Inheritance Tax on Tennants in Common

Tuckerbox

My Father in-law recently passed away and has named myself and my wife (his daughter) as executors of his will. The confusing thing about his will is he doesnt mention any fixed sum of inheritance to his daughter but states "Up to the threshold for Inheritance Tax" Also the house was 'Joint Tennants in Common' and presumable goes to the mother in-law in full BUT do I have to declare half the value of the house as part of his estate or does the full ownership pass on to the mother in-law and does not have to be included in the value of his estate for inheritance tax purposes?

wombat42_2

You can have "joint tennancy" or "tennants in common" which is it ? I think you are confused. If the title deeds say nothing it is "joint tennancy" by default. I assume you are in England or Wales as I think Scotland it is the othr way round.

If joint tennacy anything to do with the property in the will is ignored and property is automatically passed onto other partner.

Tuckerbox

I believe that they may be registered as Tennants in Common...

wombat42_2

Tuckerbox wrote: »

I believe that they may be registered as Tennants in Common...

Anyone is entitled to get an internet copy of anyones title deeds from here for example http://www.landsearch.net/

IF tennants in common then the will will take precidence.

Tuckerbox

So if the will leaves the house to his wife do I then have to include that in the value of the estate?

wombat42_2

Tuckerbox wrote: »

So if the will leaves the house to his wife do I then have to include that in the value of the estate?

It looks that way but get a copy of title deeds from the internet to double check the sitiuation.

Brenny

I have just acted as Executor for my mother whose house was Tenants in Common with my father. We had to show total value of house in one area on the Probate form, and half the value somewhere else. It does specifically say about Tenants in Common on the form. Unfortunately I haven't got a copy of it here so can't tell you exactly how we dealt with it - definitely needs detailing though.

sloughflint

Tuckerbox wrote: »

The confusing thing about his will is he doesnt mention any fixed sum of inheritance to his daughter but states "Up to the threshold for Inheritance Tax"

What this means, is he is leaving up to £ 312 000 (the current financial year's IHT allowance) to his daughter.

Tuckerbox wrote: »

Also the house was 'Joint Tennants in Common'

Are you quoting what is written in the Will? The wording bothers me. You need to check ownership with Land Registry. If ownership not as TIC ie joint tenancy, then property automatically belongs to the surviving owner.

Tuckerbox wrote: »

and presumable goes to the mother in-law in full

Why presumably? It depends purely on what the Will says. If the home is owned as TIC, then what happens to your FIL's share of the home will depend on the wording of the Will.

Tuckerbox wrote: »

BUT do I have to declare half the value of the house as part of his estate

Yes for IHT purposes. You need to declare your FIL's assets at date of death which includes the half (assumption) share of the home.

Tuckerbox

In brief the will states that he leaves the value up to the tax threashold to his daughter and that he leaves all his residual estate to his wife. How it is to be divided up is not made clear but to be honest I doubt that even counting the whole estate that if his half of the house was given to his wife then there wouldnt be an amount anywhere near the tax threashold to pass on to his daughter.

Reestit_Mutton

Tuckerbox wrote: »

In brief the will states that he leaves the value up to the tax threashold to his daughter and that he leaves all his residual estate to his wife. How it is to be divided up is not made clear but to be honest I doubt that even counting the whole estate that if his half of the house was given to his wife then there wouldnt be an amount anywhere near the tax threashold to pass on to his daughter.

I've been through this situation myself so I feel I can shed a little light here (albeit with the caveat that I AM NOT A LAWYER).

As executors of the will it is entirely up to you to decide which assets to assign to your wife to use up her father's inheritance tax allowance. The use of the phrase "Up to the threshold for Inheritance Tax" is simply a convenient mechanism used in many wills to avoid the need to update the will every time inheritance tax thresholds increase.

If your FIL's will stipulated that a discretionary trust be set up then your MIL can "borrow back" any of these assets interest-free by providing a promisory note to the trust which simply means that she will pay back the loan out of the value of her estate when she dies before the remainder of her estate is divided up as per her will.

One word of warning though...according to the lawyer who advised me regarding my dad's will, borrowing half a house might be ruled illegal when your MIL's estate is being dealt with upon her death. As many surviving spouses who had previously done this hadn't yet died the whole area was still fraught with uncertainty when my dad died.

My lawyer's solution to this was for the trust to take my dad's half of the property and to sell it to my mum at a price considered to be fair value as of the date of my dad's death and then let my mum borrow back the cash that she had paid for the property from the trust. In reality this was all done by letter (no actual cash having to change hands).

As it happens, the rules changed just after my father died such that creating a trust and filling it to the max tax-free became unnecessary. The simplest solution would now be simply to pass everything on to your MIL as she can now use all of your FIL's unused inheritance tax allowance upon her death so there would no longer be any inheritance tax wastage if your FIL's allowance is not all used up right now.

In any case, you should really get a lawyer to deal with all the paperwork.

HtH
Reestit Mutton

sloughflint

Tuckerbox wrote: »

In brief the will states that he leaves the value up to the tax threashold to his daughter and that he leaves all his residual estate to his wife. How it is to be divided up is not made clear but to be honest I doubt that even counting the whole estate that if his half of the house was given to his wife then there wouldnt be an amount anywhere near the tax threashold to pass on to his daughter.

I hope that you do formally check how the house is owned. Remember that if the tenancy was joint then the house now belongs to your MIL. The same applies to any joint accounts. They would now belong to MIL athough for tax puposes half the value at date of death would be counted as being part of the estate.

Hopefully someone will correct if I'm wrong but if FIL had a half share of a house worth £200k and £20k in savings in his sole name, then your wife would be entitled to £120k ( 100k of which tied up in the house) and no residue for the wife.

The previous poster mentioned Discretionary Trust but does the Will say so? I'd have thought you'd have mentioned this. I certainly hope that there is some sort of safeguard for your MIL.