Dad ill - IHT worries

[cv65user]

Dad has life expectancy so trying to sort out will/trust/ possible IHT

Dad and mum still live in house A main residence - mum/dad on deed as joint tenancy, mortgage paid off . value 500k
Dad and son bought house B - son/dad on deed as joint tenancy, mortgage paid off. house B being rented out, all rental income goes to Dad who does self assessment. bought at 160k now value 500k, we dont intend to sell when dad passes, just keep taking rent.
(maybe not relevant but Son lives in house C - on mortgage)

we seen some solicitor A said just make a normal will and pay some IHT (if so whats likely I will have to pay? will it be House A share goes to mum so no worry, but House B will be 500k /2 people = 250k asset but under 324k IHT threshold to no IHT to pay?)

or give all of dads share to mum and then mum give to us siblings wait for 7 year IHT sliding scale to qualify for 0% IHT

internet says to put in trust

What should I do? If i get hit with IHT bill I wont be able to afford so I will have to sell house B to pay it which I dont want to sell - if I go down this approach what CGT I will have to pay? is CGT 500k - 160k = 340k gain but divide be two people joint tenancy (does it impact CGT?) so I will also be looking at a 80k tax bill - but does it differ if my dad is no longer here?

[AGoodman]

The simplest solution is to leave everything to Mum. Everything in personal estate is exempt from IHT. House B passes to son automatically under joint tenancy but value £250k under £325k.

On Mum's death, estate of approx. £500k. Subject to deduction of her NRB (£325k), remainder of Dad's NRB (say £75k), new RNRB of (£100-175k) and transfer of Dad's RNRB (£100-175k)

Should not be any tax to pay on these values - but of course values may increase.

Incidentally, if Dad and son are joint owners of B, I am not sure that dad can simply treat all the rental income as his own, rather than each be taxed on half each but that is another issue.

AG

[maths]

Incidentally, if Dad and son are joint owners of B, I am not sure that dad can simply treat all the rental income as his own, rather than each be taxed on half each but that is another issue.

In the absence of specific agreement to the contrary any rental income is split between father and son in line with their respective beneficial interest (as joint tenants this would be 50/50).

[cv65user]

thank you ever so much, am I panicking over nothing?

i have seen 3 solicitor all gave 3 different methods

solicitor A said just let inheritance take it course and pay some IHT but didnt say how much IHT (I guess he werent bothered about earning money from me)

solicitor B said like you said, give everything to mum, mum give to other 3 siblings and allow taper relief for 7 years. But is it true mum must show she pays market rate rent back siblings? or would paying board suffice?(there is law if you have given something away as you dont own it anymore, you cant live in house for free?)

ref https://www.gov.uk/inheritance-tax/gifts

solicitor C said dad 325k IHT exempt minus 250k (half of house B ) = dad remaining 75k exempt transfer to mum so she has (325k+ 70k IHT exempt )= 400k IHT exempt minus value of house A 500k = 100k * 40% IHT tax = 40k tax bill ?
(40k is payable but this is 2x new car for us, but I thought dad cannot transfer share of house B if joint tenants, unless we change the deed)


In regards to rental income, I did sign a letter in front of a solicitor to say I would surrender all rental income to dad (I have a full time job so taking anymore income would put me in 40% tax bracket). If dad is not here I will obviously be taking a second income or I would again surrender all rental income to mum (retired) so she will pay less tax.

[AGoodman]

None of the three examples you give appears to take account of the residential nil rate band of £100-£175,000 each, which takes effect next week. This should make all the difference.

A gift of the home would be unwise as (a) mother would have to pay a market rent for the rest of her occupation to avoid a gift with reservation and (b) you would not get the CGT base case uplift on her death with the result that the gain in value between the gift and sale by children would be subject to CGT (rather than just gain between death and sale). On a practical level it also leaves mum less secure in her home.

Assuming you have not actually paid any of the three solicitors you mention, it is worthwhile your parents seeing a STEP member (see website) and getting proper advice.

AG

[cv65user]

can i clarify as house b is joint tenancy which means both tenant own house 100%

is the IHT allowance calculated house value 500k minus 325k
or 500k / 2 people = 250k minus IHT 325k?

[AGoodman]

Each joint owner of a jointly owned property is deemed to own 50% for IHT purposes. Here, dad has £250k so under his nil rate band and no tax to pay.

[cv65user]

thank you, my legal adviser advised as I was joint tenant (from purchase) on passing of father , I would inherit therefore would not count as part of estate?

i found an article to the similar effect
ref http://death-duties.co.uk/content/valuation

is this no loner true? out of date? doesnt apply to UK ?

[AGoodman]

Both are correct.

It is not part of the legal estate and does not pass by will or intestacy.

However it is part of the "estate" for inheritance tax purposes as defined by IHTA s.5. Also bear in mind that IHT is charged on the value of the estate immediately before death, not immediately after death.