How to live in then inherit a house?
Discussion
So my mother has offered me a house she owns that she has been renting out for a number of years, she’s fed up with tenants and said I can have the house if I want it.
Now what is the best way to go about this, I would like the house a sits perfect for me. She’s late 60’s so she’s worried about tax and stuff if she’s dies.
Can I live it in rent free and inherit it when she dies? Sounds quite cold talking about it like that but we all talk quite openly about death so it’s not a huge issue tbh., and she has plenty of money coming in so she doesn’t need the cash or income as she doesn’t spend what she has now!
Does she have to stay a landlord with the regs? Do I need a tenant agreement?
Doss she just need to update her will for me to get it?
There must be something out there to stop this I would imagine, the government must be trying to tax this somehow?
Now what is the best way to go about this, I would like the house a sits perfect for me. She’s late 60’s so she’s worried about tax and stuff if she’s dies.
Can I live it in rent free and inherit it when she dies? Sounds quite cold talking about it like that but we all talk quite openly about death so it’s not a huge issue tbh., and she has plenty of money coming in so she doesn’t need the cash or income as she doesn’t spend what she has now!
Does she have to stay a landlord with the regs? Do I need a tenant agreement?
Doss she just need to update her will for me to get it?
There must be something out there to stop this I would imagine, the government must be trying to tax this somehow?
IANAL etc ClaphamGT3 said:
Does she require a rental income from you?
If not, in simple terms, she should gift it to you and hope she lives another seven years.
From a tax perspective, this is the best option. Gift the house to you now, and if she lives for 7 years, then there will be no inheritance tax liability. If the house is gifted for no payment, then there will be no stamp duty land tax due. Leaving the only issue as Capital Gains Tax, which needs to be paid on the gain on the disposal of a second property. The CGT would be reduced by her annual exempt amount, and there would be the possibility of gifting the house in stages to use several years of annual exempt amount, although this would extend the IHT issue.If not, in simple terms, she should gift it to you and hope she lives another seven years.
rlengthorn said:
ClaphamGT3 said:
Does she require a rental income from you?
If not, in simple terms, she should gift it to you and hope she lives another seven years.
From a tax perspective, this is the best option. Gift the house to you now, and if she lives for 7 years, then there will be no inheritance tax liability. If the house is gifted for no payment, then there will be no stamp duty land tax due. Leaving the only issue as Capital Gains Tax, which needs to be paid on the gain on the disposal of a second property. The CGT would be reduced by her annual exempt amount, and there would be the possibility of gifting the house in stages to use several years of annual exempt amount, although this would extend the IHT issue.If not, in simple terms, she should gift it to you and hope she lives another seven years.
What is the issue with living there rent free until she dies and then inherit it? Can you even live somewhere rent free?
Gooose said:
rlengthorn said:
ClaphamGT3 said:
Does she require a rental income from you?
If not, in simple terms, she should gift it to you and hope she lives another seven years.
From a tax perspective, this is the best option. Gift the house to you now, and if she lives for 7 years, then there will be no inheritance tax liability. If the house is gifted for no payment, then there will be no stamp duty land tax due. Leaving the only issue as Capital Gains Tax, which needs to be paid on the gain on the disposal of a second property. The CGT would be reduced by her annual exempt amount, and there would be the possibility of gifting the house in stages to use several years of annual exempt amount, although this would extend the IHT issue.If not, in simple terms, she should gift it to you and hope she lives another seven years.
What is the issue with living there rent-free until she dies and then inherit it? Can you even live somewhere rent-free?
If she has made no other gifts, then there will be no IHT to pay on the gift of the house as you essentially get £350,000 of tax-free gifting under the IHT rules, so this would completely cover the £300,000 house. However, it would mean that the assets she left to people on her death would only have £50,000 of the tax-free amount left, plus another £150,000 if the house she currently lives in is left to children or grandchildren.
If we assume that she has already made gifts of more than £350,000, so that the tax-free amount has already gone, then IHT would be due at 40% on the gift of the house to you if she dies within 3 years, and then that tapers away by a fifth each year until there is no IHT 7 years after the date of gift. Therefore, if the house was gifted now, and your mother lived for 4-5 years more, then the tax would be at 24% [(5-2)/5 x 40%].
Living in the property rent-free isn't really a problem for tax, unless your Mother needs the rental income to maintain her lifestyle. There's no tax law here that says you have to have an income from a property.
