IHT Implications
Discussion
Hi All,
My parents have a £600k property on which there is £256k outstanding on their mortgage.
They have an interest only mortgage with 2 years left and no realistic means of paying that balloon sum off.
I agreed years ago to stay with them (5BR house so ample space) and I am still happy to do so.
I was planning on buying the property off of them for £256k and taking the mortgage responsibility which I am happy to do so.
Found a broker who found me a great mortgage and everything was going well until I read up on IHT.
I have spoken to 3 tax specialists who said differing things so I am none the wiser and £900 out of pocket for said advice.
As they are gifting me the house with reservation of benefit by my googling the whole value of the house would be included in IHT calculations so £600k.
Now what I am unclear about is what amount would be payable and who would be liable to pay it?
If anyone has any advice it would be appreciated as I'm currently tearing my hair out.
And before anyone asks, my siblings are fine with me being given the house they want no part of it, I am aware of future implications I.E future partner who may be iffy about living with in laws and issues of that ilk.
My parents have a £600k property on which there is £256k outstanding on their mortgage.
They have an interest only mortgage with 2 years left and no realistic means of paying that balloon sum off.
I agreed years ago to stay with them (5BR house so ample space) and I am still happy to do so.
I was planning on buying the property off of them for £256k and taking the mortgage responsibility which I am happy to do so.
Found a broker who found me a great mortgage and everything was going well until I read up on IHT.
I have spoken to 3 tax specialists who said differing things so I am none the wiser and £900 out of pocket for said advice.
As they are gifting me the house with reservation of benefit by my googling the whole value of the house would be included in IHT calculations so £600k.
Now what I am unclear about is what amount would be payable and who would be liable to pay it?
If anyone has any advice it would be appreciated as I'm currently tearing my hair out.
And before anyone asks, my siblings are fine with me being given the house they want no part of it, I am aware of future implications I.E future partner who may be iffy about living with in laws and issues of that ilk.
This area is a potential minefield which, given the costs of getting it wrong, mean that I would strongly recommend seeking some professional advice. I have some recollection that this sort of arrangements where the house is given to children and still lived in by the parents means that there should be some form of rent paid at the market rate but I really don't know exactly how that applies when you've bought out part of the value of the property. I'm certainly not an accountant and am basically making a comment based on limited information but if I were in your position I would have this all drawn up in an agreement that's reviewed (and potentially indemnified) but an accounting professional.
Putting the IHT to one side, and depending on the size of their pensions, your parents may be eligible for a Retirement Interest Only (RIO) mortgage which could potentially make things cleaner as the mortgage could stay in their names until death.
May be worth sticking in the pot of options...
May be worth sticking in the pot of options...
I think the fact you are living there makes it somewhat different. There is no need for them to give you the house, you just buy a proportion equivalent to the mortgage. You can can inherit the rest when that unfortunate time comes. Unless they have a lot of other property there wouldn't be any iht to pay on £600k anyway.
In any case check out the difference between your parents living in a house you own, but don't live in and one you do. The thing to bear in mind is if you need to move out for some reason it could be awkward.
Ianatc
In any case check out the difference between your parents living in a house you own, but don't live in and one you do. The thing to bear in mind is if you need to move out for some reason it could be awkward.
Ianatc
It really depends on what the intention is AND how HMRC view the transaction. There are lots of things to consider.
If the house is worth 600K and you 'buy' it for 265K, they are really gifting you 335K. In the best case, the gift may be subject to IHT subject to how long they survive and the value of the overall estate. You will need to pay stamp duty on the purchase at the prevailing rate.
If HMRC investigate and deem this a gift with reservation (which it looks quite a lot like) then they may insist on the full value of the property being considered for IHT.
There's also considerations for your parents: if you die once the house is yours, the house will pass to whoever you name in the will and if that is not your parents, they will be forced to move out. If you fall out / have an argument / whatever with your parents then it is your house and you can kick them out.
