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??

Only read the OP's OP but....

No way would I hand this over! Ppl do not always act as honestly or trustworthy as you'd believe or think you 'know', even family you think you know inside out, where money is involved. Hard to see before it happens as you'll never have been in a position like it before.

Flat NO, make up whatever vague excuse you can. The vague the better or they could try to give you 'solutions' to pressure you into doing what they want.

Consider this. Part of your situation is that the money is tied up. This same excuse could absolutely be given to you by BIL down the line if you hand it overturn ask for it back later & he claims it's tied up in property or part of an ongoing vague process.

If you lend the money consider it like gambling, the odds are against you getting it back. Can you afford that? Are you happy with that for your children?

Pls note, I spk from experience of a family I thought were loyal & close until our father passed, then our mother got dementia. My siblings became unrecognisable lying & manipulating to essentially access as much inheritance ££ as they could at my expense. I thought that behaviour only happened in tv dranas! No it happened in my own family & no one was more shocked than me. They essentially stole from me but also my children. It was all done before I had a clue, as I didn't think like them and would never have expected it of them ever, wasn't looking out for ut, didn't anticipate it. Greed over money changes people, and you won't see it unless you're in that position. Don't let yourself get vulnerable and open to it like I unfortunately did.

I have nothing to do with my siblings now fwiw! It's really sad they chose money over family & the outcome may have been the same had I seen it coming and challenged them, but at least we'd have had our first equal share my parents always planned & a legacy for their grandchildren. Pls learn caution from my experience & protect your households needs.

OP vaguely mentioned that the money was from MIL's brother's estate; if MIL was executor and if she did a valid deed of variation to have the money given directly to her children, then the IHT liability position may be quite different. There are a great many "if" included there; OP needs to start getting advice from proper financial advisors rather frittering away the money or getting random, potentially incorrect, advice online.

Op, just another thing that I think you should consider.
Your DH has poor health. How likely is it that he may have a further period of illness that sees him unable to work?
How stable is your financial situation? Because if you find yourself in a position where you may need government assistance, I'm concerned that you may look like you've dropped these funds to access it.
In your position, I'd be saying to MIL, we didn't want to jinx it by telling you, but we've been looking at houses, we think it's possible, and giving this money to BIL will not be possible because of that, then go and buy something, even if it will now just be a chunk of the house that the money goes toward.. I'd be looking for stability in your situation

I fear the op may not be in a good position to access mortgage finance. Obviously they wouldn’t be buying in central London, but going too far away when they have a child in school could be an issue.
Op, would you consider the hinterlands of zone 2/3? If you have the remaining £135k, and are able to access another say £250k, then even after legal fees etc you may be able to afford a two bed flat somewhere like Forest Hill (which is lovely and has good transport links into central)? You do need to ensure that you can pay the mortgage without OH’s income though, in case he becomes unable to work again. Fabulous has made a really good point about that.

Oh, I meant to add Op, waiting for your 6 year old to finish primary school before
moving may not be the best bet. It would mean them then having the big change of secondary school, but without knowing anyone, whilst most children will have some friends at the new big school. That would be really hard. Moving now gives them plenty of time to form established friendship groups well before secondary school. Plus prices seem to be a bit lower now, who knows where they will be in 4/5 years time? DD had to change primary schools in year 2, and it was actually a really good time to do it.

Brother can sell his flat to get the money he needs or remortgage it!

Sorry, that is not precisely correct in the case of taxable lifetime gifts:

https://www.gov.uk/guidance/work-out-inheritance-tax-due-on-gifts#when-the-total-gifts-are-over-the-inheritance-tax-threshold

"If tax is due on gifts

Inheritance Tax is only due if the person who died gave away more than £325,000 in gifts in the 7 years before they died. In this situation, the person who gets a gift in these last 7 years will have to pay the Tax.

Gifts use up the £325,000 tax free allowance first. Any unused threshold left after this can be used by the estate of the person who died."

After seeing your post I checked HMRC website. My info is correct. There is a sliding scale of percentages of tax due on gifts where IHT is payable. If she gifts more than £325,000 in the seven years before her death, then any IHT due beyond the threshold is payable by the recipient of the gift. Her estate is only liable for IHT up to the threshold. So potentially, if she gave BIL £190,000 first he would pay no IHT. OP’s gift would take MiL over the threshold so OP would pay IHT on £55,000 of the gift, the amount payable would depend on how long MiL survived after the gift was made.

It's not the value of the gifts, it's the size of the estate at death. £325,000 is the value of the deceased's estate above which IHT becomes payable - the tax threshold, rather like an Income Tax threshold. The rate is 40% for wealth above this threshold. Gifts (PETs) may attract less tax depending how long ago they were made.

Any gifts which have been given over and above the annual Exemptions in the previous 7 years will be counted back into the estate for Inheritance Tax purposes. There is a sliding scale, as you say, depending how long ago the gift (technically a Potentially Exempt Transfer or PET - so called because potentially it will be exempt ie 7 years after it was made).

There are various rules for married couples, and for downsizing, I think, which allow unused Threshold to be transferred to a surviving spouse.

This is just the bare bones of IHT. Seek professional advice.

I have made a modest PET to each of my DC, about 2 years ago. Now I have to live another 5 years for no IHT to be due on these PETs.

