In-laws panicking about inheritance tax

[AhBiscuits]

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?

What a lovely problem to have.

They have not paid through their taxes - most of this is property wealth that has not been taxed and has purely risen in value due to ridiculous quantative easing that over inflated the housing market.

They and everyone else wealthy enough to do so need to pay the inheritance tax - because you can bet they have used the services.

I am happy to pay inheritance tax both for any inheritance and any I pass on - it is necessary to keep our society going.

I am so fed up of rich people desperately trying to avoid paying their due.

Oh and by the way - those massive price increases in house values is why our children and grandchildren cannot buy.

Of course THEIR children and grandchildren will be okay - and clearly no-one else matters at all.

They have not paid through their taxes - most of this is property wealth that has not been taxed and has purely risen in value due to ridiculous quantative easing that over inflated the housing market

Absolutely. It is "free" money, so paying tax on a portion of that free money after death is fair.

@Ohfuckrucksack completely agree with that analysis. And I speak as someone whose estate will be handing over a whopping wad to HMRC. Hopefully to help pay for services my children will use.

Perhaps if OP's in laws are that concerned they should simply sell and release some cash as gifts to their children, and hope to live 7+ years. I think that is the best way to minimise their IHT if that's their concern.

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.

surely inheritance tax is paid out of the deceased's estate, as part of the probate process and not the obligation of the beneficiaries?

Don't be a twat. They have worked hard so can choose what to do with their own money. They can leave it to charity, blow it in a casino. It's their money Nd they have already been taxed.
Why should tom and dick get to choose what they want ie piss their money away on drugs and alcohol and holidays but harry has to pay extra tax because he invested

That lady was steadfastly ignoring all the sensible advice she was being given. I feel very sorry for her, but she wanted to do things her way.

Having been through four sets of probate in the past decade it never ceases to amaze me and my DH how little people understand. On radio phone ins we constantly hear that the government is going to take hard earned (house inflation) money. There's a personal allowance and that gets passed to a spouse so if married it adds up to a big allowance. And if you go over that it's 40 per cent of what's on top of that figure - in most cases sufficient to leave a couple of children a very helpful wad.

I thought it didn't sound right.

Makes you wonder why she bothered to post, if she was going to ignore the advice and take the stupid path!

What about the 10 year charge that you get with trusts?

🥱

Right, I think this should be explained. Putting your house in a trust does stop it being taken in to account for care home fees but IHT is actually charged but in a different way.

If anyone has a simple example of this trust IHR it would be handy.

FFS. They have not been taxed on massive house price inflation. People should be careful what they wish for with regard inheritance because this new government may well bring CGT on main residences as a means to raise money for the exchequer. Far rather they taxed the shit out of inheritance and closed the loopholes there, leaving the rest of us alone to enjoy life. We do not want CGT on main residences.

So you don't want to have capital gains on your home but quite happy to go after those who work their arses off. While others sit on their arses and take from the country. Where will.be the incentive to even bother when we know those who don't save and invest get looked after.
The rich know all the loop holes and those who have lived on benefits or squandered their money get taken care of by the state. Those who work hard get penalized every bloody time.

I really don't care if in inherit nothing but the older generation to care what harms to their hard earned money.

If it's a second home for you, and you sell it then you'll pay capital gains anyway.

This is a very good idea.
they have to pay fair market rent and it all needs to be done from a distance - ie you can’t use the same lawyers, an estate agent needs to be used. Within 7 years all inheritance will be eliminated (and you can even evict them if you fall out! What fun).
I know this can be done as a friend’s mother has done it

FGS, how have people who inherit a million pound house "worked their arses off for it" - because they are the ones being taxed.

House price rises are not luck - most likely the prices have risen due to investment in the area on infrastructure paid by the taxpayer. So it's only fair that the taxpayer should get a proportion of that rise back.

