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

Emorp

Hi
My dad has purchased an investment property which he aims to use as a pension, earning income on rentals.
He wants this income to continue for his wife (my step mother) after his death but the property to come to his children (3 of us).
They've sent us a slightly confusing self created 'deed of trust' but I don't understand if it does what he wants. I asked if it was drafted by a solicitor (no) and he hasn't as yet sorted out his will.

Basically, the document sent says that he and his wife are joint owners. So i'm concluding that when he dies, it's hers anyway, unless he specifically leaves his half to us.
He is keen to point out that we cannot force a sale though, and he said that he's doing this 'outside of his will'.

The doc says that if she sells it, the proceeds are to come to us (its currently well below IHT threshold). I guess we would have a signed intent for that from this doc, but I imagine she wouldn't want to sell it if she gets nothing from it in any case.

The real issue I'm stuck on is that if they basically just own the property, then she has to leave this property to us in her will. I don't see how the doc creates a trust.
So, would i be right in concluding that we don't have any meaningful protection if she chooses not to do add us to her will, or indeed that the property would be liquidated if she goes bankrupt etc etc.
I've been trying to follow the HMRC guidelines on how a trust is created, but I'm struggling!

Does anyone have a view on the likelihood of a non expert drafted doc like this working in reality?
I can see a lot of scenarios where dads wish for us to eventually receive that asset might not happen.
Thanks in advance!

holly_hobby

If she is a joint owner, she has legal rights to the property, both ownership wise and in respect of disposal.

If the property is held under a joint tenancy upon Dads death it will wholly revert to your Step Mother.

If the property is held under a tenants in common arrangement, he can bequest his share (be that 50% or howwever they split ownership) to anyone he wishes, whilst she will retain her share until death or sale.

What may be better is that he owns the property outright, but on his death he bequests it via his Will to his children, with your Step Mum having a lifetime interest (residence or income wise, however he wishes it to be).

A qualified solicitor needs to draw this up and revised wills, because if he doesn't draft a will it goes to her anyway under laws of intestatcy.

Hope this helps

Holly

Emorp

Many thanks Holly, and for the rapid response too! I had a feeling it was a bit more involved, Dad is prone to wishful thinking!
I'll see what he says.....thanks again
E

getmore4less

it may not be that simple legal ownership and beneficial ownership are not the same things.

Emorp

Having reread the document, they state they are beneficial joint owners.
This does seem to indicate Holly's notes are most likely, I.e. once dad is gone, the property is his wife's and it would still be up to her to 'do the right thing' and leave it to us.

In the end, I can't force dad to sort it out 'properly' but merely point out that there are ways, not necessarily 'maliciously meant', that his wishes might not be met.
I guess if challenges arose, we might have to litigate to defend ourselves, and end up risking our own money in doing so, rather than having something more legally secure set up in the first place.

I suppose I'm learning that 'trust' gets to mean something else entirely when used as a legal term! And that sometimes you don't get things right first time.
He obviously needs to sort out his will in the first instance.....
Thanks again for your time!

ronctlsmile

Ten years ago, my uncle bought a flat for me and my two cousins for us in London because of our study in London. Sadly a week ago, my uncle passed away. In his will, my cousins and I are the inheritance beneficiaries of the flat. As my domicile is UK but not my uncle and two cousins (they are malaysian), would the government charge the inheritance tax on that property? Would that flat be subject to any other tax once the ownership is transfer to me and my cousins.

Megb

My dad died in 1985 with no known will. Is the nil band rate of 70 odd thousand carried forward to my mums estate or the full 325 thousand. A will is in place but confused now that we may be making a big mistake iht wise as the house is now 700 thousand. Any help with easing my mind much appreciated.

uknick

Megb wrote: »

My dad died in 1985 with no known will. Is the nil band rate of 70 odd thousand carried forward to my mums estate or the full 325 thousand. A will is in place but confused now that we may be making a big mistake iht wise as the house is now 700 thousand. Any help with easing my mind much appreciated.

I think your mother gets the remaining amount of the current allowance, i.e. £325k less whatever your fathers estate was valued at, plus her own £325k allowance.


In my family, my father died in 1967 and used none of his allowance, so my mother's estate would get 2 x £325k = £650k

This is taken from the HMRC website;

Example 1- transferring the whole of an unused threshold

Mark dies in May 2007. He leaves an estate worth £400,000 to his wife Sharon. She dies in August 2008, leaving £600,000. When Mark died the Inheritance Tax threshold was £300,000. When Sharon died, the threshold had gone up to £312,000, so her estate was over the threshold.
None of Mark's threshold was used when he died because he left his entire estate to his wife and he hadn't made any lifetime gifts. So Sharon's personal representatives can transfer 100% of Mark's threshold to increase her threshold. They don't transfer £300,000 - the threshold when Mark died - but the percentage of the nil rate band he didn't use, ie 100%. They then apply this percentage to the threshold at the time Sharon died.
So Sharon's threshold increases to £624,000, twice the 2008-09 threshold of £312,000, using 100% of her nil rate band and 100% of Mark's. This means there's no Inheritance Tax due on her estate.

holly_hobby

Megb wrote: »

My dad died in 1985 with no known will. Is the nil band rate of 70 odd thousand carried forward to my mums estate or the full 325 thousand. A will is in place but confused now that we may be making a big mistake iht wise as the house is now 700 thousand. Any help with easing my mind much appreciated.

If Dad had not made any non-exempt gifts during his lifetime, then he has 100% of his nil rate exemption available to be transferred to Mums available nil rate exemption by application to HMRC by her executors following death.

This will be the nil rate exemption applicable at 2nd death, which is presently 325k per person and frozen upto Apr 2017 - which means for example if she passed before April 2017 and had Dads full exemption, 650k of her net estate would be IHT exempt, the residue over this would be taxed at 40% and payable from the estate before any bequests administered.

Some reading - http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

Hope this helps

Holly x

troubleinparadise

uknick wrote: »

In my family, my father died in 1967 and used none of his allowance, so my mother's estate would get 2 x £325k = £650k

Dear uknick,

I'm not sure that your father's transferable allowance will be the full threshold as it is at present, as he died before 1975.

This is taken from the HMRC website:

The threshold can only be transferred on the second death, which must have occurred on or after 9 October 2007 when the rules changed. It doesn't matter when the first spouse or civil partner died. However, if it was before 1975 the full nil rate band may not be transferrable as the amount of spouse exemption was limited then.

http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm