Mortgage deposit/inheritance tax help!

[TheAwakening]

Hello

We're currently looking for a financial advisor to speak to about this (as are my husband's parents) but any help would be useful in the meantime!

My husband's parents have offered to help us with a house deposit. It would be a big sum of money, about 80k, along with our deposit of about 40k and a mortgage of around 120k.

When we started discussing it initially they thought it would work as a sort of loan, so we would pay them a small amount per month to help them with their retirement. We spoke to some mortgage brokers who said generally mortgage companies don't accept this, so it would need to be a no-strings-attached gift. But if we decided somewhere down the line that we wants to pay some of it back, or just to help them with money in general, then that would be fine and legal.

However, if it's a gift then there's the worry of inheritance tax. His parents are married and both in their early 70s. If his dad were to die in the next 7 years, would we have to pay inheritance tax on the gift (on the sliding scale)? Or would we be exempt because it's joint money? Would we only have to pay if they both died in the next 7 years?

When they both die he will also be inheriting (split with his sibling) their house and the rest of their estate which is over 325k. Could the inheritance tax come out of the house sale rather than the gift? We are all worried that if his dad/both parents died we'd have to find 30 grand out of nowhere, immediately.

Sorry if any of this is really obvious, we are both crap at this stuff! Also apologies that it's so morbid talking about them dying but we all want to make sure we've explored every eventuality.

Thank you

Interest rates are so low atm I would stay out of the loan/ early inheritance scenario

Let them enjoy their retirement money and access should they need

www.gov.uk/inheritance-tax/gifts

This explains where the inheritance tax liability would fall.

If they have not made any other gifts in the 7 years before they died, the nil rate band will be applied to this gift therefore no tax will be due.

This will however, impact the amount payable by the rest of the estate.

You would need to have your in laws state the money is a gift with no obligation pay it back. Otherwise it will be taken into account in your mortgage application.

However when it has all gone through, you can unofficially "pay it back". In laws will have no contractual entitlement to it though.

I believe a married couple's inheritance tax allowance can be rolled over into the surviving spouse and then the relevant amount is paid on the death of the surviving spouse's estate. So the 7 yr rule starts from the death of spouse 2. But not entirely sure on this point.

you only get taxed on anything over 325k, plus I believe there is a living scale so it would only be 40% tax on anything over 325 within 1 year of death, if death occurs 6 years later for example it is a much smaller percentage tax.

We are all worried that if his dad/both parents died we'd have to find 30 grand out of nowhere, immediately

This wouldn't happen. Inheritence tax is payable by the estate, not the beneficiaries. After death, the value of property and other assets, plus your gift if you took it would be totalled up and the tax deducted as appropriate before distributing the proceeds to the beneficiaries.

The nil rate band of 325k applies to each individual, married/civil partners can ‘inherit’ their spouse’s nil rate band.
In addition, there is a newish allowance called residential nil rate band for each individual currently worth 175k (again this can be passed on) for a main residence if it is passed on to direct descendants.
This means that a couple with a property left to their children or grandchildren could potentially leave a total of £1m without any inheritance tax due.