Inheritance of house only child

[OrangeCinnamon1]

I've been talking to DH and very worried he doesn't fully realise the implications of Inheritance Tax. At present if we ever have to pay it he is thinking sell our house and pay it with that. Problem is I don't think sales from our three bed semi going to cut it. He is an only child, we have one child , , ,parent on their own. We think assets are 2.5 to 3 x the value of our house.
The.house was bought cheaply in a gorgeous location and his Stepdad worked nights for years to renovate it, this would be the main reason he wants to keep in the family regardless of value. The issue is it is in one of those places where house prices have risen so much. Would we be able to get a mortgage to help pay off the cost of the tax?

I am worried DMIL is not very elderly (75) but they just don't talk about the mechanics. DMIL also has money put aside for care home fees.
Where on earth do we start getting advice or even practical tips how to talk about it? This worries me as we bought our house later in life , have a long expensive mortgage and ourselves have few assets.

I dont understand - who do you think is going to inherit what? You mean when your second PIL dies that your DH will inherit and have to pay quite a bit of tax on that? Why would you have to sell your house to pay the tax - just pay it out of the inheritance surely?

(Also this does sound a mite grabby - if you inherit so much you have to pay tax then lucky you!)

If and when it happens you can get professional advice.

Things can change, don’t look too far ahead.

Agree with purple. If your DH inherits enough to owe IHT, you pay it out of the inheritance itself. You don't sell your own assets.

I'm confused too. Inheritance tax comes off the assets you inherit. You don't have to pay it yourself.

But if you want to keep the house you can’t sell it to pay the inheritance tax.
You could mortgage it and sell yours if that’s where you want to live.

Wouldn't the property come under the single main residence exemption? My understanding is that is gradually being teired up to tackle this kind of scenario.

But any probate solicitor would be able to provide advice.

I imagine OP's husband wanted to keep the house, selling his own to cover the tax.

OP you'll be able to get a mortgage on the inherited house. You use that to pay the difference between your house and the inheritance tax.

I think the Op means that if the house is worth for example 800k and they are left the house but no cash, would they need to get a mortgage on the house they inherit to pay off the inheritance tax due as the value of the house itself is high. I just used 800k as an example, I have no idea about thresholds. I would say yes you probably would tbh.

if you inherit an estate (let's imagine just a house) worth £500K, then you get a certain amount tax free - I think around £230K. Then you pay 40% inheritance tax on the rest = 40% of £270K = £108K. That money does not have to be paid immediately - you can delay payment for a year or so while you sell the house that you inherited. But you should never have to sell your own house to fund the tax on an inheritance.

these are rough figures, the exact allowances may be different

@Purplewithred

I dont understand - who do you think is going to inherit what? You mean when your second PIL dies that your DH will inherit and have to pay quite a bit of tax on that? Why would you have to sell your house to pay the tax - just pay it out of the inheritance surely?

(Also this does sound a mite grabby - if you inherit so much you have to pay tax then lucky you!)

Sorry didnt mean it to come across that way. Its not grabby if you dont actually want the circumstances surrounding it I think ?

Its not a big house (3 bed detached) just sought after location.

Im most worried about not having enough to pay the tax and having to sell the house then DH and me being devestated.
No amount of money could mitigate for that.

Inheritance tax is usually paid before probate so yes, and must be within six months of the death or you'll pay interest.

Have you estimated how much it is, we're in-laws married? If so you get both allowances not just one.

Are you sure they'll be any due? The Nil-rate band is £325000. There's the transferable nil-rate band and residential nil-rate bands too that may apply.

Ah I see apologies I misunderstood. Have you looked at what the house values would be and how much tax would be owed (an estimate obviously)? Bear in mind you don't pay inheritance tax on it all, only the amount over £325000 I believe.

@Cantchooseaname

But if you want to keep the house you can’t sell it to pay the inheritance tax. You could mortgage it and sell yours if that’s where you want to live.

Thanks Cantchooseaname. Sorry had a terrible day/night all woolly head fingers/thumbs but someone knows what I mean.

Is the house worth more than £650k?

@Themostwonderfultimeoftheyear

Ah I see apologies I misunderstood. Have you looked at what the house values would be and how much tax would be owed (an estimate obviously)? Bear in mind you don't pay inheritance tax on it all, only the amount over £325000 I believe.

Yes it quite scary ! The problem is we live in a cheap part of the south coast and MIL lives in a , now, sought after expensive part that lots of commuters are moving to.

How do you pay inheritance tax, though, if you have to pay it before probate and before you’ve received any assets? Do you have to get a bank loan?

@OpEd

Is the house worth more than £650k?

Most definitely looking at sold house prices. Honestly i'm not meaning to be grabby at all. We have always been a bit studenty about our finances, didnt buy until late, DH is a decade older than me too, oh and Dd going off to Uni in a couple of years.

@picklemewalnuts

I imagine OP's husband wanted to keep the house, selling his own to cover the tax.

OP you'll be able to get a mortgage on the inherited house. You use that to pay the difference between your house and the inheritance tax.

Yes as silly as it may sound to some we would want to keep the inherited house for sentimental value. I hope that is understandable. I think the best thing to do ...thinking abstractly is to try and get our mortgage paid off asap so we can sell house if needs be and wouldn't have to ask for too much money to plug the gap.

If MIL was married to Stepdad (when / if he died), the inheritance threshold doubles to £650000. There is also an extra bit if a house is left to children which takes the threshold to nearly a million I think (or is is that high just for London?).

IHT doesn't have to be paid before probate. I inherited a house worth £75000 (mortgage free) and originally I was going to keep the house and pay off the IHT in installments. They (HMRC) allow it to be paid over a 10 year period with a payment (1/10) due every year if you decide to keep the property. After a year I decided to sell it. The IHT was due once house was sold. Don't forget about Capital Gains Tax too. The house will be valued for probate and if/when you come to sell it, if it has increased in value, you have to pay CGT on the profit so to speak.

£750000* 😬

@NeedToKnow101

If MIL was married to Stepdad (when / if he died), the inheritance threshold doubles to £650000. There is also an extra bit if a house is left to children which takes the threshold to nearly a million I think (or is is that high just for London?).

They were married. It seems silly writing it down to be so sentimental .

@PearlHeart3

IHT doesn't have to be paid before probate. I inherited a house worth £75000 (mortgage free) and originally I was going to keep the house and pay off the IHT in installments. They (HMRC) allow it to be paid over a 10 year period with a payment (1/10) due every year if you decide to keep the property. After a year I decided to sell it. The IHT was due once house was sold. Don't forget about Capital Gains Tax too. The house will be valued for probate and if/when you come to sell it, if it has increased in value, you have to pay CGT on the profit so to speak.

Was that a difficult decision to make @pearlheart3 to sell up?

Think that there's been a change that, if it passes in direct line ie dmil to dh, the family home is exempt up to £1 million, plus the £650k.

So, wouldn't think you need to worry just yet, OP.