Thanks for your response
I'm very confused about property B - it was in your wifes name and her friend, and she lived here and then you and your wife bought her friend out, and its now in joint names, and this is where you have lived since 18 months ago, so it had been your wifes main residence at the purchase date, from (month/year) to (month/year) when she moved in with you, then you both moved out of your property into your wifes original property - the reason I ask as there could be capital gain implications on this property when this is sold, so if you wish to to review the position, could you provide the details asked for.
However, for you, with your property, as its been less than 3 years since you moved out, and up to 18 months ago it had been your only and main residence, then as long as you sell within the next 18 months, there will be no capital gain implications, as the time you live in a property plus the last 36 months of ownership are covered under the private residence relief rules.
If however, the sale date takes place more than 36 months after moving out, then there will be a capital gain consideration. But this will be reduced by the private residence relief rules (the time you lived there and the last 36 months of ownership) and also (as long as the rental income is declared to HMRC) private lettings relief, which can allow up to a further £40,000 exemption.
However you must rectify the non declaration of rental income as soon as possible.
Now onto the Inheritance tax position, if it is in fact a loan and you have documents drawn up and a payment plan (or some sort) then as long as this is paid back by the time the will is read, then there are no further concerns. Because although you are sole inheritor, if this loan is not paid back by the time the Inheritance tax position is reviewed, then you will owe a debt to the estate, and whether you have to pay this (just to then have it paid back!!) is a legal matter that you will have to establish.
However if its a gift (which in my humble opinion, I believe it to be so) then your parents have to survive more than 7 years, for it then to be disregarded for Inheritance tax purposes. If they survive less than 7 years, then this amount has to be added back into the estate- which only creates a problem if each parents estate is worth more than £325,000. (so all assets and money etc)
Do feel free to ask any follow up questions, but it would be appreciated if you could rate the level of service I have provided, as it ensures I am paid.