Inheritance tax on Joint tenancy for BLT/Commercial property

Typhoon2000

Hi I wonder if anyone one know if inheritance tax would be payable when my Dad passes on.
He had a commercial peroperty comprising of a ground floor shop and 4 flat. he lets the 4 flats and leased the shop premesis. He gifted half to me about 8yrs ago (so past the 7yr rule). We took out a mortgage as joint tenants. He paid capital gains tax at the time on the half of the property he gifted to me. At the moment he pays half the income tax on the rental and I pay the other half. There is around £200,000 mortgage owing and the property is worth around £650,000.

His only other significant asset is the house he shares with my mum. Its worth around £725000 with about £100000 mortgage owing. I am their only child and there is no will.

If my dad passes on, his share of the residential house will pass to my mum (I know there is no IHT between spouses), but will there be any IHT liable on his half of the commercial property which will all come to me?

Thanks

SeniorSam

Not if his gift to you is within his nil rate band allowance of £325,000 in this tax year.

Assuming he goes first, the estate left by our Mother will have a large inheritance tax to pay, but there may be time to arrange matters to make payment easier by constructing suitable Wills and if you are married, I do hope that you have made a suitable Will bearing in mind that you will have a large inheritance.

It really is most unwise not to have a Will these days.

Sam

Typhoon2000

Thanks, thats the bit I wasn't clear about. So even though we are joint tenants and have a joint mortgage, and his share of the commercial property comes to me (survivorship?) - as we are joint tennants the valule of his share is still deducted from Nill rate band (£325000)?

00ec25

are you sure that the joint tenancy overrules the intestacy rule? Surely his half belongs to his estate and thus would go to your mother not to you

Typhoon2000

I am pretty sure sure that what a joint tenancy means. The commercial property is not bound by a will and is automatically is transfered to the surviving tennant. If it we were tenants in common with a 50% share each than his half would go to my mum or who ever he names as a benificiary in any will.
My understanding of a joint tenancy is is we both own 100% of the property.

SeniorSam

How was the half interest passed on to you? If this was done with a legal document, it may well have been on a Tenants in common basis where the land registry would have the details of ownership. A phone call would clarify this

Sam

Typhoon2000

Yes it was originally on a Tenants is Common basis but this was later changed to a joint tenancy by our solicitor and is registered as such at the Land Registary.

CLAPTON

as joint tenant the legal ownership passes directly to you and no probate is necessary for you to assume ownership.

however for IHT purposes HMRC will include the value in his estate.

assuming that everything else goes to your mother (presumably as joint tenant with the house) then the issue is what is the value of the commercial property?
is there any life insurance associated with the mortgage?

otherwise the IHT value will be half of 650,000 -200,000 so there should be no IHT payable on his death

however do be aware that your mother estate will not benefit from the full spouse's IHT allowance

John_Pierpoint

I assume you live in England/Wales?

For what it is worth I think your dad owns half of 650K - 200K = 450/2 = 225K as far as your joint venture in the rental property market goes.
I cannot see that he has retained an interest in your half as you are getting half the rent (unless he is operating the shop on a annual rental of £100.:D)

If you are joint tenants of the property, as against tenants in common,
you should get all the property when dad dies - so that will be 225 off dad's 325K nil rate band.

Do mum and dad own the house as joint tenants as against tenants in common or is it all dad's?

[If it is too embarrassing to ask them, or you are not sure they know the difference, you can access the Land Registry and look at the certificate for a very modest sum. (Assuming that the house is registered).]

If mum and dad are joint tenants then mum gets all the house (end of).

Let us assume that they are tenants in common or dad owns all the house:

If dad owns all the house:
The house if worth 725K - 100K = 625K.
Mum gets the first 250K of that because that is her limit under intestacy (*). She and you get half of what is left ie 187.5K of the house each. You own your 187.5K proportion and she and you are trustees of her 187.5K. She has an Interest in possession, this means she and you will look after it on her behalf but when mum dies you must get her trust interest [She cannot leave it to the cat's home & she and you have been joined at the hip unless one of you decides to go bankrupt.]

If dad owns half the house then mum will get the first 250K of his half and the two of you will share the remainder.

Leaving your spouse an interest in possession counts the same as giving the same value absolutely, when it comes to calculating the tax and it protects the family home from care/nursing home fees payable to the local council.

[Don't expect the widow to see it that way though - her whole nest making identity might have been invested into those bricks and mortar and she is jolly well going to take them with her when she goes].

I will let you do the calculations but what ever the legal ownerships,
you might not have much of dad's nil rate band left for the second death.

In reality the great majority of your dad's wealth is tied up in property but there could well be insurance policies, investments and the value of his other possessions to be put into the account.

http://www.adviceguide.org.uk/index/your_family/family_index_ew/who_can_inherit_if_there_is_no_will___the_rules_of_intestacy.htm

John.

(*) I am not sure what the position is if dad has a 100K insurance policy, dedicated to paying off the mortgage.
What proportion of the 725K mortgage free house counts towards the widow's 250K absolute entitlement, if any?

Typhoon2000

Thanks, guys its much clearer now.
Their residential home is a joint tennacy so it will all go to my mum if he passes on first.

My parents are also planing on leaving the UK permantly, they have citizenship elsewhere and flat and cash abroad. This being the case would it be better if I were to 'buy' the family home at some point before they both passed on as a means of transfering ownership without having to inherit it and have to pay IHT out of the estate? As it is their main home, they wont have to pay capital gains tax when they sell. I know about deprivation of assests when it comes to council residential care but this wont be an issue as they will be moving abroad.
They want to keep the house in the family rather than sell it to someone else and raise cash.

SeniorSam

If your parents are domiciled in the UK, then their world wide assets are taken into consideration on death. This may well shed a totally different light on your situation and IHT. It is certainly a different picture now that you have revealed another page of information. This is why it is so difficult giving any advice when only part of the story is revealed, so don't count on any earlier advice, including my own, but additional information may be available if you wish to tell the WHOLE story and reveal the value of world wide assets of both parents.

Sam