Landlord was FIL. Help!

[sendcoffee]

Just hoping someone could help/advise really.

Myself and DH rent a property from FIL. He has recently passed away and MIL is going through the legalities of probate etc at the moment. She's happy we stay and pay the same amount of rent.

However, the bank that is helping her through their bereavement service has hinted that us renting at the rate we are could be seen as "gifting" and we may be liable to pay any rent that could've been made if rented at full market value for the time we've lived there.

Yes, we are paying less than market value, however we are paying the same as the previous tenant did (they were elderly and had lived there for 60 years and FIL liked them a great deal as they helped care for his mother before she passed who lived in the flat below. He rarely raised their rent).

Is this a thing? Will we need to pay the difference of almost 2 years rent? DH is very stressed out about this at the moment understandably.

Any help or advise would be amazing.

Unless it is 1000s I can't see it being an issue. There are annual allowances for gifts before they are taken into account for IHT. Did they jointly own the property or just fil?

Just FIL owned the property.

MIL inherited everything. Over the course of the 2 years it would run into the 1000's of potential rent.

We pay around £430 a month (he wouldn't accept anymore) and if privately rented a similar property on our road would fetch around £800-£900 a month. The flat downstairs brings in about £750 a month (I believe), ours is slightly bigger due to layout.

That is a big difference

www.gov.uk/inheritance-tax/gifts

3k per year is the allowance. I would assume the advisor thinks it may come under "loss of value". The estate could be liable though, for IHT, rather than your dh. However if the value of the estate is within 325k or passes direct to mil I don't think it is relevant.

Whether it has any impact will depend upon the size of FIL's estate and how long MIL lives. Maybe she should take advice on how best to help you?

Are there any other siblings of DH? Perhaps it's time for MIL, DH and siblings to visit a financial advisor. It could be worth transfer a share of the flat to DH now and just pay 50% rent or something?

I certainly think you all need some long term financial advice.

hope the short term issues get sorted easily.

Sheesh that's a huge difference! Yes legally they do have to take that into account, but it is the estate that is liable to tax not you, although ultimately it's your inheritance that decreases.

Sheesh that's a huge difference! Yes legally they do have to take that into account, but it is the estate that is liable to tax not you, although ultimately it's your inheritance that decreases.

FIL owned 4 properties total, he has 4 children. We are the only ones renting from him. One lives with MIL rent free, another privately rents (FIL had no vacant properties at the time otherwise the situation would be similar) and the other gets various benefits so any help was limited so as not to impact this (at their suggestion not FIL's).

DH is calling the bank today for advice. FIL was going to transfer a property into each child's name, he knew he didn't have long left after diagnosis, but things happened quicker than expected and he didn't get well enough to meet his solicitor to amend his will. It was only 25 days after diagnosis he passed away, doctors did tell him he had possibly a couple of months, so understandably things have all come as a bit of a shock.

MIL knows that this was his plan. There's no mortgage on any of the properties.

Is it 3K per year total or per person?

e.g. if he gave each child 3K would he have exceeded that limit?

@LIZS thanks for the link. I think it will count as a gift. That's annoying, but can't be helped.

He only helped us out because we were living with my parents with a small baby after our landlord sold the flat we were in. We tried to pay him more rent but he always refused, or transferred it back into DH's bank account.

All a bit of a mess really. The whole estate would be close to 1 million I would think. One house alone would be worth around £500K.

It will automatically go to you MIL if he didn't have a Will.

She might be as well to hand over the properties now, if that is what he wanted to do - and obviously if she doesn't need the money.

If she lives for another 7 years, it wouldn't be a problem, if she died is less time, you would have to pay a proportionate amount of IHT.

You really need to get some advice.

@ajandjjmum there was a will. Everything goes to MIL as mentioned above "MIL inherited everything".

She is retired so the income from the rental properties is now her main income. Once all of the estate and probate have been dealt with.

If his wife inherits everything, there is no liability for IHT on FIL estate.

There are huge potential issues ahead with IHT when MIL dies. This is not an area for amateur or online advice. The family needs to consult a professional advisor on IHT matters.
Do so quickly. There is the possibility that there may be a more advantageous tax route to be taken, which might possibly include a variation of FIL will, if that proves of any use.
And , with the best will in the world, advice here cannot be of any use, , without knowing every detail of assets, future liability for IHT, and Capital Gains Tax if and when properties are eventually sold.
Get professional help. Tax accountant or tax lawyer.

2nd thought: MIL may need, at the very least, a handhold, to sort this out, so DH may need to support, or even take it on.
Strong advice: give progress reports of everything to all siblings as you go along: helps to forestall someone feeling left out/financial stuff going on behind their back.

Thanks @DancingLedge

MIL is getting lots of help from DH and one other sibling. The other two are still in a bit of a blur about the whole thing because it happened so quickly.

He had a very good accountant that is going to help out luckily.

The renting to you at an undervalue had tax implications for your FIL not for you or your DH.

The same will now apply to your MIL if she is now the landlord.

I would suggest you seek advice from a tax accountant not the bank.