AIBU to ask for a chunk of inheritance now?

[Monkeywhisk]

My husband and our nine month old baby are currently living with my parents. They own two homes in a very sought after area, and we live in a basement flat of one of the properties.

The flat has very little natural day light and is open plan so it's becoming very difficult in the evenings as baby goes to bed early and we try and have some time to ourselves without waking her.

We don't pay rent but we do pay for all our bills- I totally appreciate we're very lucky indeed to be in this situation.

After saving since I found I was expecting we are looking to buy our first home together. We're looking to move out of London as that's all we can afford.

We're coming up short (at least £20k) in terms of the deposit but we have been approved for a mortgage.

My parents have over £100k in premium bonds as well as a lucrative income from renting one of their properties. They have a good standard of living themselves but are of the generation that are careful with money (and as they're now in their 70's they rarely spend a lot of money on themselves on holidays or eating out etc which my siblings and I always encourage they do)

AIBU to ask my parents for a portion of my inheritance to help get on the property ladder? In this case money isn't really an issue but my mother doesn't want us to move out as she'll miss us. I have assured her that we'll visit lots and spend quality time together but she's used to getting her own way and isn't happy at all and sulks when I bring the subject up. She is very controlling.

Although HMRC don't routinely throw people into prison for small but deliberate errors - they just want the money.

Agree with all the IHT with reservation of benefit comments. Also because you are family it's possible you should be paying tax in respect of the rent you're not paying, IYSWIM. Reservation of benefit / renting free from family gets v.v. complicated. HMRC don't like it.

Regarding Lotus' point about the rental income...
If the parents are retired it is perfectly possible they pay tax at 20%.

The OP works in London and is talking about a 'return to work' bonus post mat leave and DH being a SAHD; that rings higher or additional rate tax payer (OP) bells with me.

If her parents are declaring the income from her house as theirs HMRC are potentially losing 20 or 25% tax on it (difference in tax rates between parents and child). That is why the income can be 'declared' but tax evasion may still be being committed. In this case, by the OP, and she would be the one liable to pay the difference to HMRC.

No other relationship has the same status as spouses in tax law - spouses can pass income and assets between themselves in all sorts of perfectly legal ways that would cause a MASSIVE tax bill if done by non-married (or non-civil partnered) people, or parent/child, etc.

This whole thing sounds like a mess to me. Plenty of shoddy accountants out there provide IHT 'planning' that is more along the lines of 'HMRC probably won't spot this' and is evasive rather than efficient planning.

OP - if I'm right and there is a tax differential between you and your parents they really have led you up shit creek. You can reduce penalties by being open and declaring all to HMRC (and getting a good advisor!) if you wait to be caught the new penalties are up to 100% of the tax owed....as in, your bill could be doubled. You are right to investigate this further.

And talk to your sister about it too.

Could be other way round - retired parents paying 40% tax (my father's retirement rate) and stay at home father (the son in law) and mother on maternity leave - very little income so very sensible rental income to children even if they then choose to make a gift of it to the parents. I don't think we should jump to conclusions about illegality but the daughter should certainly take her own independent tax advice as I agree with the above that probably the parents have "kept the rental income " even though the children own the flat and probably nobody has documented all that correctly (assuming there is a net profit on the rent which often there is not by the way)

But Lotus children can't just gift regular income on to the parents, it's completely different from spouse rules.

It's also possible BOTH the OP and her parents should be paying tax on the income, it wouldn't be double taxation as the state sees them as completely separate individuals.

I'm sure something like this came up in my exams and both the parent and the child would be obliged to pay tax on the rental income (scenario: client comes to you after receiving dodgy IHT advice, unpick the planning and prepare revised tax calculations). It's not my area so I'm not certain at all except in saying that the tax law around stuff like this is both complicated and unforgiving.

This is bringing back horrendous tax exams flashbacks....

When I said 'can't' I should have qualified 'without adverse tax consequences'.

Of course children can do what they like as long as they pay the tax.

Also your point about profit - if the income is being passed on but not the expenses even if there isn't a net profit one layer of the transaction may still be taxable.

If the parents are meeting the expenses but the house is in OPs name and so she should be in receipt of the income it's possible the expenses cannot be offset against the income, so 'net profit' wouldn't be relevant, just the income figure.

I understand this kind of 'planning' was very prevalent a few decades ago which is why the law now is so tight. But as I say, I only have textbook not practical experience of this kind of thing.