There’ll be CGT on any non main residence iirc.
Also at the age she is there is the risk of gifting it away and then needing care, and looking to have disposed of an asset to reduce size of estate.
Also iirc if it’s rented for free this is seen as a give-away if she does then pass away because it’s essentially reduced the value of her estate.
Definitely seek advice from a paid professional in any case as it’ll all need figuring out with pros/cons etc.
But it’s definitely worth planning for now rather than later otherwise you’re just giving £££ to HMRC for nothing.
Also at the age she is there is the risk of gifting it away and then needing care, and looking to have disposed of an asset to reduce size of estate.
Also iirc if it’s rented for free this is seen as a give-away if she does then pass away because it’s essentially reduced the value of her estate.
Definitely seek advice from a paid professional in any case as it’ll all need figuring out with pros/cons etc.
But it’s definitely worth planning for now rather than later otherwise you’re just giving £££ to HMRC for nothing.
rlengthorn said:
ClaphamGT3 said:
Does she require a rental income from you?
If not, in simple terms, she should gift it to you and hope she lives another seven years.
From a tax perspective, this is the best option. Gift the house to you now, and if she lives for 7 years, then there will be no inheritance tax liability. If the house is gifted for no payment, then there will be no stamp duty land tax due. Leaving the only issue as Capital Gains Tax, which needs to be paid on the gain on the disposal of a second property. The CGT would be reduced by her annual exempt amount, and there would be the possibility of gifting the house in stages to use several years of annual exempt amount, although this would extend the IHT issue.If not, in simple terms, she should gift it to you and hope she lives another seven years.
rlengthorn said:
If she gifts the house to you now, and then doesn't survive 7 years, then the IHT that will need to be paid depends upon exactly when she dies, plus whether she has gifted any other assets.
If she has made no other gifts, then there will be no IHT to pay on the gift of the house as you essentially get £350,000 of tax-free gifting under the IHT rules, so this would completely cover the £300,000 house. However, it would mean that the assets she left to people on her death would only have £50,000 of the tax-free amount left, plus another £150,000 if the house she currently lives in is left to children or grandchildren.
If we assume that she has already made gifts of more than £350,000, so that the tax-free amount has already gone, then IHT would be due at 40% on the gift of the house to you if she dies within 3 years, and then that tapers away by a fifth each year until there is no IHT 7 years after the date of gift. Therefore, if the house was gifted now, and your mother lived for 4-5 years more, then the tax would be at 24% [(5-2)/5 x 40%].
Living in the property rent-free isn't really a problem for tax, unless your Mother needs the rental income to maintain her lifestyle. There's no tax law here that says you have to have an income from a property.
Great post!!If she has made no other gifts, then there will be no IHT to pay on the gift of the house as you essentially get £350,000 of tax-free gifting under the IHT rules, so this would completely cover the £300,000 house. However, it would mean that the assets she left to people on her death would only have £50,000 of the tax-free amount left, plus another £150,000 if the house she currently lives in is left to children or grandchildren.
If we assume that she has already made gifts of more than £350,000, so that the tax-free amount has already gone, then IHT would be due at 40% on the gift of the house to you if she dies within 3 years, and then that tapers away by a fifth each year until there is no IHT 7 years after the date of gift. Therefore, if the house was gifted now, and your mother lived for 4-5 years more, then the tax would be at 24% [(5-2)/5 x 40%].
Living in the property rent-free isn't really a problem for tax, unless your Mother needs the rental income to maintain her lifestyle. There's no tax law here that says you have to have an income from a property.
Gooose said:
Just reading that back, what do you mean with CGT on the second property? Do you mean my current property? Could I sell mine first? Then essentially not own a house for a while?
CGT is paid by mum when she disposed of the house to you as it is not her primary residence. There is not CGT payable on death. You need someone well versed to work out the best route, I know someone who could look at it holistically and they can work by zoom etc…message me if needed.psi310398 said:
IIRC, in these circumstances, it is also possible to take out insurance against an IHT liability arising in the relevant seven (or whatever) years.
Whole of life insurance is the norm but could possibly done with term or even decreasing term depending on the parents age. written in trust to pay out a sum equal to the tax charge. Not cheap but doable.Gassing Station | Finance | Top of Page | What's New | My Stuff