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Capital gains and inheritance tax
3 Answers
Let me tell you the story so far.
My mother in law and father in law had mirrored wills which passed the estate to the remaining spouse in the event of one of their deaths not long after they moved to a new house. Mother in law passed on around 20yrs ago. Now father in law is about to re-marry to a lovely woman and they have decided to set up in a new flat together out of their combined savings, not touching any property. He is talking seriously about passing the house he owns over to my wife and her brother to do with as they please.
Should this happen and my wife and brother sell it what are the tax implications, we are thinking of maybe buying a smaller house to let with the money but would like to know if we would be hit with a large tax bill or is there a way to overcome this I read somewhere that somehow you can offset some tax because half of the estste was passed over from his deceased wife, not sure if that is correct
. His house is worth between £300,000- 350,000. Would appreciate any advice.
My mother in law and father in law had mirrored wills which passed the estate to the remaining spouse in the event of one of their deaths not long after they moved to a new house. Mother in law passed on around 20yrs ago. Now father in law is about to re-marry to a lovely woman and they have decided to set up in a new flat together out of their combined savings, not touching any property. He is talking seriously about passing the house he owns over to my wife and her brother to do with as they please.
Should this happen and my wife and brother sell it what are the tax implications, we are thinking of maybe buying a smaller house to let with the money but would like to know if we would be hit with a large tax bill or is there a way to overcome this I read somewhere that somehow you can offset some tax because half of the estste was passed over from his deceased wife, not sure if that is correct
. His house is worth between £300,000- 350,000. Would appreciate any advice.
Answers
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I think the benefit you are referring to is this one.
http://www.direct.gov...inganestate/DG_179372
But it doesn't apply in your father-in-law's case; it only applies when assessing potential IHT liability on the death of the second partner - when one can use the first partner's unused IH threshold.
In your father-in-law's situation he can give away some of his assets to whoever he wishes - no problem. However an IHT implication in respect of the gift arises in the event that he does not survive for 7 years following the gift. If he did not live for another 7 years, there would be an inclusion of part of the market value of the house at the date he gifted it in calculating the IHT liability for HIS ESTATE. There is never going to be any tax liability on your wife or her brother (however, stating what is probably blindingly obvious to you, if he left the residue of his estate to his new partner, a big chunk of it might be removed to pay the IHT liability arising from the gift of the house before the new partner was able to inherit the residue).
The seven year rule is called a 'potentially exempt transfer' by HMRC and there is some stuff you can read up about it here - including the reducing scale of liability as years go by from the date of the gift until the seven years are up (when the liability falls to zero).
Because of the complexity within the family of what he is thinking of doing, I do really think you might do well to advise your FiL to take tax advice before embarking on this - though I trust these links anbd explanation give you a decent starting point.
BM
http://www.direct.gov...inganestate/DG_179372
But it doesn't apply in your father-in-law's case; it only applies when assessing potential IHT liability on the death of the second partner - when one can use the first partner's unused IH threshold.
In your father-in-law's situation he can give away some of his assets to whoever he wishes - no problem. However an IHT implication in respect of the gift arises in the event that he does not survive for 7 years following the gift. If he did not live for another 7 years, there would be an inclusion of part of the market value of the house at the date he gifted it in calculating the IHT liability for HIS ESTATE. There is never going to be any tax liability on your wife or her brother (however, stating what is probably blindingly obvious to you, if he left the residue of his estate to his new partner, a big chunk of it might be removed to pay the IHT liability arising from the gift of the house before the new partner was able to inherit the residue).
The seven year rule is called a 'potentially exempt transfer' by HMRC and there is some stuff you can read up about it here - including the reducing scale of liability as years go by from the date of the gift until the seven years are up (when the liability falls to zero).
Because of the complexity within the family of what he is thinking of doing, I do really think you might do well to advise your FiL to take tax advice before embarking on this - though I trust these links anbd explanation give you a decent starting point.
BM
For some reason the second link didn't work (potentially exempt transfers) - it is here
http://www.hmrc.gov.u...-home-to-children.htm
http://www.hmrc.gov.u...-home-to-children.htm
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