Mumsnet Talk

Sometimes you have to do what's best for you and your family but its best to be aware of any potential outcomes and to make an informed decision.

At least that's what I tell my clients.

Do what's best for you but be aware of the issues involved

Thanks so much Chablis, that's all very useful. I think they will sell their home whatever happens as it is too big for them and they need to spend too much maintaining it now they are older. They have been wanting to do this plan for a couple of years but getting the planning permission has been a long, tough road for them. Now they have it, and they are going ahead.

They want to join forces with my sister, who has young children, who they spend a lot of their time looking after anyway. It will make things easier for them, to be able to simply nip next door to see their grandchildren instead of keep having to drive over. My sister and her dh also seem very keen on this plan as they will get plenty of childcare, and they all get on very well.

I suppose also, that if our parents need help when they are older, then it will be nearby. Or if one of them dies, the other will still have family around them.

So, none of this plan has much to do with me and my dh, as we live quite a distance away and our children have grown up. It seems we are to be the lucky beneficiaries, without any obligation. Hence my feeling it seems too good to be true!

Insurance

Bloody iPad predictive text

Op - i am a tax adviser (but this isn't my specialised area)

Given the level they are willing to gift I assume your parents are quite well off and have an estate worth over £650k.

I would seriously recommend that they get advice before selling their own home.

It may be easier to gift you and your sister a reduced level of cash each rather thn the current plan.

They can also look to maybe setting up trusts for you to extract the cash from their estate

And as someone up thread said incurrence policies to cover any liability may be useful but again I've seen some with quite high premiums.

But they really need sound advice before progressing.

Hooray indeed! Any idea what you might use it for apart from a year long holiday?

That would be ironic, as they are dong it this way specifically in order to be fair.

When it gets nearer to the time, I will try and ask the right questions and make sure that they have explored all these avenues. I am hoping they will get the whole thing sewn up with a lawyer, and clearly set out so we know where we all stand.

God, talk about 1st world problems! I live a modest and simple life since my children have left home and I have managed with money, but never had extra, so this all seems unreal. At first I thought it was a silly idea and that they should just put the money in the bank and enjoy it at their time of life. But they seem to want to do this. hooray

Op - just to reiterate, your sister could end up with far less than you if they haven't planned this effectively, which might cause much more bad feeling than asking to have a conversation about it now. Don't be embarrassed about it, it's only money.

titchy - no, it will still be a gift with reservation to the sister as the parents continue to receive the benefit of the gift (doesn't matter if it is done via cash or asset gift), so potentially subject to IHT. Also they are talking about building a separate residence, which wouldn't be the parents PPR, but owned as an asset by the sister, so subject to cgt on any gain.

Op - if they have taken advice then can't you just ask them about the advice re your own position? You need to know whether the taxman might come knocking for 40% of that cash in the next 7 years or not, and so whether you need to reserve that amount or take out insurance (which is pretty cheap).

I don't think this will be a problem. They have a house abroad too, which I suppose could be sold if money was needed for care homes etc.

They must be loaded!! Will they still have money to pay for care home fees after they have given this money away?

I don't know exactly how they are playing it with regards to the building of the house etc to add to my sister's property, but they will have looked into it, and made some sort of decision. I certainly don't want to tell them what to do with their own money or how to play things, as they will definitely do things their own way and have not asked for advice!

They have just said a few times, we want to be fair, so we will give you the same amount as we spend on building the house. I just wanted to know really if they are allowed to just give us £300k, and if we are simply allowed to receive such a sum. As it all seems far too good to be true and I am sure there must be a catch.

I do not want to have any discussions with them about it, as I do not want to appear, nor do i feel, entitled in any way. Such an awkward subject, money. But, hey, if they want to hand such a sum over, who am I to stop them. I also do not wish to complicate it for them or for my sister by adding in my twopennies worth. I was really wanting to know if this fantastic intention of theirs really can happen.

