Home bought cheap by parents, gone up HUGELY in value, children (me and sister) wouldn't be able to afford to keep it

[GreensAreGoodForYou]

I'm hoping someone can point us towards a financial adviser company/person that can help figure this out so we don't lose out (if avoidable).

So the scenario is my parents bought a house (for £72,000) about 20-odd years ago, and it's now potentially worth £1,475,000. Seems great, right?

But the issue is that I live in the home (paying rent) and when they die, assuming my sister and I are still alive, I wouldn't be able to afford to pay the inheritance tax on the property. As I live in it, I understand the first £500,000 is untaxed, but that'd still leave around 20% of around 1,000,000 so £200,000 to pay out in order to stay in the home. My sister has no interest in the home so I'd obviously have to give her her share of the value of the home too. Impossible as I earn around £35K a year.

Has anyone had any experience of a similar situation? Have you had to sell a property simply because you couldn't afford the inheritance tax part of it?

My mum particularly is worried and wants to find out if there is any way she can protect the home for us because she bought it as a 'small modest home' (her words) so we'd always have a place to stay. The house prices have just gone crazy where we are. Thanks for any advice or thoughts or recommendations!

"My mum is annoyed about it because, as she says, she didn't ask them to put the house prices up to such stupid prices and thought the house would remain as a home for us when/if we ever needed it (which it has been)."

But not many people buy a house in the UK thinking they're buying it for their children when they (the parents) have died. Once the last parent has died, it's usual that the house is sold as kids have usually moved out or the proceeds need to be split.

How old are you all?

If your mum dies first and it goes to your stepdad who’s to say he won’t remarry and the new wife will get everything?

This!
People make all sorts of assumptions instead of paying for actual advice from a qualified advisor.

I would 100% get proper qualified financial advice. Moneysavingexpert is usually my go to for how to find out this kind of thing so here is their article on how to find a financial adviser for your needs. I would assume this comes under "Inheritance tax planning".

https://www.moneysavingexpert.com/savings/best-financial-advisers/

If you are considering this please get legal advice on potential pitfalls there is no bullet proof way to protect against care fees.

That's why I say it goes some way, rather than totally.

If you own a property as Joint Tenants you do not get to direct your share on your death, it transfers automatically to the other Tenant.

Therefore if the first of a couple dies, in joint tenancy it passes in totality to the other - if that other then goes on to need care 100% of the value of the property can be taken into account.

If though the property is owned as tenants in common they each directly own their respective shares - and can will them as they wish - on the death of the first their share enters a will trust giving the survivor the right to the benefit of the deceaseds share for their lifetime, extending to the sale of and use of funds to buy another property, but the asset is held in the trust for a remainderman, the child or another party.

When it comes to a care assets assessment the local authority cannot take that share into account, as it does not belong to the survivor, at that point it belongs to a trust, the maximum they can assess is 50%.

So long as the share of the deceased did not exceed 50% it cannot be claimed by the local authority as a deprivation of assets, as that would be the fair division, and, as tenants in common it did not legally belong to the party being assessed.

Bear in mind the care act does not require the first party of a married couple to use their property to pay for their care so long as the spouse continues to live there, or, a relative under the age of 18, a relative over 60 or a person who is "incapacitated".

You OP and your DP should absolutely take the guidance of a Solicitor who specialises in estates and trusts and an accountant in the same field.

Is your step father going to leave you and your DSis the house if he does after your DM?

Let's get this right. Your parents die. You get a free house. And you have to pay IHT on a small proportion of it? My heart bleeds

Im just gobsmacked at the increase in value, we bought our home in Kent 21 years ago for 345k it's now worth approx 750k.
72k 20 years ago would not have bought you very much, and probably nothing at all in london, I would have thought you would have to go back to the housing crash of the early 90s to get a small property in London at that price and be in an area that was rough but has since has "gentrified " considerably. It goes to show what a lottery the housing market is.
An amazing potential inheritance for you and your sister though!

People questioning the increase in home value. Lots of places in London have seen very similar price rises. My mum bought for £82k around the same period and neighbouring properties have gone recently for over £1.3m

Which area of London was that? I was looking in London 20 years ago and there was nothing for £72,000. It was certainly impossible to buy a family home in any part of London for £72,000.

You need to get the advice of an inheritance tax lawyer.

I bought a large light flat in Barnes (leafy riverside place, good transport) 30 years ago for 60k - when my salary was 22k -easily affordable. Sold 15 years later for 350k Shouldn’t have sold it then because it’s now worth around 450k.
We bought a house nearby 25 years ago for 220 -now worth around 1.8m.
No idea who can afford to buy houses in London nowadays.

This is why inflation is terrible for all of us and just an asset grab from the state. When your parents acquired the house the iht threshold was around £250k. They could have had nearly 3 houses before paying any iht. Now that one house (still the same house) that your parents presumably paid a mortgage on - nearly half of it will be taken by the state. Meanwhile you can’t afford a similar house.

Of course it's an "asset grab". That's pretty much how taxation works.

This is simple - there are two options @GreensAreGoodForYou

1. You sell and use your half of the inheritance to buy somewhere for yourself.
2. If your sister is happy to be your landlord, you stay and pay her rent on the half that she owns, and you each pay half the inheritance tax - you could mortgage your half of the house to pay it if needed.

Assuming that your Mum was married to your Dad and he died before her, and that this is in England, she has a £1 million allowance so the tax will be 40% of any amount over £1 million.

My mum particularly is worried and wants to find out if there is any way she can protect the home for us because she bought it as a 'small modest home' just tell her that there isn't.

Of course it is an asset grab when you tax assets and they have to be sold to pay the tax.