Inheritance tax.

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  • Inheritance tax.
  • Premier Icon zippykona
    Subscriber

    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.

    Premier Icon binners
    Subscriber

    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.

    uggski
    Member

    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.

    Premier Icon BigDummy
    Subscriber

    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.

    Brilliant advice. Failed inheritance tax planning and/or fraud. Well done.

    🙂

    Premier Icon zippykona
    Subscriber

    She is 80 so the 7 years is not guaranteed to happen.

    petrieboy
    Member

    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.

    nickjb
    Member

    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

    Premier Icon BigDummy
    Subscriber

    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.

    🙂

    s1m0n
    Member

    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.

    Premier Icon zippykona
    Subscriber

    What position are the release your equity companies in ?
    Surely the government want some blood from them?

    Premier Icon kcal
    Subscriber

    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!

    Premier Icon binners
    Subscriber
    Premier Icon kcal
    Subscriber

    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!

    Premier Icon rickmeister
    Subscriber

    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.

    mcobie
    Member

    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!

    Sui
    Member

    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,

    uggski
    Member

    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.

    Sui
    Member

    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.

    Premier Icon zippykona
    Subscriber

    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.

    Sui
    Member

    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.

    nickjb
    Member

    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.

    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

    From .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.

    jambalaya
    Member

    Good advice above, the doubling of the NRB is your most valuable tool.

    Premier Icon nemesis
    Subscriber

    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.

    jambalaya
    Member

    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.

    Matt24k
    Member

    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 😀

    uggski
    Member

    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

    From .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.

    konabunny
    Member

    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.

    mudshark
    Member

    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.

    jambalaya
    Member

    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.

    Premier Icon zippykona
    Subscriber

    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.

    gonefishin
    Member

    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.

    DrP
    Member

    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!)

    jambalaya
    Member

    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.

    jambalaya
    Member

    @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.

    thecaptain
    Member

    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
    Member

    @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.

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