And this year they both got married, so I gave them each the maximum allowable Exempt Gift to a DC getting married, 5K. No tax to pay on those gifts at all, even if I die tomorrow. Grandparents can give slightly smaller IHT-free gifts to their GDC at their marriage.

I can also give up to £3000 a year, or as many gifts of up to £250 as I like, provided they all go to different people, without those gifts being subject to IHT. There is nothing stopping me giving more, but then those gifts will be subject to IHT if I die within 7 years - like the PETs I've made to the DC. All gifts over the past 7 years have to be listed on the appropriate HMRC as part of executing the estate, as well as all assets. And HMRC can call for copies of statements to check the declaration is accurate.

And finally, any Gift to a spouse, and indeed any legacy to a spouse made in a will, is not subject to IHT at all.

I can't believe this ! Is it true? ' kindly handed over '?? How strange
You shouldn't have accepted such a huge amount of money.
In any case you didn't buy a house and I don't think it's right to just give it to the children!

I think some comments are too harsh, if you didn’t ask for the money then it’s not like you’re a vulture. I do think MIL is good with money (until she made this ridiculous request that is) to have this cash to give away yet this hasn’t filtered down to her children, DH and yourself don’t own a home for your kids yet have put £60k in locked bank accounts. Get it invested in a house asap! You won’t make in interest anything like a property investment.
However the DBIL is much worse and has money going in all directions. He can’t afford his own home and will potentially lose it if he doesn’t get it sold through missed payments, yet has another flat he rents out then going to buy partners home outright. Somehow he’s also used up £195k on who knows what! If they aren’t married he’ll need to make sure that investment is water tight. What a fiasco.
If I was MIL I’d be letting you hang on to the money you have because DBIL is obviously totally useless with money. Then you and DH need to get your own plans in order and get a home purchased as planned. Say you really want to get this done sooner rather than later so no he can’t have any of your gifted money.

I agree with the above. I would also suggest, even though I know this goes completely against the MN grain, that you use the money as a deposit for a property which you may not be able to live in yourselves now (either because it's too small or because it's not in the right area for you at the moment), and get a reasonable, small, mortgage if you have to, and rent it out at a fair market rate, using a reputable, trustworthy property manager, until such time as it can be used for your children to be on the first rung of the property ladder, or for you and your husband to move to when things change. Don't over-extend yourselves as your BIL has done, but invest in your family's property future.

You’ve just said exactly the same as myself I’m a different way. If she dies within seven years of gifting, the gifts are treated as an inheritance and IHT is payable from her estate up to the £325,000 threshold. In this case her estate would be over the threshold because the gifts total £380,000. Therefore inheritance tax would be payable by the recipient of the gift which crossed the threshold, on the proportion over £325,000, which in this case would be £55,000, with the rate dependent on how long MiL survived after that gift was made.

No it is NOT the value of the gifts to which the £325,000 relates.

It is the total value of the estate at death.

• money, shares, house - plus the value of any gifts made in the previous 7 years are added back in as if they hadn't been made (although taper will apply to tax on them).
• IHT is payable on the value of the estate above £325,000.

I still haven't read the specific values in this case, will look when I have time (have just moved house).

From the HMRC website;

How Inheritance Tax on a gift is paid.

Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.

ExampleSally died on 1 July 2022. She was not married or in a civil partnership when she died.
She gave 3 gifts in the 9 years before her death:

• £50,000 to her brother 9 years before her death
• £325,000 to her sister 4 years and 2 months before her death
• £100,000 to her friend 3 years before her death

There’s no Inheritance Tax to pay on the £50,000 gift to her brother as it was given more than 7 years before she died. There’s also no Inheritance Tax to pay on the £325,000 she gave her sister, as this is within the Inheritance Tax threshold. But her friend must pay Inheritance Tax on her £100,000 gift at a rate of 32%, as it’s above the tax-free threshold and was given 3 years before Sally died. The Inheritance Tax due is £32,000. Sally’s remaining estate was valued at £400,000, so the estate would pay Inheritance Tax of 40% on £400,000 (£160,000).

Please just stop!
You don't even know if the money was gifted by MIL or her dead brother, this is all really unhelpful. OP needs to get proper financial advice.

I think I'd just lie and say it's all tied up as you wanted the highest interest possible for future house.

Who appointed you thread police ? I was replying to the poster who questioned my understanding of IHT, and the examples of how IHT works for gifts are quite straightforward and directly relevant to OP’s situation, so may help her better understand their tax obligations on the gift. And MIL’s inheritance from her brother would form part of her estate - OP says the inheritance allowed MiL to gift to both sons. Nothing in OP’s posts suggests that anything was gifted directly from her brother to either DH or BIL.

No. End of

@Rosscameasdoody
Ah, I see, my apologies, we were talking at cross-purposes.

I still haven't read the details of the size of the gift (But I will - am having a stressful move -still!) I was talking about gifts relatively much smaller than £325,000. I have NO experience of gifts that big, so never needed to find out that information - and nor will most people.

@SequentialAnalyst
I could point out that OP hasn't been back since midnight on Saturday. Concentrate on your removals. Hope you are sorted for Xmas!

Thanks for the advice @senua
I was just trying to correct what I thought was an error - I often see IHT misunderstood on here.
And then I was apologising to @Rosscameasdoody because I misunderstood her.
My advice to OP was to consult a professional.