should my wife's name be on her mum's deeds?
Discussion
I've talked 'inheritance tax' on here before but have another question! Though we will 'do alright' according to my mother in law, there will still be a big tax bill. Now we are not greedy and we do know we'll 'do alright', but that doesn't mean we want to see £250k given to the tax man!
The trouble is, as with so many old people, she is quoting things from the past that are not relevant in today's world. Absolutely stuck in her ways 'You'll do alright, everyone has to pay inheritance tax, there's nothing you can do about it'. We keep saying that it's not about us, it's about doing the right thing for your family for generations on. She says she went to her solicitor and guess what?...he said 'your daughter will do alright, there's nothing you can do about it'! AAaaaaarggh, it's SO FRUSTRATING, that tax bill is the same as my wife working for 10 years!!!
My wife suggested her name is on the deeds of her mum's house, so does anyone know how that would work? The mother in law is 88 so being realistic, she may not survive 7 years (if this is relevant), but is there a sliding scale that applies to that situation?
The trouble is, as with so many old people, she is quoting things from the past that are not relevant in today's world. Absolutely stuck in her ways 'You'll do alright, everyone has to pay inheritance tax, there's nothing you can do about it'. We keep saying that it's not about us, it's about doing the right thing for your family for generations on. She says she went to her solicitor and guess what?...he said 'your daughter will do alright, there's nothing you can do about it'! AAaaaaarggh, it's SO FRUSTRATING, that tax bill is the same as my wife working for 10 years!!!
My wife suggested her name is on the deeds of her mum's house, so does anyone know how that would work? The mother in law is 88 so being realistic, she may not survive 7 years (if this is relevant), but is there a sliding scale that applies to that situation?
HMRC are wise to people trying to avoid inheritance tax so simply 'gifting' part or all of the house to the daughter whilst she continues to live in the house and the daughter doesn't (I'm assuming this is the case?) and no rent is paid will achieve the sum of sweet FA.
I'm not sure what works any longer but you used to be able to settle the assets into a trust where the grandchildren were the beneficiaries in order to not pay IHT. Probably no good for you though if you're planning on benefiting from the inheritance
I'm not sure what works any longer but you used to be able to settle the assets into a trust where the grandchildren were the beneficiaries in order to not pay IHT. Probably no good for you though if you're planning on benefiting from the inheritance
There is the 7-year rule of course, after which AFAIK a gift becomes exempt. However, as stated HMRC are not stupid and generally if something looks as if it's been done to avoid tax, it can be turned over. Talk to an IHT expert. 'Discounted gift and loan trust' rings a bell - but what do I know! There's a lot at stake here so do it properly and make sure it's waterproof.
OP,
See an adviser about Business Property Relief (BPR), assets could be outside an estate for the purposes of IHT within 2 years. A lot will depends on the liquidity of the assets and how much day to day reliance is placed on access to them. There are lots of more esoteric ways of getting around IHT (Google 'Deathbed IHT' - I once went to a seminar in Birmingham for a laugh and almost wept with laughter at some of the schemes) but it seems that your mum in law doesn't want or need that.
BPR details are available from most half decent IFA or other financial advisers. She could start gifting like mad too, as Simpo says, there is a tapering down of the tax liability over 7 years. A 'Gift Inter Vivos' insurance policy is designed to cover exactly that contingency - at aged 88 though, I don't think she is going to be insurable.
If she stays in the house and retains use, it's referred to as a gift with reservation of benefit. If the house is in her daughter's name, then she will have to pay the market rent rate to avoid the saving of IHT from being challenged - and again, the 7 year rule will apply. If she has done nothing, your mother in law's executors will find it difficult to argue that any measures were based on long term action, precedent or intent.
http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04071...
See an adviser about Business Property Relief (BPR), assets could be outside an estate for the purposes of IHT within 2 years. A lot will depends on the liquidity of the assets and how much day to day reliance is placed on access to them. There are lots of more esoteric ways of getting around IHT (Google 'Deathbed IHT' - I once went to a seminar in Birmingham for a laugh and almost wept with laughter at some of the schemes) but it seems that your mum in law doesn't want or need that.