If they give each of you £300k, and your sister chooses to use her £300k to effectively extend her house and have your parents live with her that would be OK wouldn't it? No IHT liability as long as they survive 7 years, and no CGT for your sister as it was HER money rather than her parents that she used to do the building work.

If either of them needed a care home the LEA would likely regard the £600k they have given away as still being theirs though.

Thanks for your replies. They are still at the early stages of this plan and are about to exchange on their existing property. I am so flummoxed that they should want to do this, and I am sure they will take legal and tax advice before they proceed.

It's just that I was getting excited about it all, and my dh pointed out that there is no way people can simply give away large sums of money like this without the tax man wanting a large chunk. This made me think that perhaps they would have to give it to us in smaller chunks, or later, in their will.

I am sure as far as the plan with my sister and her dh are concerned, they will all look into it properly.

I believe that your potential liability to IHT would expire if your parents lived for 7 years after the cash gift to you. You can take out decreasing term assurance to cover the potential liability.

However, the situation with respect to the house they are effectively gifting to your sister is more complicated. Unless they pay a market rent to your sister, it will be a gift with reservation and therefore will still fall within your parents estate on death, and so potentially subject to IHT. In addition, as it is actually owned by your sister, any capital gains tax on sale would use the base cost as the cost when your parents gifted it to her. This means that the growth in value on the house could be subject to both CGT and IHT.

So your position is probably quite simple, but your sister could unwittingly get a raw deal out of this. You should all take tax advice to make sure it is an equable arrangement, to prevent bad feeling in the future.

NB if the total value of both gifts and the rest of the estate is below their combined nil rate band (£650,000), and they haven't made any other gifts in the past to use this up, then the IHT isn't an issue anyway.

Crossposts but I think if them building the house added less than 300k to the property then she'd just be taxed on what it had added. Please check that though.

Totally agree they should speak to a tax advisor but just to say the inheritance tax threshold is 325 000 so if they don't have a lot of assets apart from their home then the tax bill will be minimal.

Also I think it very much matters on the planning permission granted we have a renovated old mill on our property which is a detached 3 bed but is down on the deeds as an annex and can never be seperately sold, so long as family are there we only pay one lot of council tax and one tv licence etc. The value of the second building adds less to the value of the property than if it were two properties. 100k as opposed to the 300k a detatched would fetch. I can't help but feel there's a loophole in there somewhere.

You 'd pay interest on any income from the 300k (ie savings interest) but not the amount itself . If both died within 7 years it is taken into account as part of their estate for IHT purposes. Having a life interest in the new house may be more complex though - take proper legal and financial advice re. Capital Gains and IHT implications - as I don't think it is treated as a straightforward gift.

Hi Chablis, thanks so much for responding.

Yes, they will live in the house, and it will never be able to be sold separately from my sister's house, it will all be part of the same property.

The cash gift to you is fine as long as they live 7 years from the date of gift it will have no inheritance tax consequences. Does this mean they can give me all this money in one go, and I don't have to pay tax on it? Or have I misunderstood?

are you parents going to live in the house on your sisters land?

If so, it may be a Gift with reservation of benefit for Inheritance tax purposes

basically, your parents have gifted the new house to your sister and will live in it so therefore they have given it away but retain the benefit of it.

It will still be included within their estate at death unless a full market rent is paid and in turn your sister will be taxable on this income.

The cash gift to you is fine as long as they live 7 years from the date of gift it will have no inheritance tax consequences.

You best speak to a tax adviser who can advise fully on the case with the full details.

Dps want to sell their house, build a new one on sister's land, and give me the equivalent sum, as the new house will belong to sister and will be part of her property. They say they want to be fair, and that they will spend £300k on house build and would like to give me the same in money . (This is too exciting and I can't believe it will be allowed somehow, have never had any money!)

I am sure there will be some kind of tax law which will prevent this being as simple as it sounds. But does anyone actually know how/if this could actually work?

Would be so grateful for any clear answers as all stuff to do with tax and inheritance law seems complicated.