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Complicated Inheritance Tax Position - help!

(6 Posts)
FloweryTwat Sun 28-May-17 10:24:34

I'll be honest, I think I'll need to get some full on financial advice for this but I'm not sure of the questions to ask if I do blush

My DF sadly died a few years ago, and he left his half of the mortgage free family home to me and my 2 siblings. My DM had the other half and carried on living there. Therefore all 4 of us were named for Land Registry and we went to a solicitor who sorted it all out. Great.

DM is now moving. We want to use our half of the money to help buy her a house, which she will live in for the foreseeable future. DM is also using her money but her half of the family home isn't sufficient to buy the house she wants so we are contributing.

Are we able to loan DM the money interest free without it having any IHT complications? I am guessing we would put a charge on the house so that our loan is repaid in the horrible event of anything happening to DM.

I'm just aware that how we do it may have some Inheritance Tax complications inadvertently. DM's house will be over the IHT limit.

If anyone has any thoughts I'd be very grateful.

UncomfortableBadger Sun 28-May-17 20:17:33

Sounds like your DF's Will may have been set up such that his 1/2 of the house went into a life interest trust, with your mother as life tenant and you & your siblings as remaindermen.

If this is the case, check what the Will says carefully as this dictates what you can/can't do. A good solicitor will have included a clause about moving/downsizing when drafting it.

Ideally there will be a clause in there somewhere about her being able to move to a more suitable property during her lifetime - normally under these circumstances, all of your DF's 1/2 share could be used towards a new property for her (with your DF's former share remaining under trust) and if there are any residual trust funds following downsizing, she'll be entitled to the income from these (although not the capital).

In short, check the Will!

Viviennemary Sun 28-May-17 21:27:38

Also if the house has increased in value by a substantial amount there may be capital gains tax to pay. You should seek financial advice on this.

FloweryTwat Mon 29-May-17 00:26:44

Thank you both smile

Vivienne we have checked the CG position.As DF died relatively recently there aren't any CG issues that aren't covered by the annual tax free amount.

Badger I'll taje a look at the will. I know that DF said he was trusting us not to force a sale (tongue in cheek we never would have of course) so I think legally we could have made my sell up to realise our half of the house if that makes a difference to what you're saying?

Thanks again

UncomfortableBadger Mon 29-May-17 07:46:16

Again, you need to check the Will to work out how the property is owned. This has an impact on your mother's IHT position and particularly, whether there is any entitlement to the Main Residence Nil Rate Band on top of the standard Nil Rate Band.

If the property value was over the IHT threshold and your DF's half was left outright to you and your siblings, there will likely have been a charge to IHT at that time. You may also be subject to CGT on your portion when you come to sell. I just can't think why a solicitor would recommend this route when the life interest trust route is more tax efficient.

Otherwise, if under a life interest trust, then the property should have benefited from the spousal exemption re IHT and PPR relief re CGT (even if the remaindermen are the children).

If it's a life interest trust then there's little chance of the trustees being able to force a sale - the surviving spouse normally has the right to reside in the property for their lifetime.

Either your DF had some wonky legal advice when setting up the Will or there's been a misunderstanding somewhere along the way.

FloweryTwat Mon 29-May-17 07:55:27

You're a star Badger thank you, I'll take a look. Thank you for taking the time to explain flowers

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