Inheritance Tax Article MoneySavingExpert.com Discussion

elliebean_2

Ok, so it sounds as though your parents owned the property as tenants in common. If it's registered land you can check on the Land Registry website here: http://www.landregisteronline.gov.uk/ It will cost you £3 but if you put in their address and then buy the "Register" for the property it will tell you how they owned it, ie as joint tenants or tenants in common. You will get a downloadable PDF file. When you get to this point let me know and I will tell you where to look and what to look for next.

Basically, providing the tenancy had actually been severed at some point, your mum has left the value of her half of the property to you and your sibling. Is there also a provision in the Will (known as a life interest) for your father to continue living in the house till he dies or no longer needs to live there?

elliebean_2

Did you check the Land Registry? Because if the tenancy hasn't been severed your Mum couldn't leave half the value of the property to you and your sibling if it hadn't. The whole value would transfer to your father by survivorship. This could also have implications for your next question about care home fees.

If your parents definitely owned the house as tenants in common then the value of your mum's half is protected for you and your sibling, but if he went into care the local Authority could place a charge over the value of your Dad's share. If his assets are worth more than £21,000 he might have to pay the full amount, if below £21,000 but above £12,750 he might have to pay a proportion and if below £12,750 his care home fees would usually be met in full by the LA. This is just a general guideline as long term care fees is a complex area to offer advice on.

HTH

elliebean_2

I've just checked land registry and unfortunately no records so was routed to complete a form and must post it in, which I will do.

This means the land is unregistered, not uncommon with older properties. Your parents should have signed a severance of tenacy agreement at some point but it sounds as though you haven't seen this? We always advise clients, even if the land is registered, to keep a copy of the severance agreement with their Wills.

Moving one step further then, I remember Mum and Dad telling me that their wills are identical so would, worse case scenario, Dad's house be completely safe from care fees, if his half share has also been protected for us two?

Sadly not. The reason your Mum's share is protected is that she is dead and if they hadn't severed the tenancy, when your Mum died the whole property would have passed to your Dad and then the whole lot could potentially be taken into account for your father's care home fees.

This has got me thinking ( sorry folks if this is off IHT topic but may help you when considering your wills). What if Dad wanted to move to a more practical home. Does that mean he can only spend 50% of the value of the current home? If that is the case, I hope that the tenancy hasn't been severed. I don't care about my inheritance, I just want Dad to have the same options he had when Mum was alive.

Generally, when providing a life interest on a house (ie for your dad to continue living in it till his death or when he no longer needs it, even though half is in trust for you and your sibling) there would be a clause allowing the 'life tenant,' in this case your Dad, to move to another property on the same terms if he wished. This means he could move but half would again be held
in trust for you and your sibling. Can you find such a provision in the Will?

I have to go out now, but will be back later if I can help more.

Lightning_2

Maybe you haven't considered that the legacy, most likely, would be made up of money that had already been taxed at 22p and paid by the Uncle. If Inheritance Tax didn't exist, you might have received 40% more-a much more appealing windfall.

Lightning_2

I'd recommend a SJP seminar to your Mum. They are a very good company. My first foray into the Inheritance Tax subject was at a seminar. The whole subject is quite involved, so the more information you can gain the better. I'd just advise your Mum to listen and learn, then go away and digest. Don't jump in too quickly without having researched further.

Lightning_2

I'm seeing red at the stupid comment about an Apple a day. How could anyone be so insenstitive after reading your loss and your situation.

Please accept my condolences, I hope everything has been, or gets sorted ok.

kinc wrote:

My Father was killed recently whilst at work. Bbc News Report. So as my Dad and I always talked about paying as little as possible to the tax man I'm hoping for some help here.
The mortgage was paid, house value 120k (joint mortgage), ten years wages 145k, pension fund 60k plus widowers pension also waiting on other reply from his AVC pension, 5k from one life insurance and his union are working on getting money from car drivers insurance. These are all approximations.
Unfortunately all the money side of things was dealt with by him I'm unfamiliar with tax laws, we are currently with solicitors over the estate because he didn't make a will and monies are frozen.

