Inheritance/Gift tax

FledNanders

My brother recently moved in to my father's house with his family due to the difficult housing landscape. My father built a separate dwelling on the land of the house which he is now living in.
After my father passes my brother and his family will continue to live in the house.

In terms of inheritance of the property, we have agreed that my brother will inherit it in the will and he will then mortgage the property for half its value which he will pay to me. We are the only 2 children.

My question is if the house is left to my brother in my father's will, will the money that comes from my brother to me for my 'half' of the house be classed as a gift or as part of inheritance for tax purposes?

Ms. Riverside

If your Dads Will is written correctly, the money will be treated as coming from your Dad. The Will should be written that you brother only inherits the house if he gives you the sum of money (your brothers inheritance is contingent on him paying you the money).

Probably best if all three of ye go to visit a solicitor

Calahonda52

Ms. Riverside wrote: »

If your Dads Will is written correctly, the money will be treated as coming from your Dad. The Will should be written that you brother only inherits the house if he gives you the sum of money (your brothers inheritance is contingent on him paying you the money).

Probably best if all three of ye go to visit a solicitor

Agree as its a bit tricky with the change of ownership.
If the inheritance is contingent, then unless the bro has the mula, he wont be able to raise a mortgage.
In addition , the will needs to be very clear on valuations at date of death: bro will want it as low as possible, you will want it as high as possible.
What you MIGHT explore is transferring the house to your bro now, with a , IIRC, life tenancy granted to your father.
This is what my father and sister did 5 years before he died so as to dis-inherit me [ not that I had any rights, but it closed off any claim under section 108 [IIRC] of the SA]

Ace2007

Issues to think about

Will your brother be in a position to pay the inheritance tax on the property that he inherits, he may need a mortgage to do this part, before even looking at getting a loan to pay you.

What happens if he doesn't have/cannot raise have the value to pay to you? what will happen then? Will house have to be sold and proceeds halved? This could lead to him/family not having a house, nor been able to afford a house.

What happens if your brother pre-deceases your farther. Will his family/wife get the house or will you? Need to have this very clear, especially if your farther mind was to go.

What happens if your brother goes through a divorce somewhere along the way and then his wife makes claims to the house.

Who values the house and when - at date of death or some other date, market crash happens and he can't raise the capital?

Transferring house to Brother now - leads to a tax implication - which your brother might not be able to afford now, it also means that you are not legally entitled to anything.

If there is a transferring of assets, and your father went into a nursing home under the fair deal scheme - they will check to see what assets have been disposed over 5 year period, and will count it as his assets, if within 5 years - this could leave to some big issues for your brother.

If your brother buys the property from your father - your father may need to pay some CGT, as you say he's living in a separate dwelling.

There are a lot of questions you need to consider - I would suggest going to more than one solicitor to make sure the advice you get is concrete.

Ace2007

Ace2007 wrote: »

Issues to think about

Will your brother be in a position to pay the inheritance tax on the property that he inherits, he may need a mortgage to do this part, before even looking at getting a loan to pay you.

What happens if he doesn't have/cannot raise have the value to pay to you? what will happen then? Will house have to be sold and proceeds halved? This could lead to him/family not having a house, nor been able to afford a house.

What happens if your brother pre-deceases your farther. Will his family/wife get the house or will you? Need to have this very clear, especially if your farther mind was to go.

What happens if your brother goes through a divorce somewhere along the way and then his wife makes claims to the house.

Who values the house and when - at date of death or some other date, market crash happens and he can't raise the capital?

Transferring house to Brother now - leads to a tax implication - which your brother might not be able to afford now, it also means that you are not legally entitled to anything.

If there is a transferring of assets, and your father went into a nursing home under the fair deal scheme - they will check to see what assets have been disposed over 5 year period, and will count it as his assets, if within 5 years - this could leave to some big issues for your brother.

If your brother buys the property from your father - your father may need to pay some CGT, as you say he's living in a separate dwelling.

There are a lot of questions you need to consider - I would suggest going to more than one solicitor to make sure the advice you get is concrete.

Unless the house is worth big money there should be no tax implications for the brother being gifted half a house. It would have to be worth close to 700k to trigger any tax.

Ace2007

Amara Gifted Sheriff wrote: »

Unless the house is worth big money there should be no tax implications for the brother being gifted half a house. It would have to be worth close to 700k to trigger any tax.

If your gifting the house - it's going to be the full house not half. Father is never going to gift both of them half the house - because that can lead to all sort of problems down the line.

Ace2007

Ace2007 wrote: »

If your gifting the house - it's going to be the full house not half. Father is never going to gift both of them half the house - because that can lead to all sort of problems down the line.

If it’s structured correctly and the will states the brother must give half the value of the house to his brother then he will only be considered to have inherited half the house (so half the value for tax purposes).

Ace2007

Amara Gifted Sheriff wrote: »

If it’s structured correctly and the will states the brother must give half the value of the house to his brother then he will only be considered to have inherited half the house (so half the value for tax purposes).

And what happens if he can't afford to do that?

What happens if by that time the brother has passed away, and the wife owns half the house - will she have any rights to the house, or will she legally have to pay the brother? What happens if said wife wants to sell the house before then - can she do that?

What happens if both brothers pass away before the father?

This idea that if it's structured correctly is all well and good, until the unexpected happens, and then they are in a **** show.

There is also the possibility that the father may go into a nursing home when he's older under the fair deal scheme, and then it doesn't matter what the will says, the family may be forced to go down the Fair deal nursing home loan route, which will put a capital charge on the property that is due when the father passes away. So then you have the following scenario:

Assume Brother A lives in the house and Brother B is the OP. and assume house is worth 400k now,

Revenue may claim say 150k from the nursing home loan deal.
At date of death house may only be worth 250k if there is a property crash.

Question 1. What is Brother B entitled to - half the value of house = 125k??? even though revenue will want 150k,

Leaving house on contingency something else is to happen is very risky