How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask TonyTax Your Own Question
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
Type Your Tax Question Here...
TonyTax is online now

My mother was widowed in 1995 and is now sole owner of a house

This answer was rated:

My mother was widowed in 1995 and is now sole owner of a house worth approximately £500,000. 10 years ago she took out equity release of £100,000. This would now cost about £218,000 to repay. I will shortly be in a position to do this but wondered if this would affect inheritance tax? My mother is 93 years old.

If you pay off a debt which is your mother's, then that will be a gift for Inheritance Tax purposes. So long as you live for seven years after making the gift, its value will fall out of your estate for IHT purposes and your estate will have reduced in value. Taper relief which you can read about here may apply if you die between three and seven years after making the gift.

Clearly, if you pay off the loan and interest, your mother's estate will have increased in value overnight. You could have a situation where your estate has an IHT liability on the £218,000 gift and your mother's estate could have an IHT liability on the increased value of her estate, ie double taxation. You might consider taking out a decreasing term assurance life policy to cover any liability on your estate should you die within seven years.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

I know the inheritance tax limit is £325,000 but heard something about it being doubled for married couples. Would this make the limit £650,000 as my father's part would have been carried forward?

You can read about the transfer of an unused nil-rate band here.

If your father left all his estate to your mother, then he won't have used his nil-rate band unless he made gifts other than to your mother in the seven years before he passed away. The unused part (at today's rate) can be used by your mother's estate. Potentially, this could double her nil-rate band to £650,000.
TonyTax and other Tax Specialists are ready to help you