All advice appreciated.

:mad:

Lightning_2

The comment under this, Mister etc. must have really incensed you after posting such a sensible reply. What do these people think they gain by such comments?

I was unclear about money from Investment Bonds, although I did suspect it was as you explained.

Paul_Varjak wrote:

My understanding on the GIFTS FROM INCOME rule is that is in addtion to the other IHT exemptions.

The only limitation on GIFTS FROM INCOME is that the gift must not affect your standard of living; the gifts should be done on a regular basis (the best way to do this is set up a standing order). Once a pattern of gift-making has been established that does not affect your standard of living then any gifts so made with not fall within the IHT net.

One other thing should be borne in mind. Do you have any 'income' from Investment Bonds or an annuity? 'Income' from Investment Bonds and annuities are not 'income' but 'repayment of capital'. So, if you rely on 'income' from Investment Bonds or annuities to maintain your standard of living or use that money to make regular gifts then and regular gifts you make will still fall within the IHT net.

:mad:

elliebean_2

I have a mathematical background and have completed my parents' tax returns for many years so felt capable of dealing with Mum's affairs without the need to use a solicitor to keep costs down but it's now looking as though it is necessary with regards to the tenancy status. During a preliminary conversation with the solicitor, it seemed that if the document couldn't be found from the original solicitor's archives, then the matter could be settled with Dad signing something. Any ideas what this might be and implications?

It sounds as though the solicitor may be suggesting your father signs a post-death severance notice to sever the tenancy (as no proof of the original severance agreement can be found and the land is unregistered so the restriction is not recorded with the Land Registry) via an Instrument of Variation or a Deed of Variation. The only provisos are that it must be done within 2 years of your mum's death and every beneficiary must agree to it.

elliebean_2

Would this effectively start from the date signed and therefore have an implication (7 year rule) re IHT even though it was ( or should) have been done 15 years ago?

If IHT (inheritance tax) is involved things are a bit different. Firstly, the 7 year rule is not applicable as your Mum left her share of the house to you and your sibling in her Will, so not a lifetime gift. There is no IHT payable between spouses and if your parents both owned the proeprty then no gift was made. Secondly, from what you've said it sounds as though your Mum left her share of the poperty in a life interest trust for your father with her 2 children as ultimate beneficiaries. If your parents wished to mitigate IHT they needed what are called nil rate band discretionary trust provisions in their Wills.

It is really difficult to intepret the situation without seeing the actual Will itself. But if there is a liability for IHT then I would strongly advise you to use the services of a solicitor to do a Deed of Variation. If there is only a life interest on the property set up in your Mum's Will this will not save IHT.

elliebean_2

Thanks for your quick reply but I am lost.
All I know is back in 1990, Mum and Dad telling me the house was now ours ( probably not really in view of nothing being put on the deeds) in order to avoid inheritance tax. I also have a covering letter from the solicitor saying " I am enclosing a draft of the wills which includes the provisions relating to giving a share in the house directly to the children which would reduce the inheritance tax liability on the death of both of you".
Were my parents mis-informed at the time of writing their wills? They lost the faith in that particular firm a few years later when it made a huge mistake regarding something else.

Once again I have to say that without seeing the Wills themselves it is very hard to say exactly what has been done. And I don't want to say your parents were misinformed without being certain.

It sounds as though your parents severed the tenancy on their property (so they owned 50% each) then left their individual shares to their 2 children with a life interest for each other to be able to continue living there till death or no longer necessary. At which point the house becomes yours and your sibling's. This set up would not save any IHT as your Dad has what's called an interest in possession. And from what you say I don't think the house was signed over to you and your sibling in 1990.

My advice would be to go and see a reputable solicitor who specialises in Wills and Probate and get their advice. There's too much at stake here. They should be able to judge whether your parents were given bad advice. Also, a Deed of Variation can be done within 2 years of someone dying, so things can usually be rectified.