Inheritance tax / capital gains

[theboyfold]

I'm ultimately looking to get advice on this situation, but I am struggling to work out how this should all work. Essentially, my mother in law inherited a house in South Wales last year. The plan is that my in-laws make it habitable, extend it, and then pass it on to my wife and brother in law. My brother in law would then like to buy my wife out of her share.

The house is currently uninhabitable, and like I said the plan is to fix up and extend it.

So at the current situation, is this how it would work
Mother in law inherits the house. Pays inheritance tax.
In laws do the house up
Then hand it to my wife and brother in law, they pay capital gains(?)
My brother in law buys my wife out. Wife pays more capital gains as she's on the mortgage we share for the family home(?)

Is this right? Is it the best way to go about things? (Again, looking to get paid advice from my FA, but I thought I'd get some insight from here before I sit with him.)

[AndrewEH1]

Couple of points:

Your mother-in-law doesn't directly pay the inheritance tax, it comes out of the deceased remaining estate.

Remember that if your mother-in-law dies within tax seven years of gifting the asset inheritance tax will need to be paid.

[theboyfold]

AndrewEH1 said:

Couple of points:

Your mother-in-law doesn't directly pay the inheritance tax, it comes out of the deceased remaining estate.

Remember that if your mother-in-law dies within tax seven years of gifting the asset inheritance tax will need to be paid.

Point 1 - noted. Thank you
Point 2 - Assuming my mother in law gifts it and survives past 7 years. Does that remove my wife from a liability against it?

[dvs_dave]

What is the value of the house and the relationship your MIL had with the deceased? IHT might not even be due....

[theboyfold]

dvs_dave said:

What is the value of the house and the relationship your MIL had with the deceased? IHT might not even be due....

It was from her mother, and it was below the threshold.

However. She's just been round and told us that she's keeping the house, so it's all off!

[williaa68]

If she changes her mind and the ultimate aim is to skip a generation, then your MIL should consider a deed of variation to the will and just pass straight to wife and sister. No problem with MIL contributing to renovation costs - £3k per year each plus gifts out of "ordinary income". As noted in your first post, worth taking advice. Keep the objective in mind, not the tax.

[catman]

dvs_dave said:

What is the value of the house and the relationship your MIL had with the deceased? IHT might not even be due....

Isn't the value of the estate the relevant point?

Tim