Inheritance tax query

[Kentlane]

Hi I've tried searching online and I'm getting myself confused, so I was hoping someone here might know the answer...

My parents are gifting us £100k to buy a bigger house. They will then sell their retirement flat and move in with us. The house will be in our name and they won't pay towards the mortgage but will pay towards bills.

Theres a large age gap between my parents and my dad is in his 80s. If he were to pass on before 7years (I hope he'll be around for a long long time) would we have to pay inheritance tax on the 100k? It's going to be joint money so would it only be payable if both my parents died in the first 7 years?

They are looking at finances but if with this money and their retirement flat and any other savings come to less than £325,000 then would we not have to worry anyway?

TIA

You would not pay inheritance tax.
if inheritance tax is due, it will be on his estate if his estate is worth more than £350k with £50k (half of the £100k) gift included. But the tax would not be owed by you.

I'm not an expert but I suspect the only way your money gift would be effected is if your parents died in massive debt or spent everything on care homes etc. Then the money given to you could be seen as deprivation of assets or still count as part of the estate for debt collecting purposes but both of these seem unlikely in this case.

Was the cash given to you as part if the purchase of the house? Did your parents sign something confirming it was a gift to buy the house? This might protect it somewhat if you can do that.

Thanks both that's really helpful

If I was your father I would give all the £100k to my younger wife in the first instance and then she could give it to you. It should simplify things a little, as if it is in an account solely in your mothers name before she gifts it to you then it is unlikely to be considered part of his estate.

@Kentlane pp have advised on the IHT point.

I am going to give you advice on the gifting and parents moving in. You need to do this with a legal agreement which covers all eventualities. Some of the following may be distressing but have you thought what would happen if you or your partner died or were seriously injured and needed to sell the house? What happens if you find living with your parents harder than you think and decide it isn’t working? What happens if a parent gets dementia and needs to go in a home? What about the lost interest on the £100k. Remember this is not what works today and tomorrow but in 5, 10, 20+ years.

If care is needed, it is highly likely this gift would be seen as deprivation of assets, and there is no time limit on how far back social services can go back.

I would seriously consider:

• owning the house as tenants in common with a deed of trust setting out the % owned. For example if house is £500k your parents each own 10% and you and your partner each own 40%.
• treating the £100k as a private mortgage with your parents having a charge against the property.
• a legal agreement that the gift is returned in the follow8ng circumstances.

My advice is that you and your parents each need independent legal advice.

This may seem over the top but I am currently dealing with a case where the remaining parent being asked to leave after less than 5 years having handed over a substantial sum. The house owner is refusing to return a penny to help pay for a residential home.

It's not deprivation of assets if the reason that the money was given was to help their child buy a house. It's only DoA if the intention was to remove the money from calculations around council funding of care. The council has to prove the latter.

how old is your mother? if she is a lot younger then inheritance tax should not kick in until she passes on. the government cannot force a sale of a jointly owned house to pay care fees. only cash would be taken into account for inheritance at that point. that is all assuming that you and your husband /partner do not end up in debt and are sequestrated/made bankrupt

Thanks all I really appreciate the advice.

@2jacqi thats good to know thanks. My mother just turned 70.

Do you have any siblings?

@Kentlane I would strongly advise you to seek professional advice from an accountant/tax adviser

It's not only IHT that needs consideration; there are also the Pre Owned Asset rules which may be relevant - the gift is being used to fund the purchase of an asset that your parents will continue to benefit from

Hi OP, I think @Sisterpita raises some important points. Also, what happens if you divorce, will you be happy to see 50% of their money towards the bigger house going with your ex? I think the sibling issue is crucial too to prevent future resentment.

The pre owned assets charge is only relevant for iht in this case and anny estate is well below the threshold. So no need for expensive advice.