Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

Keep_pedalling

If she inherited all of her husbands estate her estate will have two lots of NRB available which would cover the £650k even if nothing was left to charity. Even if she had not got the transferable NRB available the 50% of her estate going to charities would reduce the IHT liability to zero as her NRB covers the other beneficiaries.

Presumable with expensive care costs the value of her estate will be lower by the time she dies so little chance of any IHT being due.

perdusys

Keep_pedalling said:

If she inherited all of her husbands estate her estate will have two lots of NRB available which would cover the £650k even if nothing was left to charity. Even if she had not got the transferable NRB available the 50% of her estate going to charities would reduce the IHT liability to zero as her NRB covers the other beneficiaries.

Presumable with expensive care costs the value of her estate will be lower by the time she dies so little chance of any IHT being due.

Thanks, yes she inherited her husbands estate.  As you say, with care costs being the way they are, it is unlikely that she will retain the property, though we are considering renting to eke out the shortfall between her income and the care home fees. We found the situation with charities confusing, thank you for clearing that up.

ka7e

Apologies if this has been covered in another thread - too many pages to search.

Mum and Dad were tenants in common with mirror wills. Dad died 12 years ago and his half of the property was willed to me and siblings, with Mum having the right to benefit from the property for her lifetime. Mum's "estate", including the property was then worth over £325k.

Mum has now downsized to a cheaper property and wants to distribute some of the proceeds from the original house sale to us children. She assumes we are entitled to this money as we "owned" half the house. Mum is a relatively fit 90 year old and her new flat is future-proofed should she be disabled and need care in her own home. She will also retain £75k to meet future needs. The value of the flat and her bank account would then be under £325k.

I am concerned there may be tax implications if she distributes cash gifts to myself and my siblings - we're not so worried about deprivation of assets re care homes as we have experienced carers amongst us.

Jeremy535897

If the children owned half the house, half the proceeds are theirs by right. As to whether you made a gift back to mother by contributing to the cost of the new flat will depend on just what your father's will said, as well as whether she had a life interest in the other half of the house. You must seek legal advice on the interpretation of the will. Was the conveyancing solicitor aware of the trust or did they just assume it was jointly owned by your mother and the children?

uknick

During the probate process the executor of your father's will should have put you and your siblings onto the deeds using the Land Registry TR1 process making you the legal owners of half of the property, either as tenants in common or joint tenants.  Whichever it is means you are not just "entitled" to your share of the proceeds, they are yours by right of ownership. 

If you or your siblings never lived in the property since becoming owners you may be liable for CGT depending on the sale proceeds compared to the probate at time of your father's death.  If this is the case, then IHT may be the least of your worries.

Keep_pedalling

uknick said:

During the probate process the executor of your father's will should have put you and your siblings onto the deeds using the Land Registry TR1 process making you the legal owners of half of the property, either as tenants in common or joint tenants.  Whichever it is means you are not just "entitled" to your share of the proceeds, they are yours by right of ownership. 

If you or your siblings never lived in the property since becoming owners you may be liable for CGT depending on the sale proceeds compared to the probate at time of your father's death.  If this is the case, then IHT may be the least of your worries.

After the OPs father died his share of the house would go into a life interest trust, and the surviving spouse would become the beneficial owner of the whole house and for IHT purposes it forms part of her estate.CGT is not an issue here.

What happens to any equity released with downsizing depends on the wording of the will, it could remain within the life interest trust with the surviving spouse having the benefit of any income from it or it could be distributed to the children, but it is not something the surviving spouse can gift as she is not the legal owner.

ka7e

Dad's will names Mum as Executor and Trustee. In the event of her predeceasing him, A (me) and B become Executors and Trustees (hereinafter called his Trustees).

The folowing clause is verbatim, with no punctuation.

" I give my share or interest in the property known as HOUSE, aforesaid or such other dwelling house as may be the only residence of myself and my wife XYZ at the time of my death to my trustees UPON TRUST with the consent of my said wife during her life to sell it and to hold the net rents and profits and the net proceeds of sale in respect of my said share in trust for my wife during her life and after her death my trustees shall hold my said share of the proceeds of sale UPON TRUST absolutely for such as A B C D and E shall survive me and in equal shares if more than one AND I DIRECT that my trustees may during the life of my said wife or such shorter period as she chooses allow her to occupy the property....AND I FURTHER DIRECT that as often as she requests my trustees shall sell the property held by them jointly with her and occupied by her under the provisions of this clause and with my share of the net proceeds of sale purchase any other residential property designated by her the acquisition cost of which does not exceed my share of the net proceeds of sale with the exception of any funds which may be added to the purchase by her as her contribution to the purchase price and which may arise from her share of the proceeds of sale of the property and shall hold my share in any property purchased by them upon the same trusts during her life."

If I am interpreting it correctly, it seems the trustee's share must be used for the purchase of a new property, with Mum contributing any extra from her own monies. So her half of the proceeds are hers to do with as she pleases.

Jeremy535897

The house was owned as tenants in common by your parents, and your father's share is left on trust for your mother to live in or sell, so it looks like she has a life interest in the trust, and it therefore forms part of her estate for inheritance tax purposes. If this is correct, any gift she makes to you and your siblings not covered by exemptions will be a potentially exempt transfer, but if she died within seven years, the value of the gifts will remain in her estate. That may not matter, depending on how much of his nil rate band your father did not use, and the availability of the residential nil rate band.

Grayhaam

Regarding the £3000 annual gift exemption, I have two questions. Does the exemption get passed on to a spouse in the same way as the nil rate band does? Can the gift be funded from Capital rather than just out of original income?

Keep_pedalling

Grayhaam said:

Regarding the £3000 annual gift exemption, I have two questions. Does the exemption get passed on to a spouse in the same way as the nil rate band does? Can the gift be funded from Capital rather than just out of original income?

No it can’t be transferred, and yes it can be funded from capital. If you have excess income you can make exempt gifts on to of the annual exemption.