Inheritance Planning
 

Hi,
My husband and I, both UK citizens, have been living in California since 2020 (both have greencards - and yes it was a terrible time to move). My parents (early 70s) are purchasing a home for themselves in the UK and have generously suggested putting it into joint names with them, myself, and my sibling each owning 25%. They believe this will reduce inheritance tax in the future. I however, have concerns.
1. Will it actually reduce inheritance tax for me, as I don't believe I would pay anything if I am still in the US when they pass. Or is an estate tax taken by the UK before it is divided up?
2. Will I incur taxes now, at the point the property is "gifted" to me?
3. What would happen if I pre-decease my parents? Right now I have a living trust for my US assets. Would I need another UK trust to own my part of the house so it can go back to them or my sibling if I die?
4. How can I set this up so that I am able to give my share back to my parents should they need more than they expect for long-term care?
5. Are there other things, I have not considered that could come back and bite me?
I probably need professional advice, but don't even know what sort of professional that would be, or where to find one.
I would appreciate any insight.

Re: Inheritance Planning
 

Your parents idea is a common misunderstanding - but has horrid consequences. It is a GROB, so has no effect on IHT, and results in both UK CGT and US income tax liabilities when the property is eventually sold.

Re: Inheritance Planning
 

Navigating consequences of inheritance is a nightmare – even if everyone is solely UK (or US) -based, yet alone when mixed. Speaking from recent experience (mum died last year): UK IHT is paid on the whole estate – minus the allowances (personal and house). Essentially HMRC will take 40% of everything over about 1 million UKP. Names on UK trust funds (as trustees, beneficiaries, etc) – avoid like the plague! To avoid complications we just passed everything over to our UK-based children.

Re: Inheritance Planning
 

I'm no expert but we are going through a similar situation. I am in the US and have been for nearly 20yrs and my siblings and parents are in the UK. My father died 2022, with a huge amount of assets.

I'm assuming based on the scenario you noted above, at the first death the estate will be valued, and inheritance tax will be assessed on their share. Say the house is valued at GBP 400,000, then GBP 100,00 is subject to IT. I'm not sure if there is a 7yr clause on this, meaning that if both survive 7yrs then there is no IT.

We have a similar scenario in that my mother may buy a second home and put it in our (4 x siblings) names. We are doing this to avoid IT, or at least minimize it.

Re: Inheritance Planning
 

Cook County summed it up very well. It’s a bad idea on a number of fronts. I would add that setting up a trust is the traditional way to try and reduce U.K. inheritance tax however that is very bad idea for anyone subject to US taxes because distributions from a foreign trust (even if an inheritance ) will be taxable versus tax free if a straightforward inheritance. The US does not tax gifts made by a non US person to a US person so perhaps that would be way forward if your parents have excess funds. Maybe they could be paid into an account in the names of you and/or your sibling, and later used by you to fund long term care if necessary. Of course there has to be a lot of trust there, and money has been known to do strange things to otherwise wonderful relationships.

Re: Inheritance Planning
 

We need to be careful about definitions here. In the UK, what is called the 'Inheritance Tax' is what the US would call an 'Estate Tax' (and I think the two terms are used somewhat interchangeably in the UK). An Estate tax is a tax levied on, and paid by, the estate of the deceased. However, there are several US states that have both an Estate tax and an Inheritance tax (or just one or the other). The latter is a tax levied on the recipient of a distribution from the estate of a deceased. If you live in one of those states and you receive an inheritance it might be taxable.

Re: Inheritance Planning
 

Thank you all so much for your very informative replies. My parents are the first in our family to own a home and we've no experience of inheritance whatsoever. Trying to plan this across multiple countries is making it even more difficult to understand. But I now know, thanks to you, that being put on the deeds of my parents' home is most definitely not the right approach, and nor is setting up any kind of trust. Thank you again.

Re: Inheritance Planning
 

For a married couple leaving their house to their children then the first £1m is free of IHT so it may not be as big an issue as you think.

https://www.gov.uk/inheritance-tax

Re: Inheritance Planning
 

From that link I am reading 500,000, not 1e6. What am I missing?

Re: Inheritance Planning
 

That is £500k/person but for a married couple the first person who dies passes their £500k allowance to their spouse.

This link might explain it better.

https://www.drewberryinsurance.co.uk...arried-couples

Re: Inheritance Planning
 

Thank you, yes that was clear from the second link!

Re: Inheritance Planning
 

There are estate planning attorneys galore here in California. Good ones will be aware of all factors involved. Do note that there may be considerations involved either independent of tax considerations or may militate for a plan dépité increased tax liability. I know that our California estate planning attorney will associate in a foreign attorney to best coordinate the best plan for all involved.

(My law school class in basic US tax law 50 years back taught the principle that a mantra of “less taxes” often leads to bad défions by otherwise savvy people).

Re: Inheritance Planning
 

There are also stamp duty implications if you are a part owner of the property. If they own it 100% and it is their primary home, then standard stamp duty applies, 0% to up to £250,000, 5% on the portion from £250,001 to £925,000 etc.
But if any of the owners has another property, then it adds another 3% in stamp duty, on the whole purchase, and then if anyone is a non-resident it adds another 2%.

A 250k property will have 0 stamp duty if owners only/primary resident and Uk resident. But if anyone owning the house is a non-resident and owns another property, the stamp duty would be 12,500. For a 500k property it would be 12,500 in the first case and 37.500 is the 2nd....

I went thought this recently when purchasing part of a property with a relative, where I was paying for part of the property, vs you case of being given a part of a property.

Re: Inheritance Planning
 

Hi,
Does anyone have any recommendations on a company that specializes in this kind of advice? Or a very concise set of rules all in one place ?
My parents asked me about this yesterday and are keen to sort something out. I'm a dual UK/British citizen living and paying tax in the US. My parents live in the UK and are not dual nationals.
For example I read that the US doesnt tax a gift but what does the UK do ? If my parents gave me $500K what are the implications to them or I ?
They have around 1.5M cash plus a house, this would be split between my UK based sister.

Re: Inheritance Planning
 

The UK doesn’t tax a gift at the time it is given but if the giver(s) die within 7 years of making the gift then the value, or part of the value, is taken into account when calculating how much inheritance tax is charged to the deceased’s estate.

while David Cameron was PM it was public record that his mother gave him a gift of £500,000. It has now been over 7 years so that gift, which was free of tax when given, is now completely free of any future taxes.