IHT is the fairest tax of all in my mind, I'd love for the government to lower income tax to incentivise people to work. There no need to give tax breaks to children of rich parents. And I say this as someone who will inherit property and will hopefully pass onto my DC. If I've done my job properly as a parent they won't have to rely on it.

I'm not talking about people who inherited
I'm talking about those who have saved to leave to an inheritance..which they likely wont be able to now due to getting screwed over time and time again.... Private pensions funds were invaded, care home fees, Capitalgains and 100s of ways working class have been screwed by governments.
Stupid rules councils.bring in which again screw over working people and council hav made themselves exempt from having to follow. Meanwhile their are people who contribute hardly anything to society and get everything handed to them.

The new budget is also likely to crew failing families. Which will see farming families having to sell the farm as they can't afford the inheritance tax. What happens when farms are sold off to pay inheritance tax

Big corporations will step in as the only ones able to buy farms and they the riches get richer and the working class can't afford to buy food and the benefit lifelongers will still.be bailed out

@HotSource SDLT is linked to property price not how you’ve funded the purchase I.e mortgage. It’s payable on the market value - if you transfer a property for £0, it’ll still be payable on the market value (with a few limited exceptions). Here, assuming OP owns a property, it’ll be done at the higher rate for additional properties, so a SDLT bill of £51,500. Whether a mortgage was involved is irrelevant

They're not screwed though, their kids will have to pay some tax on their inheritance, hardly the end of the world.

Plus if they can share their allowance and bequeath their house it’s £500k each, so £1m, then taxed at 40% of anything over £1m. So a £1.1m inheritance would result in…£40k tax. Not sure I could cry about paying £40k if I was receiving £1.1m. Obvs that requires parent a to leave everything to parent b IHT free, then it to go to the kids including the house and for the allowance to be fully maximised to the £1m but even so, given it seems to be on property so unearned wealth, hardly a bad result for anyone.

It's not the those who inherit it's those leaving the money who are worried. c

Example; couple 1 - elderly and unwell. Most of their money is tied up and unavailable. They are still having to work the business. If they be omw too I'll and need care homes the government will find that via their money.
They can not spend much as money is tied up, they can not sell be abuse no one is buying, if they manage to sell they have no income for day to day costs. Sell to soon and they will not have enough to sustain them, wait to long and the government will take it.

Couple 2. Have lived their life to the fullest, never worrying about tomorrow. They have had exotic holidays every year and meals out every week. They are retired. They have help toward housing and a full pension, they get other help. If they need care home this will be government funded, likely the same standard in everyway as those having to pay. They will be taken care of.

Does that help you understand why people.wgp have sacrificed their own happiness to provide for their children are not happy that they may not have anything to leave and would have been better off to taking from society and enjoying their lives from day one.

I don't think children are rubbing their hands waiting on Inheritance,I think the majority would have preferred their parents to have had better quality of life.

And Otis almost guaranteed that those with millions in the bank will know all the loopholes to make sure that their money goes to their kids and not to benefit the general population

I didn’t mean to make it sound like you were the ones concerned, my point was that in the grand scheme of the amounts involved, it’ll atill be a decent inheritance so no one should necessarily be concerned. And no, I can’t say personally that anyone fortunate enough to have two properties, one of which should be worth close to a million and bought for presumably quite a lot less, should’ve just had a life on benefits. I think if you ask those people, most are living hand to mouth not enjoying life and have nothing to leave their children. Very few people eligible for gov help with housing are living comfortably taking exotic holidays. So yes all things considered I’d be couple 1 over couple 2 (because the couple 2 scenario where they’ve enjoyed a life of wealth and privilege whilst on gov handouts is so far removed from the experiences of virtually anyone on benefits as to be not a realistic scenario).

To the question in hand though - yes they could transfer the property to you, and pay you rent. But if couple 1 is your in-laws, surely the available income stream would make paying £2k for rent difficult? I’d also be concerned about the fairly large SDLT bill you’d be liable for, along with their CGT liability. Regardless of IHT they can still be proud of working hard and leaving their children a good inheritance.