Inheritance Tax help

Mainman

I was wondering if someone get offer me some advice as my family solicitor seems to have got us in a mess. There are other property in the tax calculation but the main one is the principal family home, which determines whether we are over the nil band threshold in the case of my mother.

My father died in 1998. In that year, my mother gifted me her 50% of the house. Until her death in 2009, I lived with her in the house during these 11 years, and as 50% owners, we shared the bills as she supposedly inherited my fathers 50%. I understand as I lived there that this overcomes the gift being classified as with reservation.

In 2000, we also signed a deed of variation on my fathers estate which included my other brother, who lives elsewhere. It mentioned approx £100K in money and also included the 50% of the house that had been gifted. However, it was incorrectly written up my the solicitor and it has now come to light that it said something else.

The main house is in the joint names of my mother and I. What the family solicitor is now saying is that the deed of variation in the format written actually gave me my father's 50% of the house too although it was never transferred over as no one in the family and including the solicitor understood this was to be the case.

They are now saying that I own the whole house but as my mother lived rent free (even though we all understood that she was a joint owner) that her gift will be treated as a gift of reservation and will therefore have to go back into the estate. As the Deed was incorrectly written, we also cannot use the unused 40% of his nil band threshold as this has now been used up with the 50% of the house being given away to me by my father.

Do I have to accept the above error by the solicitor or with his assistance, will the revenue take these circumstances into account. While, 50% of the house is still in my mothers estate as this was always going to be the case, the main factor is we have lost approx £130K of my fathers nil band rate which looks like it can't be added to my mothers threshold, as it has been used by error.

Any advice/thoughts?

John_Pierpoint

I cannot help you with the answer BUT I find your posting confusing; perhaps we can clarify it?

Once upon a time in 1998 there was a mother, a father and one of two children living in a house.?
Who owned this house?
The father died!
Leaving a will?
What did the will say?
(Can we assume that the house was owned as joint tenants?)

Within a year (?) mother owned 100% of the house and gifted half to the stay at home son?
(I cannot remember when gifts of land became compulsorily registrable; the rules changed yet again this time last year).
The house is now, 2010, registered in the names of mother and resident son?
In 2000 some sort legal document was signed that aimed to vary father's will but also incorporated mothers gift to resident son????????
The primary intention of this document was to give a sum of money to non resident son?
Now it is being said that father had the ability to will 50% of the house to stay at home son - so perhaps the house was owned as tenants in common or father owned it 100%?
BUT its value, plus the payment to non resident son, used up 60% of father's nil rate band at the time he died ?
Was this the document submitted to the Land Registry and the house registered 50/50 between mother and son?

However the penultimate paragraph explaining the circumstances says that stay at home son already owns 100% of the property?!?
So can we take it that the house was owned in 1998 as tenants in common BUT father left his half to mother; mother then transferred half of her 100% to resident son and then a year or so later repudiated her husband's bequest and the legal wording gave it to stay at home son.?
Mother died in 200x ???????????????
So mother never owned more than half a house? So the half a house she gave away must have been her half ? But as she is still living in her half that must be a gift with reservation and so still valued as in her estate (and given the inflation in house prices probably using up most of her nil rate band)?.

John

As an afterthought, if you are ever mistress of 100% of a property, can you give away any of it & continue living in it, without creating a gift with reservation?
Fortunately when I was in this situation it was still possible to "provide" a home free of IHT & CGT for your widowed parent.

Mainman

Sorry for confusion but it is complicated.

To clarify, in 1998, property owned jointly by mother and father with stay at home son living there.

Father died in 1998 leaving everything to mother (wife). After that later in 1998, mother gifts her 50% of house to stay at home son on basis she will inherit fathers (husbands) 50% share by terms of will.

In 1999, after estate sorted out, house in ownership of 50% mother and 50% stay at home son and understood this was done in the land registry.

In 2000, deed to vary father's will to give money to non resident son also included reference to 50% of house being given to stay at home son. No one picked up on this including the solicitor who drafted the wording poorly as it was to only make reference to mothers gift of her share. If it was meant to transfer his 50% share that was now in the mother's name, it would have been transferred over to the stay at home son at that time who would have owned 100% of the house if this is what was wanted.

Until mothers death in 2009, mother, stay at home son and solicitor all understand house is in joint ownership i.e stay at home son owns mothers original 50% and mother owns fathers original 50%.

Rereading terms of Deed in 2000 implies stay at home son was being given fathers 50% share, therefore owning all of the house (50% gift from mother already given in 1998 and 50% from father in 2000) which was an error as house was still in joint names of mother and stay at home son in 2000 until mothers death in 2009.

Current situation is house in joint ownership with land registry. However, solicitor is saying house should according to the deed in 2000 and the gift in 1998 be in full ownership of stay at home son. For IHT purposes, solicitor saying stay at home son owns 50% fathers share (although currently in the name of mother) and 50% currently in his name reverts back to estate for IHT purpose as classifed as Gift of Reservation even though stay at home son still lives there.

If done as everyone understood, I believe situation would have been as follows: -

50% mothers gift to son would not have been classifed with reservation as stay at home son also lived there and paid at least half the bills.
Mother would have owned 50% of house which was previously fathers share.

As you will note, the scenarios above would both cancel each other as the mother and stay at home son would still both be joint owners, irrespective of who owns which 50%.

The variance relates to the unused nil rate band of the father: -

1) If stay at home son owns the 50% original mothers share and it is classifed as a gift free from reservation because the stay at home son lives there too and pays half the bills, and the mother owns 50% of the original fathers share, as she still owns part of the house, this would result in 40% of the fathers nil band rate being unused.

2) If stay at home son actually owns 100% of the house, then the 50% mother gift would I believe have no exemption from being a gift from reservation despite the son also living there and paying half the bills because she no longer has any interest in the house. This also results in the 40% of the fathers nil band rate being used up in 2000 because his 50% was going to the stay at home son even by error.

Sorry for long reply

John_Pierpoint

I think from my point of view (and I avoided this problem and have no legal training) your mother and father signed an agreement when they bought their house - this agreement said they held the property as joint tenants (as against tenants in common).
This agreement would override what ever it says in fathers will. On the second he died your mother would have become the owner of 100% of the house and the gift with reservation problem would start?
When did this "gift with reservation" legislation start? Is it an example of retrospective legislation?

Does the Land Registry think the house is now owned by joint tenants or tenants in common?

These things can get left up in the air, I had a struggle convincing HMRC of the true situation. When my mother died the taxman & Land Registry seemed to think the estate was still in administration - ever since 1967:rotfl:
So it is important to work out who knows what and take it from there - the last thing you want to do is end up arguing in court - very expensive.