Inheritance tax query - who have we inherited from?

seafarer82

Bit of an odd question, as I'm sure most people would know where their inheritance has come from, but can anyone confirm if my reasoning is correct?

My father died in 2000 and his estate was split 50:50 between myself and my sister. His estate was under the inheritance tax threshold, including a share of his parents' house that he'd inherited from his late father. Our grandmother and aunt were still living in the house so there were no plans to sell it at that point.

In 2007 our grandmother died and her will stated that her share of the house should be divided 50:50 between our father and aunt, but that if our aunt died while living at the property (as has happened) then her share should go to our father in full, or his children if he was deceased.

Have we therefore inherited the second part of the house from our father's estate or our grandmother? I assume it would be directly from our grandmother's will, rather than it being classed as entering our father's estate and then coming down the line to us? If the second part of the house was classed as entering our father's estate at any point then it would push it over the inheritance tax threshold and we would need to advise HMRC etc. I'm pretty sure this isn't the case but just need to check.

antrobus

seafarer82 wrote: »

....In 2007 our grandmother died and her will stated that her share of the house should be divided 50:50 between our father and aunt, but that if our aunt died while living at the property (as has happened) then her share should go to our father in full, or his children if he was deceased. ...

I would imagine that's your answer. You have inherited the second part of the house from your grandmother, in accordance with her will.

tyllwyd

So when your grandmother died, her will said that her house should be divided between your father and your aunt? Since your father had passed away at that point, who inherited that share of the house under your grandmother's will? At that point, did your aunt inherit her share of the house under some kind of a trust or a life interest only - surely when she died, her share should have passed under her own will, not according to your grandmother's? I think you need to talk it through with a solicitor to make sure you have it all straight.

xylophone

Are you sure that you have the terms of your grandmother's will correct?

Was it not rather that your grandmother's will directed that her share of the house should be divided between your father and your aunt but that if your aunt had predeceased her mother, her share should go to your father ( or his children if he had died)?

If this were the case, then assuming that your aunt was still living when your grandmother died, she inherited half her mother's share of the property and you inherited the other half , your father having died?

Your aunt's will should then have directed what should happen to the share of the house she owned?

System

You need to ask the solicitor to clarify the exact meanining and consequences of your GM's will. I think it must have created a will trust in favour of your aunt.

seafarer82

Thanks, we are getting it looked at by a solicitor but at £180 an hour I'm trying to understand as much as I can first!

To clarify, our grandmother's will states that upon her death then her share is divided equally between her children, but that our aunt should be allowed to remain at the property until 'her interest in it expires', i.e she either decides to sell it or passes away. If she sells the property then she could do what she liked with her half of our grandmother's share, but if she died while living there then her half-share goes to our father or, if deceased, to us (since our aunt had no children). My aunt's existing third that she has always owned has been distributed to her partner, as set out in her own will. There is no mention of any pre-deceasement clauses.

As far as I'm currently understanding it, we inherited half of our our grandmother's share when she passed away as our father was already deceased and the rest of her share when our aunt passed away.

I think I'm correct in saying that we've inherited from our grandmother rather than our father's estate, as if her share was deemed to have passed into his estate as the first port of call in her will and then onto us successively then it would be distributed according to the terms of our father's will rather than our grandmother's. The end result would have been the same in this case, but may not have been if he had any other named beneficiaries other than us. I hope that's the case anyway, as it means no IHT to pay.

xylophone

Your grandfather and grandmother owned the house as tenants in common? Or your aunt was also a tenant in common with your grandparents?

What percentage of the house did each grandparent own?

What percentage of his share did your grandfather leave to each beneficiary?

Was there a clause in your grandfather's will that gave his widow and daughter the right to live in the house?

See http://www.primewills.co.uk/will_writers_cambridge.htm#Life Interest of Residue and Right of Residence clause.

seafarer82

xylophone wrote: »

Your grandfather and grandmother owned the house as tenants in common? Or your aunt was also a tenant in common with your grandparents?

What percentage of the house did each grandparent own?

What percentage of his share did your grandfather leave to each beneficiary?

Was there a clause in your grandfather's will that gave his widow and daughter the right to live in the house?

My grandparents and aunt owned it as tenants in common, equal shares of 1 third each. My grandfather's will gave 50% of his share to each of his children. My grandparent's wills both said that the others should be able to live at the property for as long as they wanted to.

Thanks for that link, I'll have a read.

getmore4less

OK there seems to be a missing bit or I missed it.


Why did the partner of the aunt only get 1/3 when she owned 1/2?


You said G-dads will split his share 50:50 to aunt and dad with life interest for G-Mum and aunt

G-mum 1/3, dad 1/6, aunt 1/2.

that means the aunt owed 50% when she dies her partner inherits 50% but the life interest only exist for G-mum on 1/3 of that 1/2, unless aunts will grants life interest for her other 2/3 to G-mum.

getmore4less

seafarer82 wrote: »

Thanks, we are getting it looked at by a solicitor but at £180 an hour I'm trying to understand as much as I can first!

To clarify, our grandmother's will states that upon her death then her share is divided equally between her children, but that our aunt should be allowed to remain at the property until 'her interest in it expires', i.e she either decides to sell it or passes away. If she sells the property then she could do what she liked with her half of our grandmother's share, but if she died while living there then her half-share goes to our father or, if deceased, to us (since our aunt had no children). My aunt's existing third that she has always owned has been distributed to her partner, as set out in her own will. There is no mention of any pre-deceasement clauses.

As far as I'm currently understanding it, we inherited half of our our grandmother's share when she passed away as our father was already deceased and the rest of her share when our aunt passed away.

I think I'm correct in saying that we've inherited from our grandmother rather than our father's estate, as if her share was deemed to have passed into his estate as the first port of call in her will and then onto us successively then it would be distributed according to the terms of our father's will rather than our grandmother's. The end result would have been the same in this case, but may not have been if he had any other named beneficiaries other than us. I hope that's the case anyway, as it means no IHT to pay.

I think that needs clarifying, that sounds quite an unusual clause that if the G-mum dies first then there is a conditional clause on the aunts share.
if the aunt died first then it makes sense.


I don't think you have to worry about tax but the shares seem messed up from what you have written in the various posts

antrobus

seafarer82 wrote: »

.... My grandparent's wills both said that the others should be able to live at the property for as long as they wanted to....

Ah, that would be an Interest in Possession Trust. However your grandfather died sometime before 2000, and your grandmother died in 2007, and the Finance Act 2006 introduced some important changes to the taxation of such trusts with effect from 22 March 2006.

I think it's the case, that the trust established by your grandmother in her will would qualify as an Immediate post-death interest, and therefore be taxed for IHT on the same basis as your grandfather's i.e. a beneficiary with an interest in possession in trust property was treated as owning that property, but that's the sort of thing people pay solicitors to get right.