I need to move myself, husband and two young children into my mother’s home to care for her (she is 82). Her house can accommodate us size wise, but ours is not big enough to accommodate her. Her house is very run down, as she has lived in it for 47 years and has not had the means to maintain it to a decent standard. If we move in, I would like to do it up with the proceeds from the sale of our house, but am concerned that this increase in value would increase the inheritance tax bill that we may then not be able to afford to pay. I wonder then if we would be forced to sell, meaning we would pay inheritance tax and capital gains tax, having paid out for repairs and we then may not be able to afford another home. Is there any way that the house can be valued now pre-work commencing for inheritance tax purposes, or that the value upon death will be offset against what we have spent since moving in? My mother owns the home without a mortgage, although she does have a charge on the property and her name is on the deeds. I cannot believe that the option to care for my mother in her own home, which we both desperately want, can come down to what the government says we owe when it would cost them considerable more if she went into a care home based on her current house value.

Arthur Weller replies:
Let's say the house is currently worth £240,000 and you plan to spend £60,000 to refurbish. I can suggest three things to you: (a) You draw up a legal agreement that you are putting in £60,000 of your own money into the house, and you will own 20% of the refurbished house; (b) You purchase the house from your mother for £240,000, but you don't necessarily need to pay her now. When she dies, she will have an asset in her estate of a debt worth £240,000; (c) She gifts half her house to you, and hopefully lives for seven years. If you look at www.gov.uk/hmrc- internal-manuals/inheritance-tax-manual/ihtm14332 Example 1(d) you can see that if you all occupy the house together until she dies then this is not a ‘gift with reservation’. However, having said that, you should be aware that as from April 2017 the nil rate band for a main residence being passed as an inheritance to children is being increased from £325,000 to £425,000, and thereafter will eventually increase to £500,000. If your mother 'inherited' the nil rate band from her husband, then this nil rate band could eventually be worth £1,000,000.