your hand I your pocket to pay for this out if the assets that would have otherwise scored against the means test. Or are you happy for the costs to be picked up from general taxation?We may just take her for a long walk off a short pier. 😯 🙂
[quote=DrP ](Some/all of this cruel venture may be made up!)
This bit?
It's OK though - she's only 55 and still works, so can afford to pay me.
I find it amazing that people build up an pot of money for their retirement, then want to give it to their children and expect the state to pick any care bills. You save money for YOUR rainy day and now it is raining. Your NI and tax contributions are not sufficient to cover all the bills (unless you are in the top 1% of earners). At best they will cover a very minimum level of care. And remember that the NI/Tax that they paid covered the bills at the time - it is our NI/Tax which is covering the bills now. Our childre.n (and grand-children) will be paying our bills through their NI/Tax
The rich have always passed money down the generations, mainly in the form of land. Until recently the number of people affected by IHT was tiny. It has increased, mainly because the IHT threshold has not risen in the same pace as house inflation in the SE of the UK.
You can argue all you want about IHT - but it is not going to vanish - look at the amount that HMRC receive from it - which is paid generally by the rich.
Even now the majority of people are still not impacted with IHT, especially where it is two people leaving their assets. For those people who are going to have more, it is their decision about what they want to do with it after they die, not the next generation. As such they need to make sure that any tax planning is done in plenty of time.
(Just been through all of this - my In-Laws passed away - 10 years apart - and we spent the best part of a year working through their tax planning and sorting it out with HMRC. The cost of the legal team was more than offset with the saving that they made. Even though me and my better half are only in out 50's we have already done out tax planning for our deaths as the savings can be passed down generations).
@olddog - IMO we pay more than enough NI to cover the care of the elderly. Too much of the welfare budget is wasted elsewhere.
@ransos - there are countries where property taxes are deductible against income tax. In any case council "tax" is a charge for specific local services.
I'm going to follow the example of our great leader, "call me dave" Cameron when it comes to inheritance tax.
Fiddle it/scam it/fraud/not pay it.
@olddog - IMO we pay more than enough NI to cover the care of the elderly. Too much of the welfare budget is wasted elsewhere
This may or may not be true and is a different argument. But the reality is that elderly care is means tested - so avoiding this means that everyone else is paying.
BTW NI is a red herring - it is nowhere near enough to cover what it was first introduced for - pensions and healthcare. UK tax (apart from council tax) is not hypothecated - all tax goes into one central pot from which is spent. Govts occasionally make out such and such a tax rise is linked to an initiative, but it isn't the case.
NI is just a different way of structuring one element of income tax
NI is just a different way of structuring one element of income tax
Yes agreed. The Tories have once more been kicking around the idea of abolishing it. The problem is that everyone will realise the basic rate of tax is closer to 35% than 25%
Fiddle it/scam it/fraud/not pay it.
Cameron senior/junior did none of the first three. He did not pay it as it was not due, he legitimately and legally structured around it. I have no intention of paying it, I will structure around it (already have quite a bit of planning in place re life insurance etc). That option is available to me and I am very much aware of the tax. It should be abolished for the reason I gave above as many are not or do not have the wherewithal to avoid it.
It should be abolished for the reason I gave above as many are not or do not have the wherewithal to avoid it.
We should only have taxes that everyone can avoid? Sounds good.
"I'm going to follow the example of our great leader, "call me dave" Cameron when it comes to inheritance tax.
Fiddle it/scam it/fraud/not pay it."
interesting, explain.
TBH its the sign of a bad tax that encourages ordinary people to avoid it. Tax is as much about social engineering as it is about revenue raising and I think the point of IHT has been lost - particularly as it is so easy to structure so it doesn't fall due,
Maybe just abolish IHT and charge a higher annual property tax to cover the shortfall - that may actually have a beneficial effect of taking some of the heat out of house price inflation.
[i]I detest IHT. The real crime is it's paid by the "small people". The wealthy can easily and legally avoid it and no amount of law changes and nashing of teeth is going to change that.[/i]
The OP house is worth £700k, that ain't small change. Worth spending a bit of cash to get decent legal advice.
The problem with abolishing inheritance tax completely, at this particular time,or any time recently, lies in the seriously wonky economy we now have. Where house price rises (in the South East) are used to hide the fact theres no economic growth.
So, we find out today that London properties have increased by 25% in the last year. So if you stand to inherit a London property then you're effectively 'earning' 25% returns PA. So the rich buy them purely as investments, and then pass them to their offspring.
Anyone get a 25% pay rise last year? No. Me neither. So we have yet another symptom of a lop-sided and unsustainable economic model, year on year, increasingly inequality massively, with the children of the rich benefitting enormously for doing absolutely nowt other than being the children of the rich.
The fact that they don't want to pay any tax on their good fortune (for that is all it is - they just got lucky by birth. Hardly meritocratic is it?) is pretty much par for the course.
Inheritance tax might appear to be unfair in a differently balanced economy, but in the present bonkers environment its one of the few things keeping rampantly increasing inequality at bay
We're just wading through the the inheritance tax affairs of my Mum who died in December (Dad died 6 years before that) - I say 'we', in fact it's my BIL who is an accountant and ex-company chairman.
The bottom line tends to be don't mess with the inland revenue.
If you use any maginally slightly dodgy methods to try and reduce the IT they WILL spot it and will then start going through the rest of the estate with a fine tooth comb.
