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Original poster

In-laws panicking about inheritance tax

86 replies

AhBiscuits · 27/09/2024 13:13

My inlaws split their time between two properties. They want to sign one over to us and then pay us rent to use it. The purpose is to reduce the inheritance tax on their estate. Apparently the rent is necessary to avoid the tax, I dont really know anything about it. Neither of them are likely to die in the next 7 years, MIL is likely to live another 20 if she follows her mother's lead.
Property is worth about 800k and they are proposing 2k a month as market rent. Is there any point in this? We'll have to pay tax on the rent and if it does go on for 20 years or so will they even save anything?
They clearly need to take some proper advice before rushing into anything, but I wondered if anyone had any thoughts. Is there some glaringly obvious issue they're not seeing?

OP posts:
isthewashingdryyet · 27/09/2024 14:39

They need proper advice but it sounds like a bad idea.

What if you divorce and your husband takes half of it ?

What if you die before your parents and your husband remarries and leaves the house to the new wife's kids?

Have they looked at what being a landlord really means these days ? So many many legal obligations here

Deprivation of Assetts can be looked at many many years after the evasive actions were taken, but may not apply as they sound wealthy enough to pay care home fees for a long time

And, tax is important. How would the country run if there were no taxes paid ?

This needs very careful consideration of all the possible outcomes

isthewashingdryyet · 27/09/2024 14:41

Just realised it is your in-laws, so the advice is what if you divorce and you can take half the value ?

So many women on here saying we will never divorce, it can happen to anyone

nervouslandlord · 27/09/2024 14:44

Won't stamp duty be involved in having to transfer the property to you?

All sounds like a complicated process even without that!

Bromptotoo · 27/09/2024 14:48

Anything like this needs proper advice.

RightSedFred · 27/09/2024 14:49

They need to take proper legal and financial advice about tax avoidance. They can't just sign a property over to someone else like that and think job done. It doesn't work like that or everyone would do it!

Bjorkdidit · 27/09/2024 14:50

I don't understand why people 'panic over inheritance tax'. They'll be dead it doesn't affect them.

Your DH will inherit an enormous amount of money even after it's taxed above a generous threshold.

Anything could happen that would make their hare brained scheme pointless and a legal nightmare at a distressing time for the family.

Chasingsquirrels · 27/09/2024 14:53

Yes it can be a good idea, they are passing on both the capital and then an annual income stream (although you'll have a tax liability on this).
They should obviously take advice and look at their overall tax & financial planning strategies.

Obviously tax rules can be changed in the future.

Original poster
AhBiscuits · 27/09/2024 14:54

It's the upcoming budget which has sent them into a spin.

OP posts:
parietal · 27/09/2024 14:56

they won't save money but your DH (and you) will benefit massively from (a) owning another house with no tax to pay on it at all, assuming in-laws both live 7 years and (b) getting £2K per month in extra income (which will be taxable).

DevilledEggsies · 27/09/2024 14:56

It would be far simpler for them to give you the house, tell you to sell it and then use their £2k a month to actually rent somewhere else as and when.

endofthelinefinally · 27/09/2024 14:57

They need to see an estate planner. Not a solicitor, not an accountant or a financial advisor.

MaryMary6589 · 27/09/2024 14:59

The rent needs to be market rent but if you want to look up why it's called 'gifts with a reservation of benefit'.

HalfasleepChrisintheMorning · 27/09/2024 15:05

They need a tax advisor.
They could put the property into trust? My parents put a rental house into trust a few years ago but unfortunately my Dad died within the 7 years so having to pay IHT on his half as that plus his half of his own house (which he also left to me) had used up all his nil rate band. If he’d lived 7 years there would have been no IHT to pay. The rental profit can be used by the beneficiaries of the trust but they do have to pay income tax on it. As one of the beneficiaries is my son (12) we use his tax free allowance for that.

Butterflyfern · 27/09/2024 15:05

AhBiscuits · 27/09/2024 14:54

It's the upcoming budget which has sent them into a spin.

Tbh, I think they've left it a bit late to get advice and transfer assets over to you in the next 22 working days before the budget.

They'd be better waiting to hear what the budget actually says/changes and then acting accordingly with properly thought through actions. You can't act properly without understanding what the changes will be or when they'll come into effect

Neighbours87 · 27/09/2024 15:05

speak to a solicitor OP my friend had a similar situation and it was a legal nightmare

Tiswa · 27/09/2024 15:06

Do you own a house? Presumably they have been paying capital gains tax or if you do and rent is paid will have to pay it

BaronessEllarawrosaurus · 27/09/2024 15:06

Do you own your own home? If you do you'll be paying 2nd home stamp duty so on top of the tax for the rental income there's also over £50k in stamp duty to pay.

anniegun · 27/09/2024 15:10

Amazing how people will do so much to avoid contributing to the NHS, education etc even after they die

jeanne16 · 27/09/2024 15:18

They can gift you the house but they will need to pay capital gains tax on whatever profit they made on the property.
They need to get it valued so they know what this is. They will need to use a solicitor to do the transfer.

Overall a sensible idea.

Changeagain3 · 27/09/2024 15:20

Bjorkdidit · 27/09/2024 14:50

I don't understand why people 'panic over inheritance tax'. They'll be dead it doesn't affect them.

Your DH will inherit an enormous amount of money even after it's taxed above a generous threshold.

Anything could happen that would make their hare brained scheme pointless and a legal nightmare at a distressing time for the family.

Because the inheritance tax has to be paid before the funds are inherited.

A post on here recently about a lady having to raise 10k in inheritance tax by Feb because the house she inherited hadn't sold but the bill still needed paying.

Plus when they have paid tax already when they worked, paid CT, Stamp duty, tax on shopping, tax on capital gains, taxed left right and centre people don't want to see that hard earned money taxed again or leave their lives bed ones with extra stress

ComfortandHappiness · 27/09/2024 15:23

anniegun · 27/09/2024 15:10

Amazing how people will do so much to avoid contributing to the NHS, education etc even after they die

They’ve already paid that through their normal taxes. Why shouldn’t people want to avoid paying tax over and over?

wwyd2021medicine · 27/09/2024 15:31

jeanne16 · 27/09/2024 15:18

They can gift you the house but they will need to pay capital gains tax on whatever profit they made on the property.
They need to get it valued so they know what this is. They will need to use a solicitor to do the transfer.

Overall a sensible idea.

Yes they'll have to pay capital gains on the increase in value of the house since they bought it - minus some legal fees which may be deductible.
I think that on transfer to you, stamp duty may be payable too.

RitzyMcFee · 27/09/2024 16:02

Overall a sensible idea

As long as the OP and their husband or wife don't get divorced or die before the parents do.

Bjorkdidit · 27/09/2024 16:04

ComfortandHappiness · 27/09/2024 15:23

They’ve already paid that through their normal taxes. Why shouldn’t people want to avoid paying tax over and over?

Show quote history

Unlikely on the increase in value of the houses. How much did they pay for property and how much can they sell it for now? Just one of their two properties is worth £800k. It probably didn't cost them even a tenth of that amount.

nervouslandlord · 27/09/2024 16:06

They’ve already paid that through their normal taxes. Why shouldn’t people want to avoid paying tax over and over?

Because that's what most of us do. It reads like OP's in laws have plenty to go round.