Do we return inheritance?

[Yetisquare]

Long time lurker, NC for this.

DMIL kindly handed over £195k inheritance 3 years ago as we were looking to buy a house. House sale fell through so we fixed £60k for both kids in a high interest account, bought a car and due to going private for DH medical and also dipping into it when he was out of work, we've just over £100k left. Put this into a high interest account but, it's not fixed and completely accessible.

Mentioned this to MIL a few months ago so she knows it's been locked away, however, we didn't mention we only have access to £100k.

DBIL has put his house for sale but is wanting more for what it's worth. Hasn't had much interest and he goes into a higher mortgage plan in January meaning his repayments will be unaffordable.
He's living with his partner, plan is he sells his, pays off her mortgage, she sells and they buy something together with money left over so they can both retire.
DBIL also has a flat worth around £300k that he has a small rental income coming in.

Today, MIL has called and asked for the £195k back. Or, she wants us to lend it to DBIL with the understanding he pays it back after they've sold both houses and bought theirs together.

It'll mean we take kids fixed amounts and our nest egg which is all we have to get on the housing ladder.
Husband has ADHD so doesn't earn much and we don't have a large HH income so really need a large deposit to be able to afford something.

So....sorry if its been a long one but AIBU if we say no? Or, what they have is none of our business and we help out with giving them the cash as we are family??

Quite
My own (NHS) GP was the one who told me to go private to get diagnosed because she was concerned about the potential wait times given the potential diagnosis. It wasn't that the NHS didn't think I needed to be seen soon, just that they weren't going to be able to get me the tests I needed any time soon

I did get a bit of snark from the next GP, post diagnosis, when I asked to be referred to NHS neurology.. until I pointed out his colleague had told me to go private and her referral was in my notes.

Don't gift the money away. Imagine if your MIL dies, you'd be liable to IHT on the money and wouldn't even have the cash.

BIL has property worth nearly £1m and his gf owns a home and he has had £195k from MIL, they have an utter cheek expecting you to give BIL any of the money you were gifted and told to keep.
Time for DH to have a frank conversation with his DM

You keep the money and use it to buy a house when you’re ready. Just say no and let them know it’s invested and earning you interest until you need it.
Bil can paddle his own canoe.
And don’t feel guilty about saying no either. You haven’t done anything wrong.

When you were gifted that money, what paperwork came with it? Our mortgage lender and advisor- when we were FTBs - asked for paperwork showing the source of our deposit (e.g. bank statements showing regular savings, paperwork showing the sale of assets) and in the case of a financial contribution from MIL she had to provide a letter saying that the money she'd given us was a genuine gift and there were no strings attached.
You should have been advised by any mortgage advisor or lender that you needed the same.
If you have that, then she cannot - and should not - ask for you to do anything in particular with the money.
But if you don't, it will depend on what you agreed at the time. When your house purchase fell through, what did you say to her; what did you all agree?
Regardless, most (if not all) higher interest accounts require significant notice of withdrawal and/or will not allow you to withdraw funds before a certain point (unless you want to face a penalty).
I'm puzzled how/why you've arrived at this rather ambiguous situation following your MIL's hugely generous gift.
Personally, 60k per child donation to buy a house seems like a bizarre choice for you when you (presumably) don't have property of your own.
I'd strongly recommend getting some decent, independent, financial advice about your longer term situation. In the immediate term, some honestly is needed between your various relatives.

I think regardless of your decision you and MiL and BiL must seek legal and tax advice. Also when banks see large sums changing hands there will likely be protocols in place for money laundering checks that make documenting gifts and family ‘loans’ necessary. Islinglass20 is wrong about CGT, you have received a gift not made a capital gain on a disposal. At the moment you have no tax liability. However, if your MIL were to die within 7 years of this gift, which must be declared for probate by her executors, the estate will include it for IHT calculations. So at the very least make sure there will be sufficient funds to pay the tax. If you then lend or gift it on, that could also have tax implications for your estate. I think your DH must be honest about how much you have left but all parties must get proper advice now.

Asking for your inheritence back is completely unreasonable, and the excuses made are harebrained. It cant just be given to someone else now.
Pending your eventual house purchase, you ve invested it wisely, and cant return it. It'll be the hardest word to say, but its got to be a no. Really they've got to just not ask.

