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    • Dogfeatures
    • By Dogfeatures 11th Aug 17, 1:02 AM
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    Dogfeatures
    Inheritance tax worry
    • #1
    • 11th Aug 17, 1:02 AM
    Inheritance tax worry 11th Aug 17 at 1:02 AM
    Hello everyone. I am hoping someone can advise and help.
    I have a dear friend who currently lives in a modest bungalow, but the house has land with it and was bought for £650,000 in 2014.
    My friend bought the house 50-50 with her sister. So half owns it.
    Sadly, this last week her sister has been diagnosed with a terminal illness. No one knows how much longer she has to live.
    My friend is very worried about what will happen when/if her sister dies. Obviously she will receive her sister's half of the house in her will.
    But as the property will now have increased in value, they could be looking at a £780,000 or more valuation. Half of that is approx. £390.000 or possibly even more depending n property valuation which they have not done yet, and which has been approximated.

    Now this might sound like my friend has a lot of money going on. But that is not true.
    They bought the property as a retirement home for 'ever'. My friend has no income except a modest pension plus state pension! It is their dream....a little woodland with a stream, land for walking their dogs etc.

    She is upset obviously about her sister's sudden illness and all that entails, and now is worried on top about what will happen to her when she eventually receives her sister's bequest!

    I worked out that at 40% tax payment (above the threshold of £325,000) she could be looking at a tax bill of £26 or more thousand. Which she will not be able to afford. The thought of having to sell up and relocate after her sister's death (bad enough in itself) is actually making her feel suicidal at present.

    Any help or advice would be so welcomed. Thank you in advance.
Page 1
    • getmore4less
    • By getmore4less 11th Aug 17, 4:35 AM
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    getmore4less
    • #2
    • 11th Aug 17, 4:35 AM
    • #2
    • 11th Aug 17, 4:35 AM
    what about the rest of the sisters estate?

    Is there any debt/mortgage/life cover?

    does the sister have any kids?

    The secondary issue her is IHT planning for the friend inheriting the other 1/2 of the house may not be the best option as unlike a spouse it will not come with any transferable nil rate band.
    • Tom99
    • By Tom99 11th Aug 17, 7:31 AM
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    Tom99
    • #3
    • 11th Aug 17, 7:31 AM
    • #3
    • 11th Aug 17, 7:31 AM
    Look up the rules for paying IT by instalments. I think that providing the house is not sold you can pay by 10 equal annual instalments. Interest is charged at I think 2.75%, but paying say about £3k per year over 10 years might make a difference between keeping the house and having to sell it.
    • Keep pedalling
    • By Keep pedalling 11th Aug 17, 8:45 AM
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    Keep pedalling
    • #4
    • 11th Aug 17, 8:45 AM
    • #4
    • 11th Aug 17, 8:45 AM
    Is the sister a widow and does she have any children?

    If the answer to the above is no, then a sale could be avoided by taking out a life time mortgage (aka equity release) on the property to release some equity from the to both pay off any IHT and to have an emergence cash fund for the surviving sister. Having that sort of asset with no cash to maintain it, is not a good position to be in.
    Last edited by Keep pedalling; 11-08-2017 at 9:05 AM.
    • xylophone
    • By xylophone 11th Aug 17, 9:30 AM
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    xylophone
    • #5
    • 11th Aug 17, 9:30 AM
    • #5
    • 11th Aug 17, 9:30 AM
    As said above, equity release/lifetime mortgage might be a solution.

    https://www.moneyadviceservice.org.uk/en/articles/equity-release

    https://societyoflaterlifeadvisers.co.uk/About

    http://www.equityreleasecouncil.com/standards/rules-and-guidance/
    • kidmugsy
    • By kidmugsy 11th Aug 17, 10:52 AM
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    kidmugsy
    • #6
    • 11th Aug 17, 10:52 AM
    • #6
    • 11th Aug 17, 10:52 AM
    Many people seem suspicious of equity release but this would seem to be exactly the sort of situation to which it is well suited.
    • Keep pedalling
    • By Keep pedalling 11th Aug 17, 11:11 AM
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    Keep pedalling
    • #7
    • 11th Aug 17, 11:11 AM
    • #7
    • 11th Aug 17, 11:11 AM
    Many people seem suspicious of equity release but this would seem to be exactly the sort of situation to which it is well suited.
    Originally posted by kidmugsy
    Absolutely, and if the OPs friend has no direct decendants to leave her estate to she should take full advantage of such a scheme to make sure she can live the rest of her life in comfort and security.

    Correction, that should apply even if she does have offspring.
    Last edited by Keep pedalling; 11-08-2017 at 11:13 AM.
    • Mojisola
    • By Mojisola 11th Aug 17, 11:14 AM
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    Mojisola
    • #8
    • 11th Aug 17, 11:14 AM
    • #8
    • 11th Aug 17, 11:14 AM
    Sadly, this last week her sister has been diagnosed with a terminal illness. No one knows how much longer she has to live.

    My friend is very worried about what will happen when/if her sister dies. Obviously she will receive her sister's half of the house in her will.
    Originally posted by Dogfeatures
    Are they 'joint tenants' or 'tenants in common'?

    If 'tenants in common', isn't there anyone else who could inherit from the sister?

    Her share could be passed on to someone else while giving the surviving sister the right to live in the house until she dies.
    • getmore4less
    • By getmore4less 11th Aug 17, 11:43 AM
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    getmore4less
    • #9
    • 11th Aug 17, 11:43 AM
    • #9
    • 11th Aug 17, 11:43 AM
    Are they 'joint tenants' or 'tenants in common'?

    If 'tenants in common', isn't there anyone else who could inherit from the sister?

