Wills and inheritance tax...

[R.O.S.S.I]

Evening all, bit of a morbid one this but my Dad mentioned the other day something about my Mum and Dad both looking at writing their wills and that they would be leaving their house to me, my brother and my sister.

Now I vaguely remember reading something on here I think about property left in wills and inheritance tax.

Am I right in thinking that my parents would have to sign the house over to us (his children) now (or in the very near future) so when the inevitable happens in 5-10-15-20 years we wouldn't have to pay any inheritance tax on it?

He asked me to look into it for him as he said he'd rather we didn't lose out in any way when the time comes.

I think they're going to be speaking to someone from their bank about their wills but just wondered if anyone off here could shed any light on this or have any experience of it?

 

[Maccapacca]

Depends on how much it's worth and if it can be proved they have signed it over to avoid tax they'll have you.

I'd be more worried about them becoming ill and needing care, the LA can fix a charge to the home for their care.

 

[gitbags]

http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm

That should tell you what you need to know.

 

[Maccapacca]

Inheritance Tax is usually paid on an estate when somebody dies. It's also sometimes payable on trusts or gifts made during someone's lifetime. Most estates don't have to pay Inheritance Tax because they're valued at less than the threshold (£325,000 in 2013-14). The tax is payable at 40 per cent on the amount over this threshold or 36 per cent if the estate qualifies for a reduced rate as a result of a charitable donation.

 

[dowie]

probably best you seek advice - I believe the time limit is 7 years for a potentially exempt transfer... there may however be rules about handing over an asset and continuing to make use of that asset as though you still owned it... this would be quite an obvious tax dodge otherwise...

 

[jakejacob0]

Has to be more than 5 years before death otherwise the tax man will track it and have you.

You don't pay anything on the first 200K or so.

 

[Amleto]

I think if you are all joint owners then their share will just be split equally amongst you and there will be no IHT liability as long as they survive 7 years.

 

[Maccapacca]

If they become ill the LA will fix a charge to the home down to circa £27k, my colleague's father had this, he became ill, went into a home and they effectively owned his house and left his mum in it till she died then they sold it and gave £27k back to the estate and kept the rest.

 

[momentimori]

If you give away a gift and survive 7 years it is exempt from inheritance tax; otherwise it is pro rated.

Be aware if they give the property away they still need to pay stamp duty and other associated costs of change of ownership.

 

[TripleT]

If they become ill the LA will fix a charge to the home down to circa £27k, my colleague's father had this, he became ill, went into a home and they effectively owned his house and left his mum in it till she died then they sold it and gave £27k back to the estate and kept the rest.

My parents are signing over the house soon mainly for this reason as it's not worth over £325k. It isn't just the tax it's the fact if they have to go in to a home they'll take assets to pay for the home, if there's nothing they can't.

 

[R.O.S.S.I]

The house isn't worth more than £325k so if i'm understanding this correctly even if they did pass away and left us the house in their will we wouldn't be charged anything due to it being less than this amount?

TripleT - I remember reading something similar to that aswell which may be another contributing factor to them wanting to sign it over to us.

They'll most likely be around for another 15 years at least i'd imagine (hope) so will far surpass the 7 year legal requirement.

 

[Maccapacca]

£325k is total so include all other assets, savings, shares etc etc

I don't know if life insurance payouts are counted

 

[csmager]

Get proper advice, but if they 'gift' you the house and continue to live in it, it will almost certainly be classified a 'gift with reservation' and make naff all difference. To have a chance of working, they'd have to pay you market rent to stay there & outlive the 7 years for a potentially exempt transfer to become exempt.

 

[Maccapacca]

Gifts to political parties are inheritance tax-free

I feel much better now

 

[Pawnless Endgame]

My grandparents are 84 and 88 years old. If they died by 2020 (7 years from now), would it mean that I would have to declare any birthday or Christmas presents from them to the taxman? They also recently gave me £1000 while I was struggling on the dole in-between jobs. Although I was very thankful for that, what does the gov't have to do with this? G&G earnt the money themselves, and they decided to gift it to me. They still pay their other taxes e.g. VAT, income tax on their pensions and council tax. It's not like £1k + Christmas presents are anywhere near to the £325 threshold.

 

[Hades]

EDIT: Removed as it seems I was utterly wrong

 

[Jokester]

There's a tax free gift allowance per year, £3k a year I think it is?

 

[csmager]

They can give away £3k p.a. with no IHT implications. Also payments that are habitual or out of income pretty much escape it.

 

[Maccapacca]

My grandparents are 84 and 88 years old. If they died by 2020 (7 years from now), would it mean that I would have to declare any birthday or Christmas presents from them to the taxman? They also recently gave me £1000 while I was struggling on the dole in-between jobs. Although I was very thankful for that, what does the gov't have to do with this? G&G earnt the money themselves, and they decided to gift it to me. They still pay their other taxes e.g. VAT, income tax on their pensions and council tax. It's not like £1k + Christmas presents are anywhere near to the £325 threshold.

They can give away £3k in total a year to relatives and £250 away to each and anyone a year.

Wealth distribution

 

[csmager]

The inheritance tax limit (£325k) is per person receiving the assets, not the people dieing. So for example if the property and all other assets are worth £900k and assuming all three children receive equal shares then you would each get £300k which is below the threshold for tax.

This is absolutely not true.

I would suggest speaking to a professional about it as there may be some ways around the threshold

This is better advice.