If the house is worth 600K and you 'buy' it for 265K, they are really gifting you 335K. In the best case, the gift may be subject to IHT subject to how long they survive and the value of the overall estate. You will need to pay stamp duty on the purchase at the prevailing rate.
If HMRC investigate and deem this a gift with reservation (which it looks quite a lot like) then they may insist on the full value of the property being considered for IHT.
There's also considerations for your parents: if you die once the house is yours, the house will pass to whoever you name in the will and if that is not your parents, they will be forced to move out. If you fall out / have an argument / whatever with your parents then it is your house and you can kick them out.
CharlesElliott said:
There's also considerations for your parents: if you die once the house is yours, the house will pass to whoever you name in the will and if that is not your parents, they will be forced to move out. If you fall out / have an argument / whatever with your parents then it is your house and you can kick them out.
I think the biggest worry for most parents would be their sons now ex wife/husband owning 50%+ of their house. I know everyone will say "it won't happen to me don't worry" but the divorce stats paint an awful picture and none of them got married thinking it would happen to them.Thank you all for your input, really useful.
If they weren't staying here then its straightforward, however as they will be its a gift with reservation of benefit which complicates things and the full value of the estate is taken into consideration from what I have read.
Now I have looked at a few calculators online and can't find a potential figure they all agree on, on £600k roughly how much IHT are we looking at?
It's not an ideal situation and is pretty s
tty, but it is what it is.
If they weren't staying here then its straightforward, however as they will be its a gift with reservation of benefit which complicates things and the full value of the estate is taken into consideration from what I have read.
Now I have looked at a few calculators online and can't find a potential figure they all agree on, on £600k roughly how much IHT are we looking at?
It's not an ideal situation and is pretty s
tty, but it is what it is.As well as IHT, have you considered the risk if your parents (hopefully not) need care then this could be seen as deprivation of assets? There is no limit to how far they can go back in their investigation and although you may think as you live there you will care for your parents, it isn't always that easy and can take over your life and still require professional assistance.
May not apply to you, but with sum of monies involved I'd want to make sure I wasn't on the hook for 300k of care expenses.
May not apply to you, but with sum of monies involved I'd want to make sure I wasn't on the hook for 300k of care expenses.
ozzuk said:
As well as IHT, have you considered the risk if your parents (hopefully not) need care then this could be seen as deprivation of assets? There is no limit to how far they can go back in their investigation
The rules seem deliberately vague from what I have seen. As you say they can go back as far as they want. The prevailing principle seems to be if you can reasonably have assumed you may not need care later on and hence passing on those assets would not be considered deprivation.
They further cite that for example if you were reasonably fit and healthy.
I wonder if these days, they could argue that ALL of us will likely need some care in old age unless we die suddenly. Under that basis what would be a reasonable time frame? its not legally defined as I can see.
Whats to stop them going back to your early prime of life, say 20's and 30's and say you spent all that money on cars, holidays, gambling etc to avoid having assets that could be used for care? Unreasonable maybe?
What about in your 40's? 50's?
Where do you draw the line?
Certainly a complete mess and would need very specific legal advice.
I can only see this getting worse as the population continues to age and we live longer.
Toltec said:
I think the fact you are living there makes it somewhat different. There is no need for them to give you the house, you just buy a proportion equivalent to the mortgage. You can can inherit the rest when that unfortunate time comes. Unless they have a lot of other property there wouldn't be any iht to pay on £600k anyway.
In any case check out the difference between your parents living in a house you own, but don't live in and one you do. The thing to bear in mind is if you need to move out for some reason it could be awkward.
Ianatc
The IHT Threshold is currently £325k so anything above that is taxable (unless passing from one spouse to another where different rules apply).In any case check out the difference between your parents living in a house you own, but don't live in and one you do. The thing to bear in mind is if you need to move out for some reason it could be awkward.
Ianatc
However, also consider your own situation and what would happen if the worst happened and you were run over by a bus.