    Her share could be passed on to someone else while giving the surviving sister the right to live in the house until she dies.
    Originally posted by Mojisola
    that does not help the future IHT problem
    The beneficial interest stays with the life tenant for the IHT calculations
    • Mojisola
    • By Mojisola 11th Aug 17, 11:54 AM
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    Mojisola
    that does not help the future IHT problem

    The beneficial interest stays with the life tenant for the IHT calculations
    Originally posted by getmore4less
    Isn't the problem that IHT would be due now and the sister doesn't have the money to pay it?

    After both sisters have died, other people will get a large inheritance and shouldn't mind paying some of it back in tax.
    • getmore4less
    • By getmore4less 11th Aug 17, 12:03 PM
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    getmore4less
    Isn't the problem that IHT would be due now and the sister doesn't have the money to pay it?

    After both sisters have died, other people will get a large inheritance and shouldn't mind paying some of it back in tax.
    Originally posted by Mojisola
    It does not solve the first IHT problem either you don't carry it over.

    it will need paying on first death.

    Also Joint or TIC owners the IHT will be due on the share the sister leaves.
    • Mojisola
    • By Mojisola 11th Aug 17, 12:10 PM
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    Mojisola
    it will need paying on first death.
    Originally posted by getmore4less
    Of course it will. Sorry - not all there today.
    • getmore4less
    • By getmore4less 11th Aug 17, 12:15 PM
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    getmore4less
    Of course it will. Sorry - not all there today.
    Originally posted by Mojisola
    it is easy to forget as most house transactions on first death are spouse based and the exemption along with transferable nil rate band make it fairly IHT neutral, soon as you are dealing with non spouse the complications kick in.
    • SuperHan
    • By SuperHan 11th Aug 17, 2:29 PM
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    SuperHan
    It is also worth pointing out that it is the sisters estate that pays the tax, not your friend.

    If the sister has other assets (any savings for example), these can be used to settle the IHT bill on the estate instead of having to take equity out of the house.


    Otherwise, equity release does sound like the best option (and is designed for situations exactly like this).
    • badmemory
    • By badmemory 11th Aug 17, 2:53 PM
    • 569 Posts
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    badmemory
    Surely if they both own it (either joint or in common can't remember which) then it doesn't form part of the estate & just transfers to the other party. So first thing would be to find out how the property is owned.

    For clarity, when my ex-H died, he was living in the house. His family obviously got all his bank accounts, death in service etc but, because of the way we still owned it, I got all the house (although my solicitor almost gave it ALL away)

    ETA they could change the way it is owned with land registry to avoid problems! Would you believe that I read a couple of days ago on another thread on here that this change can actually be done without the other party knowing about it - now that is really a bad thing!
    Last edited by badmemory; 11-08-2017 at 2:59 PM.
    • getmore4less
    • By getmore4less 11th Aug 17, 3:01 PM
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    getmore4less
    Surely if they both own it (either joint or in common can't remember which) then it doesn't form part of the estate & just transfers to the other party. So first thing would be to find out how the property is owned.

    For clarity, when my ex-H died, he was living in the house. His family obviously got all his bank accounts, death in service etc but, because of the way we still owned it, I got all the house (although my solicitor almost gave it ALL away)

    ETA they could change the way it is owned with land registry to avoid problems!
    Originally posted by badmemory
    It may not form part of the distributable estate if joint tenants but will still form part of the taxable estate.
    • badmemory
    • By badmemory 11th Aug 17, 6:00 PM
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    badmemory
    Can I assume from that then that it only doesn't form part of the estate if they are a married couple? Or have I misunderstood?
    • xylophone
    • By xylophone 11th Aug 17, 7:06 PM
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    xylophone
    The value of each sister's share would appear to be £390,000.

    It would appear that each sister has only a single tax allowance.

    If either sister were bequeathing the property to a direct descendant, then see https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

    However, it would appear to be the case that these ladies would choose to leave their estates to each other.

    Even if the property is owned as joint tenants, although the property would pass outside any will, half the value still falls into the deceased's estate.
    Last edited by xylophone; 12-08-2017 at 12:17 PM. Reason: typo
    • getmore4less
    • By getmore4less 11th Aug 17, 7:34 PM
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    getmore4less
    Can I assume from that then that it only doesn't form part of the estate if they are a married couple? Or have I misunderstood?
    Originally posted by badmemory
    it always forms part of the estate,

    There are exemptions that kick in for assets that pass to a spouse/civil partner either by survivorship(joint tenants) or through will/intestacy.
    Last edited by getmore4less; 12-08-2017 at 8:15 AM.
    • Dogfeatures
    • By Dogfeatures 11th Aug 17, 11:56 PM
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    Dogfeatures
    Thank you everyone for some very good answers. There is a lot to think about. But I have so much I can show to her now, and there obviously ARE options. (I know nothing at all about this as I've never encountered IHT in any personal dealings.)

    But I was thinking today re: the Land Registry option....that surely what might be simple is the sister who is ill signs over her half now to the other sister, while she is still able to do so? As far as I know, she has no other family to leave her estate to, and is in the same position re: cash in the bank or savings (2 pensions only as income and some very modest savings.)
    The only real item in her will would be half of that house and land.
    I'm sorry I don't know fine details of their joint ownership, but only know it's half-and -half ownership. The house was bought for cash in 2014 after the 2 sisters sold their mother's house after her death. I presume IHT was paid on that too. But what was left was enough for them to buy their current home and land. (It's the land which pushed the price up so high. The bungalow is probably worth about 280-350,000 on its own.)

    Well thank you for all your thoughtful responses. They are very helpful indeed.
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