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Where Taxpayers and Advisers Meet

Keeping a Mortgage for IHT Purposes?

anjo56
Posts:36
Joined:Wed Nov 29, 2017 8:27 pm
Keeping a Mortgage for IHT Purposes?

Postby anjo56 » Fri Feb 09, 2018 1:01 pm

Probably a very basic question but is there any advantage in keeping an outstanding mortgage in later years in the hope of dying before it is paid off? Would that help reduce IHT? My husband and I have 2 x BTL with interest only mortgages totalling £524k. We are in our early 60s. Thanks for any thoughts.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Keeping a Mortgage for IHT Purposes?

Postby AGoodman » Fri Feb 09, 2018 1:31 pm

I can't see why paying off the debt would improve your IHT position, your net position would be unchanged (ie less debt but also less assets).

The only difference would be if you had the cash available and gave it away - making a PET to the recipients and reducing your estate by the value of the gift. You are of course putting yourself at risk of financial problems if you give away your cash while still carrying substantial debt.

someone
Posts:691
Joined:Mon Feb 13, 2017 10:09 am

Re: Keeping a Mortgage for IHT Purposes?

Postby someone » Fri Feb 09, 2018 2:22 pm

I can't think why it would matter unless you're carrying a large capital gain when it might be better to increase the mortgage to raise funds rather than sell up.

If you have the cash sitting around then paying off the mortgage will reduce interest payments to the bank - but again, being forced to sell up for care home fees for example might mean a large CGT bill whereas having the cash in the bank means you can keep the BTL.

If you have already increased the mortgage then it's possible that the equity in the property isn't enough to pay the CGT bill. I would definitely want to reduce the mortgage in that situation, YMMV.

(out of interest, how are assets valued for means testing where selling would trigger a CGT bill?)

anjo56
Posts:36
Joined:Wed Nov 29, 2017 8:27 pm

Re: Keeping a Mortgage for IHT Purposes?

Postby anjo56 » Tue Feb 13, 2018 10:18 am

Thanks both.
someone, I don't actually understand your last question in brackets? Sorry, putting toe in the water with all this stuff.

someone
Posts:691
Joined:Mon Feb 13, 2017 10:09 am

Re: Keeping a Mortgage for IHT Purposes?

Postby someone » Tue Feb 13, 2018 11:01 am

Thanks both.
someone, I don't actually understand your last question in brackets? Sorry, putting toe in the water with all this stuff.
Sorry, that last question wasn't intended for you.

To explain - say you bought a property for 100k. Over time it increased to 200k and you had remortgaged so that there was borrowing of 170k on the property.

Were you to sell, the 30k equity would just about pay the CGT bill (assuming 28% rate).

But, for means testing, would you be considered to have assets of 30k?


I have no need to know the answer, I was just hoping that one of the more knowledgeable members of the site might know for my edification.


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