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bigduckontax
bigduckontax, Accountant
Category: Tax
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Good morning. My mum, 90 years old, would like to leave her

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Good morning.
My mum, 90 years old, would like to leave her house to my 20 years old daughter (her grand daughter), who is a student.
The property is in Cambridge and its value has recently increased to £ 490.000 (gaining more than £ 160.000 in 4 years!).
We are very worried that my daughter, at my mum's death, would be forced to sell the house to pay the inheritance taxes, while she was planning to move in with her boyfriend in the next months, when my mum, too old now to live alone, will move with me.
Is there a way to prevent this from happening?
Many thanks for your kind help.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. With respect, unless your daughter is your Mother's executor, what happens to the house is nothing to do with her. There is no Capital Gains Tax on death; all your Mother's assets will be aggregated and subject to Inheritance Tax (IHT). Anything over 325K will be taxed at a flat rate of 40% or 36% if 10% or over of the estate are charitable bequests. If your late Father has unused 325K allowance, very common if he willed everything to his wife which would be outside the scope of IHT, then that can be added to Mother's allowance making a possible exemption of 650K available. At this stage the IHT would be calculated and if the estate was insufficient to meet the tax then something would have to be sold by the executors to meet the tax bill. There is another solution, but it is a bit of a gamble. Your Mother could give the house to your Daughter as she moves out to live with you. This would create a Potentially Exempt Transfer (PET) in Mother's IHT affairs. PETs run off over seven years at a taper and in the event of a decease within that period are added back to the estate for IHT purposes. PRTs are the first to suffer the tax and in the event of the estate being unsufficient to meet the IHT on the PET then the liability cascades down to the beneficiary for immediate payment. The classic defence against this is a reducing term life insurance policy, but Mother's age may make premiums prohibitive. I do hope that I have shed some light on the position for you. It is a classic example of Benjamin Franklins dictum that in life there are but two certainties, death and taxes.
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Customer: replied 1 year ago.
Thank you Keith,Very clear reply. We never thought before of my late Dad's allowance, which could actually save the situation.Have a lovely New Year.Paola
Expert:  bigduckontax replied 1 year ago.
Thank you for your support Paola and a Happy New Years to you too. Delighted to have been of assistance.