OP, do your parents like your DH? Sorry to ask this but I wonder if their motives could that they are trying to make sure he doesn't have money but you have a house in your name?

The same thing could apply to the wedding money.

I knew of someone who disliked his daughter's choice of husband. He (the father) gave the married couple a loan towards buying a house. No interest was payable, but when the couple divorced and the house sold he got the loan money back (rather than the husband getting half as an asset).

Pippop1 my parents love DH, we've been together for a long time and he's my childhood sweetheart. I don't think that's the issue. Even though they're very wealthy they've always instilled in me the value of money. I've never been on any foreign holidays growing up or had any 'brand' clothing or anything. There was lots of hand-me-downs and discount shopping, they've always been very careful which I respect. I wish I could go back in time and save and then I'd be in a position where I could have a deposit and not ask their help. Or forget the wedding which has put me in debt (although I'm not paying interest to my mum which is saving)

I think I need to knuckle down and save for the next few years. I want to be independent and I felt ill reading all the comments today.

The OP did say earlier in the thread that she only knew the value of the rental income because she needed it for her mortgage application. This did seem to imply it was being used as part of her mortgage calculation in some way.

OP - really you can't just knuckle down and save, you have to sort out if you are involve in a tax fraud. That your parents didn't mean that to happen won't change the fact. If you own the rental property, it is likely you might need to pay tax on the rental income. If you are in reciept of any benefits are affected by savings, the £30k in premium bonds would need to be declared... this isn't something you can just hope your parents have got right.

Get legal/financial advice. This sounds like your parents have done something dodgy and you could be the one to pay the concequences.

Dinosaurs yes I'm going to resolve the financial situation- best that I not go into any more detail on an open forum though- I was stupid and naive to put so much on here to start with. Honestly I didn't know the repercussions of what my parents are doing. Perhaps I've misunderstood what they're doing?! Clutching at straws with that comment perhaps...

But at least I'm now aware of how serious this could potentially be, I'm just clueless with how the finances are organised on their end. I have my own career and salary so am only familiar with that side of my 'income'

But yes, needless to say I'm not going to just bury my head in the sand...need to get this straight

That's good Monkeywhisk!

I would ask your parents if you can go with them to their accountant who can explain it all to you and then write you a letter confirming how it all works.

Hopefully they have done nothing dodgy and it's all fine but it would be good to reassure yourself that everything is fine.

I am struggling to accept anyone could be as naive as the OP appears to be, your parents are getting all the benefits of the property / premium bonds, but putting them in other people's names?
How could you think that's ok?

Monkey whisk please do not feel ill over the comments made today. Sometimes it is easier for people outside a situation to see things that you don't. You are right- post no further details on here but sort out/ educate yourself on what is going on as it is being done under your name. You have a career and income- enough money coming in to have your DH as a SAHP so save and get the mortgage under your own steam or whatever way you and DH choose. Am sure many of us regret debt etc we have gotten into (your wedding loan)- it's done now. Best of luck with it all.

I was just going to add, if your DH doesn't work as he's unskilled and childcare costs more, is it worth him working a couple of evenings each week or a Saturday? Or maybe your DH could train up at night school for a skilled job?

Also on another note, my parents and IL gave us no other help once we hit 18 - except for £500 towards our wedding and letting us live (paying extremely low rent) at home for a year. We saved every possible penny during that time for a house deposit.

It would seem I am in the complete minority here, but i wouldn't have a problem asking my parents for the money. They are always happy to help out when we need it and we always pay them back, unless they choose to gift us the money (which has happened a couple of times).
It depends how comfortable you feel about asking your parents to be honest.

obviously, on reading the rest of the thread, it appears there are bigger things you need to resolve from a tax perspective before getting a new house.

Good luck.

Pom, I am not necessarily disagreeing (and my top university tax prize was a long time ago but very much treasured as just about everyone else on the course was a man so a huge triumph) and I do think this has probably not been set up to deal with the rental income in the right way but we don't have all the facts and it might be lawful. She just needs some tax advice on her own position.

