How do my family do this? (Property & IHT)

[Gonzo33]

I have a rather complicated question that I think I know the answer to, after reading the Inland Revenue Website, but wanted to check. To explain I need to give some background, so bear with me.

I am an only child, and my Mum is an only child. Both my Grandparents and my Parents estate will take me over the threshold for IHT. Now my Granddad is thought to be quite poorly at the moment, and my Mum and my Nan want to sort out their affairs to ensure that I am not left with a large IHT or CGT bill (morbid I know, but that is the way that they think).

We (my husband and I) will be buying property some way from my parents/grandparents and my Mum is keen to move nearer to us.

My Mum has suggested that when she makes the move, approximately 2 years as Dad will retire then, that she will buy her new property outright from the proceeds of her current home and put the house in my name. According to the I.R website if she does that it will not stop the I.R wanting their IHT tax unless my parents pay me a monthly rental at market value. They will, at that time, rent my grandmothers property.

Am I right in thinking that the only way to minimise IHT would be to inherit my Nan's home when she passes instead of my Mum? Also if that is the best thing to do is it possible to write a will in such a way that I inherit the property with the view that it be let and the proceeds be paid to my parents? Obviously we would need to look at upkeep of said property, and other considerations.

If that is the best option, would it then be better for my parents to leave their property to my children, and so on and so forth?

I am hoping that there are other options that I have overlooked. If there are can you point me in the right direction please.

Nil band not sure if this helps.

Trouble is seb1 that my parents and grandparents estate may be double that roughly.

I know I am extremely fortunate by the way, but my Mum and Nan asked me this and I don't know how to answer to be honest. Maybe I should email my solicitor.

Once you inherit property it is yours to do with as you wish. There is no need for the will to specify what you should do with it.

You don't say how much money is involved, obviously. However unless it is an Awful Lot, I'd suggest your grandparents' money should just go to your parents. They need to be sure they have enough to live on for however long they live. To me that would be more important than avoiding the IHT.

Your parents can make gifts to you and also to your children once they have inherited your grandparents' estate. Gifts don't count for IHT below a certain threshold - £3k per annum? - or at all if you live for 7 years after the gift was made. This is an easy and flexible way of passing money through the generations without paying tax.

It's not the money which is the issue tbh F_C. I would expect the money from my Gp's estate to go to my Mum, as I originally expected everything to. However, my Gp's estate including the house is probably iro 4-500k, and my p's will be the same roughly too unless they end up paying for care.

My Mum has called me today asking me to find out what the best way is to minimise IHT because my Granddad's health has made her and Nan think of the best solution.

I think I am going to have to engage my solicitor on this one aren't I?

There are lots of thoughts going through my mind, mainly along the lines of the house being held in trust for my children etc.

My husband and I don't need the money/house or anything else, and I did not expect this so it was a curve ball really.

Solicitor and accountant.
You need professional advice, and it will be worth it.

Thanks I_O

I have emailed my solicitor now. He knows a good accountant that I have asked randon questions of in the past.

First of all you need to be clear about how IHT works. The threshold (currently £325,000) does not apply to you, it applies to each estate. When one of your grandparents dies, there is no IHT if all the assets are transferred to the surviving spouse. When the second spouse dies, they can use the nil rate band of the first spouse to increase their threshold, so IHT will only be due if the estate is at least £650,000 at current rates.

The same applies to your parents.

Have you still got a problem?

As for the idea of your parents buying a home to live in and gifting it to you, that might avoid IHT but you will be storing up a big CGT problem for the future. If they have the spare cash to pay you a market rent it would be better if they just gifted it to you.

If the combined estate of your grandparents and parents is likely to be over £650k it might be worth your GPs house passing to you, or perhaps your children, rather than your parents. To have your parents benefit from any rental income you would probably create a trust which will have income tax implications: other solutions may be more efficient.

You need to go through all of this with a good IHT planner.

Oops, I see I was a bit slow posting that!

No worries, thanks anyway

I agree with Mr Anchovy.