BPR details are available from most half decent IFA or other financial advisers. She could start gifting like mad too, as Simpo says, there is a tapering down of the tax liability over 7 years. A 'Gift Inter Vivos' insurance policy is designed to cover exactly that contingency - at aged 88 though, I don't think she is going to be insurable.
If she stays in the house and retains use, it's referred to as a gift with reservation of benefit. If the house is in her daughter's name, then she will have to pay the market rent rate to avoid the saving of IHT from being challenged - and again, the 7 year rule will apply. If she has done nothing, your mother in law's executors will find it difficult to argue that any measures were based on long term action, precedent or intent.
http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04071...
Thank you, very helpful info. You can see how money makes money, as we would very likely be quids in if we rented the house from her. However, where do you find an extra £2k per month! My wife even has a legitimate reason to rent from her mum as she works just minutes from mum's house yet spends 2 hours everyday travelling from our house!
Am puzzled about idea of your wife paying her mother rent - surely it would be the other way round; mother gifts house as a potentially exempt transfer (aiming to live 7 years) but continues to live in it and therefore to satisfy the rules she pays her daughter market rent.
Note that that rent would be taxable (minus allowable expenses) at your wife's marginal rate which if she's already paying £25k p.a. in tax, would be one of the higher rate bands.
Remember that there would be a period (2 years) during which no gift / IHT taper relief would be available and wife would be paying tax on her rental income - if MIL was to die during this period you'd be paying income tax plus the full IHT when that fell due.
Note that that rent would be taxable (minus allowable expenses) at your wife's marginal rate which if she's already paying £25k p.a. in tax, would be one of the higher rate bands.
Remember that there would be a period (2 years) during which no gift / IHT taper relief would be available and wife would be paying tax on her rental income - if MIL was to die during this period you'd be paying income tax plus the full IHT when that fell due.
Revisitph said:
Am puzzled about idea of your wife paying her mother rent - surely it would be the other way round; mother gifts house as a potentially exempt transfer (aiming to live 7 years) but continues to live in it and therefore to satisfy the rules she pays her daughter market rent.
Note that that rent would be taxable (minus allowable expenses) at your wife's marginal rate which if she's already paying £25k p.a. in tax, would be one of the higher rate bands.
Remember that there would be a period (2 years) during which no gift / IHT taper relief would be available and wife would be paying tax on her rental income - if MIL was to die during this period you'd be paying income tax plus the full IHT when that fell due.
Yes, you are quite right. I was having a 'thick' moment. I was confusing this with something else I read somewhere about my wife being seen to share the bills with her mum to justify her being a part owner in the eyes of HMRC.Note that that rent would be taxable (minus allowable expenses) at your wife's marginal rate which if she's already paying £25k p.a. in tax, would be one of the higher rate bands.
Remember that there would be a period (2 years) during which no gift / IHT taper relief would be available and wife would be paying tax on her rental income - if MIL was to die during this period you'd be paying income tax plus the full IHT when that fell due.
I suppose one could go to a lot of trouble and expense to save on such a huge tax bill just to find the rules change before the MIL were to die.
AND of course whatever we do to try to minimise this bill, the MIL would have to agree. This in itself is probably a bigger hurdle!
TwigtheWonderkid said:
OP, assuming your F.I.L. left everything to your M.I.L., then she can leave £650K tax free. If you're paying £250K IHT when she dies, then your getting a further £375K on top of the £650K, so £1.025 million. So your MIL is right, you'll do alright! 
Hey Twig, I just saw you over on the 'my cat had kittens' thread! You are quite right, we'll do alright. But by the time I've bought half a dozen supercars, there will be nothing left!!! 
Truthfully though, nobody really wants to give any inheritance away. We know the country needs to run on something, but there's just something about IHT that gripes me!
bernhund said:
there's just something about IHT that gripes me!