This may not sounds so bad but they WILL find everything and the process can delay probate being granted for a very long time (we're talking years here). During this time all the bank accounts are frozen and you'll not be able sell parts of the state (such as a house) whether you want to or not. This can cause massive problems as mortgages, bills, etc. still have to be paid during this time.
So the moral is.... try it at your own risk.
We're up to 7 months so far and they're yet to start querying values of everything.
IHT would be a near-perfect tax were it not for all the loopholes. Dead people don't need money, and their beneficiaries are getting a free gift that they have no moral claim on anyway, so have no reasonable grounds for complaint if the gift is a bit less than they had wanted. The idea that the dead person should have the right to do what they want with all of their money, *after* they are dead, is idiotic. They are dead. If it mattered so much, they should have done it while they were alive.
Captain,explain how the government have a moral right to the money.
I'm pretty sure this is what a will is.If it mattered so much, they should have done it while they were alive.
Do I have no moral claim on the belongings that were once my mothers? Thanks for letting me know.their beneficiaries are getting a free gift that they have no moral claim on anyway
In what way does it seem fair that someone works and earns money, then pays tax on that money, only to be taxed again on that money for no other reason other than the fact that they've died?
I detest IHT. The real crime is it's paid by the "small people". The wealthy can easily and legally avoid it and no amount of law changes and nashing of teeth is going to change that.
^ This
This what?
"This is bollocks" maybe?
IHT is not paid by the "small people". It's paid by the well off and the fortunate. In 2011/12 only 3% of deaths triggered any inhertiance tax to be paid.
You have to be fairly wealthy to pay inhertiance tax.
If you really want to gift your estate to your ofspring do it when it makes a difference, spend money on them when they are young, give them a chance to create their own money.
Given that a lot of estates will mainly consist of property, presumably bought some time ago with a mortgage, tax relief will have been given on the payments up to the mid 70's after that on the interest payments.
It's only recent years that it was abolished.
So maybe the wealth was accrued tax free after all in a lot of cases? 🙂
Of course we all hate paying tax, but some of us view it as necessary for society to function. I'd much rather that taxes are levied on the unearned windfalls that people get through luck of having parents who jumped on the property ladder at the right time, than on earnings of people who aim to better themselves through work. The torygraph-esque bleatings of 50-somethings drooling at the prospect of a massive payout make me sick. And I say that as someone who expects to benefit from a large windfall of this nature in the next decade(ish), unless it's eaten up by the astronomical costs of care, so it's hardly a matter of jealousy.
I'd much rather that taxes are levied on the unearned windfalls that people get through luck of having parents who jumped on the property ladder at the right time, than on earnings of people who aim to better themselves through work.
But it doesn't work like that does it? My Mum certainly made a bit of money on property (first house they bought in 1958 cost about £2k), but at the age of 55 she packed in her NHS job and started her own business employing in excess of 20 people at any one time until she retired at 76.
She made three times from the business than she did from rising house prices (and paid plenty of tax on those earnings) yet she's paying tax on it all over again.
She made three times from the business than she did from rising house prices (and paid plenty of tax on those earnings) yet she's paying tax on it all over again.
In the context of Inheritance Tax she's not paying anything though is she. You might, but she won't.
Crikey ... 😯
This inheritance tax who started it? 🙄
Get her to transfer as a gift, (Not sure of the exact process) it to you. So long as she lives for 7 years there is no tax. My Mom did it for me years ago. She still lives in it. I think she has to pay us some sort of nominal rent as part of it but we mostly ignore that.
Would be very wary of following that advice especially the last bit. Unless you want a nasty shock.
Hard earned money by parents, grandparent etc being taxed, more taxed and further taxed.
The system is truly parasitic ... 😯
I wonder if this will happen in Scotland once they gained independence.
I'm sure it won't happen when UKIP are in power.
You might, but she won't.
Seeing as the tax is paid from the deceased persons estate, you could argue that they/she is.
You could argue that
Seeing as the tax is paid from the deceased persons estate, you could argue that they/she is.
You could but it'd be a very very weak argument. You could also argue that the best way for her to avoid the tax would be to spend the money until it less than the threshold, or give it to charity.
Hard earned money by parents, grandparent etc being taxed, more taxed and further taxed.The system is truly parasitic .
Does that not depend what the tax is then spent on?
Do you think all tax and subsequent spending by government is parasitic?
Do you not believe in society helping the poorer by taxing the richer?
I reckon VAT is a far more "parasitic" tax than inheritance tax.
[i]I find it amazing that people build up an pot of money for their retirement, then want to give it to their children and expect the state to pick any care bills. You save money for YOUR rainy day and now it is raining. [/i]
This
We live in a country where we help the poorer by taxing the richer, in fact one of the most generous in that regard. Its a matter of degree. I am firmly of the view that IHT is a scandalous tax. Some here seem to think that profits from property as somehow not earnt, this is not my view, most of our parents and those before them worked very hard to be able to buy a property making many sacrifices to do so. They had the foresight to buy.
John Major talked about abolishing it and it's time we do the same. I posted that it affects the "small people" as the really wealthy, the top 1% if you like to use that banner, don't pay it. They arrange their affairs to bypass the tax. It's that next level who pay unwittingly.
@gonefishin, you are quite right the easiest way to avoid IHT is to "spend" the money.
@IHN, we have until recently looked after the sick and elderly without a means test. I am firmly of the view that a lifetime of tax payments entitle you to free healthcare in your old age.