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R. Klein, EA
R. Klein, EA, Accountant
Category: UK Tax
Satisfied Customers: 2882
Experience:  Intuit Ask a Tax Expert. QuickBooks Certified Pro Advisor (all editions)
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This is the situation as it will soon be. Nothing has happened

Customer Question

This is the situation as it will soon be. Nothing has happened yet. Currently I own a house. House A. I will take a mortgage on house A and got a second house House B. My mother will live in House A. My Father will live in House B. I don’t really want either house, but I have to cater for my parents. My father will ‘manage’ the paperwork of paying the mortgages since I am rarely in town. IE collecting the ‘rents’ from him and mum and paying the mortgage company. The way I understand it is that my parents are allowed to make me cash gifts (which I effectively use to pay the mortgage) which will be taxable upon their death as inheritance tax. So if mum or dad dies, then either of these cash gifts (mortgage payments) they make for me, will be taxable under inheritance tax going back 7 years with a tax free bracket of £325,000. So in effect, given they’d be gifting me only £6k a year each, then there would be no tax liability. Is this correct and would there be any further tax burden? Usually I live far away in my own rented home. Occasionally, between jobs, I may stay at House A or House B for a few weeks but neither is really my home. One last thing, there is a chance I may take a job close to House A and make House A my primary residence.

 

One last thing - we are in England.

Submitted: 10 months ago.
Category: UK Tax
Expert:  R. Klein, EA replied 10 months ago.
Hope this doesn't seem like a dumb question, but why don't you "rent" the houses to your mum and dad? If they are paying rent that equals your costs (give or take), you have a minimal profit, at best, and NO gifts or inheritances or taxes on such to worry about now or in the future.

Customer: replied 10 months ago.

Isn't that what I am doing?


 


I am not sure what word to use to label what the payments would be - the mortgage payments come due and my parents will cover them.


 


Either I could pay them myself and my parents could 'gift' me a corresponding amount each month, or they could just cover them for me with the mortgage company directly as a 'gift', we could call it a gift, call it rent etc.

Expert:  R. Klein, EA replied 10 months ago.
If your parents "gift" you the money, this is legally NOT the same thing as paying rent. Under the "gift" scenario, you are free to use the money for whatever purpose you want and you are paying the mortgages on their two houses and possibly yours, all as personal property. You likely would have taxes owed that you would not need to pay.

A formal rental arrangement would be better all the way around.

If this is not clear, I will opt out and let an expert in British tax law take over.

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