Who will you be leaving your assets to - will they be as friendly as you towards your parents.
If your asset pass back to your parents they might be faced with an IHT bill just to remain in the house.
over_the_hill said:
Toltec said:
I think the fact you are living there makes it somewhat different. There is no need for them to give you the house, you just buy a proportion equivalent to the mortgage. You can can inherit the rest when that unfortunate time comes. Unless they have a lot of other property there wouldn't be any iht to pay on £600k anyway.
In any case check out the difference between your parents living in a house you own, but don't live in and one you do. The thing to bear in mind is if you need to move out for some reason it could be awkward.
Ianatc
The IHT Threshold is currently £325k so anything above that is taxable (unless passing from one spouse to another where different rules apply).In any case check out the difference between your parents living in a house you own, but don't live in and one you do. The thing to bear in mind is if you need to move out for some reason it could be awkward.
Ianatc
However, also consider your own situation and what would happen if the worst happened and you were run over by a bus.
Who will you be leaving your assets to - will they be as friendly as you towards your parents.
If your asset pass back to your parents they might be faced with an IHT bill just to remain in the house.
If the OP buys approx 40% of the house and becomes tenants in common with his parents he should only need to pay the stamp on that proportion. Wills can then be made to deal with the eventuality of death as advised by a solicitor. Maybe his would leave his part to the sister, as he will have a mortgage on it then likely life insurance to cover that?
He needs some advice, but on the amounts mentioned iht shouldn't be any issue.
My tells me Which have a useful up to date iht guide so do a search for that.
Psycho Warren said:
The rules seem deliberately vague from what I have seen.
As you say they can go back as far as they want. The prevailing principle seems to be if you can reasonably have assumed you may not need care later on and hence passing on those assets would not be considered deprivation.
They further cite that for example if you were reasonably fit and healthy.
I wonder if these days, they could argue that ALL of us will likely need some care in old age unless we die suddenly. Under that basis what would be a reasonable time frame? its not legally defined as I can see.
Whats to stop them going back to your early prime of life, say 20's and 30's and say you spent all that money on cars, holidays, gambling etc to avoid having assets that could be used for care? Unreasonable maybe?
What about in your 40's? 50's?
Where do you draw the line?
Certainly a complete mess and would need very specific legal advice.
I can only see this getting worse as the population continues to age and we live longer.
Hence why I said it might not apply to OP, however if his parents are in their 60s/70s/80s and 'gave' away 400k I'd certainly be looking at that when assessing care funding. I believe the limit on gifts (where no explanation needed) is 3k PA. As you say they can go back as far as they want. The prevailing principle seems to be if you can reasonably have assumed you may not need care later on and hence passing on those assets would not be considered deprivation.
They further cite that for example if you were reasonably fit and healthy.
I wonder if these days, they could argue that ALL of us will likely need some care in old age unless we die suddenly. Under that basis what would be a reasonable time frame? its not legally defined as I can see.
Whats to stop them going back to your early prime of life, say 20's and 30's and say you spent all that money on cars, holidays, gambling etc to avoid having assets that could be used for care? Unreasonable maybe?
What about in your 40's? 50's?
Where do you draw the line?
Certainly a complete mess and would need very specific legal advice.
I can only see this getting worse as the population continues to age and we live longer.
I've spoken to a few more tax consultants and my broker, and all have said whilst gifting seems like the logical option its a minefield as many of you outlined above.
Remortgaging with my dad and myself on it is what 4/4 of them recommended.
My broker has managed to find one that will allow a decent term and will take on my dad and me, so it looks like that is the route I'll be taking.
I wasn't aware of the CGT and IHT to be honest prior to this but its certainly eye opening.
Remortgaging with my dad and myself on it is what 4/4 of them recommended.
My broker has managed to find one that will allow a decent term and will take on my dad and me, so it looks like that is the route I'll be taking.
I wasn't aware of the CGT and IHT to be honest prior to this but its certainly eye opening.
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