Inheritance Tax Confusion - Home

goldbyron

I am writing as my partner is in a new situation which I am clueless to help her with. Basically her mother has very little time left and has made a will which mostly consists of leaving her property to my partner and her sister equally. There are minor bank accounts which has been distributed to charity, grandchild etc.

My partner's sister is already becoming quite volatile and pressurising in controlling the estate (and already owns several buy to let flats). Additionally her ex partner has been nominated executor of the will (he is self employed within the property sector).

My partner has a small flat with a 100% mortgage and is therefore financially the worse off.

The estate mostly consists of a house in a good part of the North West (miles from us) and has £98k outstanding mortgage and was last valued at £450k (August 2008). Therefore on their mothers death the house (and mortgage) passes to both sisters.

Her sister and ex partner want to rent the home out until prices pick up. However, despite the financial loss, I feel it is less hassle to just get out and my partner can pay her own mortgage off instead of the bother of renting for little income. I also worry that her sister may not agree to sell the home for years thus allowing my partner to be trapped within another mortgage and joint bank account with her volatile sister. My partner is also resident in London and her sister and the ex partner are from Jersey so I am sure they will be exempt from something which my partner isn't.
I will just jump to my questions as I could go on forever with the complications!
1. Does my partner have to pay any stamp duty when the property is transferred?

2. Does she have to pay inheritance tax straight away (or within a short time frame) out of the estate (only the house itself will take the estate over the band)? If so how on earth could you pay this if you have no money and can't sell the property?

3. Does she have to take out another mortgage to own the home?

4. Does renting introduce unnessary complications (such as income tax and captial gains) or is it wise to do so until prices recover a little?

Thank you for any help. It is such a difficult for my partner with her mother dying without the stress of her sister alongside inheritance tax and a house to sell in this climate.

GDB2222

1. No
2. On those figures it looks like very little IHT is payable. On houses it can be paid in instalments over 10 years (at least I think it's 10 years). It needs to be paid from the estate.
3. No, but the executors will.
4. It's very unwise, as the market is unlikely to recover for many, many years. And, ofc, yes it adds complications such as income tax.

Depending on how the will is drawn up, the norm is for the executors to realise the estate and distribute the proceeds.

goldbyron

Thanks for this. I also note your advice to sell which I shall pass on.

Richard_Webster

What about your partner's father's will?

I ask because if has already died then (assuming they were married when he died) if he left everything to your partner's mother than she will have a double set of IHT allowances,.i.e. £624,000 before any IHT is payable.

If he left anything to anyone else then whatever proportion those gifts were to then current nil rate band would reduce the second allowance by that proportion. E.g. if he died when the NRB was £180,000 and he left £30K to others and the rest to your partner's mother then the 2nd £312K IHT allowance is reduced by 30/180 = £52K so 2nd allowance is only £260K. Add that to £312K to get total wife's allowance of £572K.

If they had been divorced by the time he died or they were never married none of this works and there is only one £312K IHT allowance.

goldbyron

He is, fortunately still very much alive, and re-married 20 years ago!