Gifts between parents and infant children are indeed a special tax category (you cannot put all your savings into name of children to avoid tax although with the new no tax on interest up to £10k a year rules a lot of the pointless interest checking, adding to tax returns and even ISAs will probably go and yes between husband and wife there is no inheritance tax). However an adult child can give a parent money just as I could give my elderly neighbour money if I wanted to. If it's a genuine gift there is no gift tax im the UK and plenty of adult children support parents - when my father spent the last of his lifte savings on dementia care at home we were ready to step in to pay the regular costs, weekly costs or if a care home the monthly costs - that is not illegal. Now the interesting legal point is if that parent gave you £30k towards a flat deposit 20 years before is that paying to the parents their care home fees some kind of tax dodge - well no. But the issue here is what appears to be the direct connection - flat given to children, rent paid to someone who doesn't own flat - i.e the parents, not even an intermediate transaction where rent paid to children who then pay it to parents for some other good reason. So yes looks worth investigating.

The important point for those on the thread to realise though is that if your parents give you money / property with no reservation of benefit to them then instead of handing the awful state 40% of the valuer on their death the chidlren get it all if the parents live for 7 years which is why I call inheritance tax a voluntary tax on the stupid. Given high tax is a moral wrong in my view (and I appreciate socialists might disagree with that) you do God's work by keeping HMRC's grubby little hands off the fruits of the honest toil of your parents but you need expert advice which is up to date particularly in the light of the higher husband and wife combined IHT band but also when they bring in what seem really silly complex new rules that distinguish for IHT bands whether what is left is property (higher allowance if in a couple) than other assets (lower allowance). On the latter point why the state want to encourage older people to stay in their home rather than sell it and leave it available to a young family to buy I have no idea.

Yabu re your question. Am i right that your parents are collecting rent on properties you 'own'. Be very careful if thats the case as its fraud re tax. Id be more concerned about that. My ex landlord has a similar setup and im still unsure if i should report or leave alone. At moment ive left alone. She was lovely but her parents the owners the worse landlord even who let themshelves in without warning.

I thought there was a distinction between a one off lump gift and a regular income, Lotus.

Not disputing that anyone can give anyone else £30k no strings as a gift. But I thought giving someone, say, £1k a month was more problematic.

You can make a gift 'out of income' if it's part of your normal expenditure, and it doesn't leave you short of money.

Yes, so we could pay an elderly or impoverished neighbour or friend or parent or adult child £1k a month or whatever and that's not unlawful. the problem here is the connection to the rent.

So the issue is flat given to child with reservation of benefit (as parent continues to get rent). Now I suppose it may not matter if the rent goes direct to the adult child who then pays it to their parent or to the parent if the adult child can justify the payment (we are ignoring IHT for now). So from a current income tax point of view asset owned by adult child given by parent but rent given to parent. Now if they both pay tax at 20% I really cannot see any reason at all (leaving IHT aside) that could be an illegal act as it is owner of flat, the adult child, making a gift of the rent to the parent just as they might choose to pay a parent's care home costs or neighbour's food bills. But yes it needs looking at to see how it all really works , I was just playing devil's advocate in trying to show it might be lawful. They are certainly all valid points raised on the thread and the bottom line is if you want to give money away within families always best to do a lot of research on the tax law side first.

OP, YABU. You are incredibly entitled and don't seem to be prepared to work and save for a deposit. Either you own a property or you don't. I don't know much about tax rules but what your parents are doing - and what you're colluding with - sounds highly dodgy.

Lotuslight, Im not going to get into a political row but your point that the OP's parents have worked hard for their properties and therefore shouldn't pay tax on them seems unfounded. It appears that they inherited one property from the OP's grandfather (although she stressed that they almost lost it because of that dreadful IHT), and I'd be willing to bet that a lot of the equity in the other property came about due to unprecedented rise in house values, not because they sweated for every brick and mortar. Plus the OP hasnt toiled for it, has she?

My parents house is unlikely to fall into IHT territory, but if it did I'd be happy that HMRC got some of it because I'd still be walking away with several hundred thousand pounds that I didn't earn at all.

Just sell your premium bonds, sorted.

Even if this sort of transfer is done with the parents paying market value to the children and income being declared to HMRC surely there are more implications? If the children are bankrupted is the parents' home at risk? Also potential benefit entitlements for the DC (it would seem the OP has already lost out on first time buyer schemes). It's true that we don't know what is in the parents' future re care planning but nothing is sure re the DC's financial future either.

My MIL suggested transferring her property to DH (don't think she was planning on paying any rent though ). I admit we didn't look into the fine detail as a five minute chat about the above can of worms was enough for DH to say thanks, but no thanks.