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Jo C.
Jo C., Barrister
Category: Law
Satisfied Customers: 31300
Experience:  Over 5 years in practice
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Mother in law recently died, all Inheritance Tax allowances

Customer Question

Mother in law recently died, all Inheritance Tax allowances pass to Father in law. Combined estate now around 1.5 million. Father in law 90 years old and in reasonable health for age. All money to be left to my wife ( only child). Would like to help Father in law to "See the benefits" of some of this accumulated wealth by purchasing houses ( around 250K each) for their two grandchildren ( 30 and 26). Tax wise would it be better to:
1. Encourage father in law to buy the houses then charge a nominal rent (£1) to the grandkids. My feeling on this was that the value of the houses would be part of the estate when my father in law dies and liable for tax, but in the meantime our children would save maybe thousands of pounds in mortgage payments.
OR
2: Simple give 250K each to the grandchildren to buy the houses.
Or
3 Something else?
Submitted: 4 months ago.
Category: Law
Expert:  F E Smith replied 4 months ago.

Thank you for your question - do you have a preference to the use of the money?

Customer: replied 4 months ago.
Am I right in assuming you mean before my father in law dies?
Customer: replied 4 months ago.
hallo?
Customer: replied 4 months ago.
Our initial thoughts (my wife and I) was that it would be expedient to encourage my father in law to arrange for our children to have their own houses (effectively using some of my wife's inheritance) whilst her father could enjoy seeing the benefits of his accumulated wealth. We have no wish at the money to encourage her Dad to make any other gifts.
Customer: replied 4 months ago.
Hallo are you there? May have to leave soon. Can you give me some idea when you will be able to respond to this question. Don't want you to think I'm ignoring you if I have to leave! Thanks
Customer: replied 4 months ago.
Hi. Can you give me some idea of when you can respond? I may have to leave soon and I don't want to appear to be ignoring you! Thanks
Customer: replied 4 months ago.
1.5 million includes the value of their house ( probate valuation of £220,000)
Customer: replied 4 months ago.
Getting rather concerned now- please respond
Customer: replied 4 months ago.
I will have to seek refund now. Disappointed.
Expert:  F E Smith replied 4 months ago.

Hello. It isn’t a chat service. Replies come by email so there may be a delay inevitably. I have had a client and hence the delay getting back to you. I am just formulating my response.

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edit:

As you appreciate, your father now has (his estate has) to lots of inheritance tax exemption, £650,000 and hence, it makes sense to try to reduce the balance of the estate so that it becomes below £650,000.

As you are probably also aware, if your father makes a lifetime gift, before it is completely exempt from inheritance tax, it must’ve been transferred for 7 years and just as importantly, your father must not retain an interest in the property. He does, then it becomes a gift with reservation which is treated as though it never happened.

Your father therefore must either give away the cash or the house(s) and retain no interest although he can retain a little control of its property.

It doesn’t really matter whether your father buys houses and puts them into the grandchildren’s names or he gives them cash to spend as they wish (or on houses), the end result is the same although obviously, if he buys houses for them he is in more control because he can then put a restriction on the property which prevents it being sold or remortgaged except under a set set of circumstances.

I cannot see any point in charging a nominal rent to the grandchildren and he can tell me what you’re thinking was in this respect, I can expand my answer or explain further.

What would be problematical is if he bought houses but kept them in his own name