Is this legal or is it avoiding inheritance tax?

[stacker878]

My wife and I are in a legal and ethical position...we believe. Could someone please give direction?

My wife's mother is currently in a care home, all fees are covered by her pensions. My wife has Power of Attorney for all financial matters. We are currently selling our Mum's house, and with the proceeds we want to buy a house for ourselves outright no mortgage, and register it in our Mum's name, she has paid for it.

My wife has a sister that has no intention of getting on the property ladder, as she is a free spirit and just rents and claims benefits. But, in some respects, the money that we would use to buy the house would be some of her inheritance, at some point in the future. Here's an example of what we think we can do?

after sale of house 400,00 in Mum's bank account (potentially 200,00 per sister after death of Mum)
purchase house in Mum's name 350,000 (meaning the wife and I have taken 150,000 of sister's potential inheritance).

Can we put 2000 per month into a bank account in my Sister's name for the duration (6 years) until the 150,000 has been repaid?

Upon the settling of our Mum's estate, the house plus all accounts and policies will be taken into effect. The house would be transferred to us, and we would pay death duty at the appropriate rate.

If our Sister is happy with this, would the Taxman? Seeing as 150,000 has been repaid to the Sister and avoiding inheritance Tax?

Sorry if this is as clear as mud, I did try to make it a clear as possible.

Can anyone give us a clue?

[Amethyst]

Re: Is this legal or is it avoiding inheritance tax?

I don't think that your proposals would result in you avoiding inheritance tax - and it doesn't sound as though that is what you are trying to do.

Basically it would be that your wife and her sister are taking their inheritance in advance and your wife's sister is loaning you £150k repayable at £2000 a month over 6 years. Presumably the plan includes given the sister the other £50k as cash from the sale of the house, so it's splitting it 50/50.

One thing I would say is get a formal agreement written up between yourselves and your wife's sister with regards the loan. Despite your wife's sister being 'a free spirit' you'd be amazed at the change in people, and in family relationships, following the death of a family member and a decent value estate to be distributed.

First step speak to the mum and the sister, next step see a solicitor who specialises in this area.

[des8]

Re: Is this legal or is it avoiding inheritance tax?

Besides Amethyst's warnings, bear in mind that the attorney may only exercise that authority in the best interest of the donor.
If a third party suspects there is a misuse of money (and I am not suggesting there is, but others may view it differently) they may report your wife to the Office of the Public Guardian.

I also understand that a)passing assets to the next generation to mitigate inheritance tax (as for your sister in law); b) lending money to a family member and several other similar moves are actually beyond the (legitimate) powers of the attorney.

As mother in law is in a care home someone may ask "how is buying a house in her best interest?"

This is a minefield & I really do think you need to take specialist advice before you enter it.

[MissFM]

Re: Is this legal or is it avoiding inheritance tax?

Is your M-i-L non compos mentis? (I know this may seem a stupid question in view of the LPOA but I had one for both my parents long before they lost their marbles because they found it convenient.)

Whilst I agree wholeheartedly with the above advice that you need to consult a properly qualified specialist, just wanted to suggest that your M-i-L might be better to gift the property to your wife and sister now under the seven year rule (if you expect her to live for 7 years or more) thus mitigating the tax burden and simplifying quite a lot .