Agreed, because it is a tax on money that has already been taxed. You work and earn money; that is taxed. You save what is left and the interest/gains are taxed again. You die and it is taxed a third time.It is all very well saying 'Aha but you are going to inherit a million so what does another £200K matter?' I would say - 'Who wants to throw away £200K if there is a way not to?'
Simpo Two said:
Agreed, because it is a tax on money that has already been taxed.
But that's no different from VAT, Council Tax, or most other taxes. I've already paid tax on my earnings, and now I have to pay tax again on the stuff I buy with them. Nothing new there.It's not that that annoys me about IHT. What annoys me is that the poor will never pay it because they won't inherit enough, the rich will never pay it because they can afford to set up trusts etc to avoid it, so it's left the the people in the middle like the OP to fund the lot.
But I can see the other side. The OP ( or his wife), is going to be getting £1.275m that she hasn't earned. To pay £250K on that isn't exactly bringing a lump to my throat t.b.h.
It doesn't cost much to set up a trust, just a modicum of intelligence and some foresight. The main stumbling block I suspect is that many people have a mental block about intra-generational planning.
The fact that an inheritance has 'not been earned' is not relevant. What is relevant is that the State has already had its slice. The owner of the money, who has paid all due taxes on it, should be able to give the net amount to whoever they wish.
The fact that an inheritance has 'not been earned' is not relevant. What is relevant is that the State has already had its slice. The owner of the money, who has paid all due taxes on it, should be able to give the net amount to whoever they wish.
Simpo Two said:
The fact that an inheritance has 'not been earned' is not relevant. What is relevant is that the State has already had its slice. The owner of the money, who has paid all due taxes on it, should be able to give the net amount to whoever they wish.
It's not as bad as double taxing money that has been earned. I've paid tax on my earnings. If I want to spend what's left on a car, holiday, etc., why should I be taxed again? The state have had their slice.Simpo Two said:
So you resent double taxing but triple taxing is OK?
I don't have a massive problem with either. The state needs to raise money. I don't think IHT in it's current form is any more unfair than many other taxes. And a lot fairer than most. I'd be quite happy if income tax didn't kick in until I was earning £650K. I think most people like me are extremely fortunate to potentially inherit a fair whack. We've always based our finances and future on the assumption we will get nothing though, as there's nothing like a care home to swallow the lot! Lucky us if we do inherit.
I'm really thinking further than my own pocket and more about my 19 year old daughter who is likely to struggle to buy.
I'm really thinking further than my own pocket and more about my 19 year old daughter who is likely to struggle to buy.
bernhund said:
I think most people like me are extremely fortunate to potentially inherit a fair whack. We've always based our finances and future on the assumption we will get nothing though, as there's nothing like a care home to swallow the lot! Lucky us if we do inherit.
I'm really thinking further than my own pocket and more about my 19 year old daughter who is likely to struggle to buy.
Therein is the problem. From the first post it sounds as if property value is the main reason for the potential IHT bill and the major concern for the OP is the cost of property faced by his daughter. I'm really thinking further than my own pocket and more about my 19 year old daughter who is likely to struggle to buy.
The argument re. double taxation is not valid if one is talking about IHT on a deceased person's house. Admittedly that house was probably paid for with taxed income but there has been a massive untaxed capital gain in addition. IHT used to affect only a tiny number of the very rich and legal avoidance was easy. Now many people in modest houses in London and SE will be caught by IHT unless they plan. However nearly all they have saved, including a theoretical indexed sum which would cover the total cost of their mortgage would fall under the £750k joint IHT nil rate band so it is effectively only the untaxed and unearned capital gain in house value which is being hit.
The solution would be to impose an indexed CGT on house value increases instead of stamp duty - those like me who have benefited from huge unearned increases in asset value from house price inflation would moan and it would be political suicide, but if it could be done prices would be adjusted to more sensible levels, the rungs on the ladder would come far closer together, peaks and troughs in the housing market would be smoothed out and we'd not have consumer credit booms on the back of unearned house price inflation.
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