No do not as you will never see it again. He got the same as you and more so let him sort out his own houses. Just tell them you cannot touch the money end of.

But put the money away or else you will keep dipping into it and it will be gone before you know it.

Completely missing the point, but please help me with the high interest accounts, thank you! But no she gave you the money and said it’s yours to keep. Sounds like BIL got more anyway.

I think there are laws about how much money you can gift , if you die within so many years. MIL may need to declare if she needs nursing care etc ? Why did she decide to gift so much at the time?

I think for Inheritance Tax it’s seven years. If MiL was in good health with no expectation of care needs when the gift was made, then she can’t be accused of deprivation of assets by making the gift. Depends on her general health and age when she made it - social services can investigate finances as far back as they want if they’ve a mind to try to prove people have gifted money t avoid care fees, so it’s always risky.

You are being very financially incompetent. As MIL is alive there is no “inheritance” relevance to date. When MIL passes away her estate will be scrutinised by HMRC for inheritance tax purposes. Anything over £3K, which she has given you is subject to gift tax rules, so if you keep the money you will owe HMRC a large sum. Should HMRC open an investigation they would find the £195K transaction in bank records. You need competent financial advice unless you return the money.

I would buy a house really quickly
do there is no money left.

It sounds like a Potentially Exempt Transfer which may or may not be exempt from inheritance tax depending on how long your mother in law survives the gift. You should get some financial advice.

If MiL lives at least seven years after giving the gift no IHT is due at all. If she gives away under the £325,000 threshold in those seven years, then any IHT due on gifts is paid by her estate, not the recipient of the gift. If MiL gives away more than £325,000 in gifts in the 7 years before her death anyone who gets a gift from her in those 7 years will have to pay Inheritance Tax on their gift. So if she gave a similar amount to BIL that would total around £380,000, which is above the threshold, so the amount of inheritance tax payable , as well as who pays it, would depend on when the gift was given and how long MiL lived after giving it.

My guess would be that the DH and his brother will inherit their Mum’s estate anyway so they can use that to pay the tax obligations if she doesn’t survive for seven years. It sounds as if she’s financially comfortable.

@Rosscameasdoody that sounds wrong to me.
@HamBone any IHT will come out of the estate. You can't pay the tax out of the money you are going to inherit. The tax has to be paid before any monies can be distributed (which can cause problems in itself). (I suppose a family member with money could pay the tax to HMRC, out of the money they have before the death, since they know they will receive money at distribution to replace it, eventually (took 2 years in DF's case).)

@Yetisquare I suggest your family consults an Inheritance Tax Planning specialist - there should be someone in most solicitors' practices.

@SequentialAnalyst When you say that any IHT will be paid out of the estate, wouldn’t that work out OK if the two brothers are the sole beneficiaries?

I was assuming that if, for example, £100K IHT is owed and the deceased has significant savings, HRMC could be paid directly from the deceased’s bank accounts and then any remaining monies would go to the brothers.

Or doesn’t it work that way?

If it can’t work that way, perhaps the OP’s DH had better hold onto £80K until the seven years are up. Not sure what his brother can do as he seems to have tied up all his money in properties!

You cannot ask for money back which you have gifted.

If the deceased's money is held in cash (or gvt bonds (I think)) then this can be used to pay the IHT, which then means probate can be granted. Much of DF's was in shares - which couldn't technically be touched until probate was granted - which is done after the tax due is paid. So there was no ready money in the estate to cover the tax. This caused significant problems.

(£100,000 in a savings account would be a very bad way of investing one's money, because of the low returns at present on savings.)

This is off the top of my head, don't rely on me, ask a professional.
Also, I haven't read all the thread thoroughly - I will tomorrow if I have time, and get back to you if I have any seemingly relevant experience.

@SequentialAnalyst In short, these gifts could create a real mess-shows that ppl should always seek legal advice before gifting large sums.

I did have a quick look when you first started this thread. My thoughts are that MIL made a Potentially Exempt Transfer, which starts the 7 year clock ticking the day the money was given. Nor is the person making the gift allowed to make any conditions on the money given. To start trying to lend it back and forth is just going to muddy the waters. As I say, I'll read more thoroughly tomorrow.

IHT comes from the estate not the individual gifted.