Probate - Tenants in common re bungalow

ice_man_71

Hello,

Posting this time in the right place as I posted it in home selling originally !! Apologies .......

We would appreciate any help please.

I've tried to be as brief as possible.

Mum and Dad lived in a bungalow, 100% owned in Dad's name only (as was common place back in the 50's I understand)
There are 3 sons all of whom live locally in our own homes (of which I am one). Family all get along nicely. Happy days, oh how I miss them !!
Dad passed away in 2011 and left everything to Mum.
The three sons, AND MUM then agreed soon after Dad's passing in early 2012 to do a deed of variation resulting in a 4 way 'Tenants in common' arrangement between Mum, me, and the other two boys of the bungalow.
We did this to protect Mum's entire value of her bungalow against the possibility of any care costs at any stage in the future. She was as fit as a fiddle in 2012, and we wanted to ensure that all of the value of Mum's estate was given in a controlled fashion to a care home 'should' it be neccesary.
Mum carried on living in the bungalow until Jan this year when she sadly passed away aged 86 leaving all assets to be split evenly between us 3 sons. i.e. Although we tried to protect against the cost of care, she ended up not requiring any other than basic help which us 3 sons always tried to provide for her.
We now have no need to keep the bungalow and so we'd all like to sell the bungalow and split the assets, to pass on to our kids etc etc

In terms of getting the probate forms completed (to access Mum's quarter property share + liquid assets) - 'PA 1 - probate application form', Section 7 talks about inheritance tax forms iht 205, iht 207 and iht 400 and I think we need to be crystal clear in terms of the magical £325,000 threshold at this point in the process.
As it stands, the bungalow is worth about £400,000 plus she has about £20,000 liquid assets in bank = so £420,000 assets.
So, we 'think' that her estate is valued at £100,000 (£400,000 divided by her quarter) plus £20,000 so around £120,000 and therefore considerably lower than the £325,000 inheritance tax exemption

BUT !!
A work colleague has said that this is voided becuase she was living in it and not paying us rent. She therefore 'benefitted' from it, he said ?? so I'm not sure how that affects us, if at all.

If that does pose a problem, then I am also made aware of two other scenarios that may help us :-

1/ I understand that some changes to inheritance tax were made in the 2015 budget which offered another £100,000 of exemption for in 2017-18, increasing by £25,000 each year where properties can be passed on to surviving children where a will dictates. If this is the case, then even if mum's estate was a total of the £400,000 total value of the bungalow plus £20,000 liquid assets plus £2,000 life policy, then this would equal £422,000 and therefore exempt from the £425,000 threshold - is that correct?

2/ I am also made aware of a scenario where a couple owned a property and the Mum passed away in 1988, and the Dad survived until recently. In this case, the surviving children were able to combine BOTH sets of inheritance tax together to form an exemption of £325,000 x 2 (£650,000) to eliminate being liable for inheritance tax. Does that also apply in our case?

In any case, with the 'tenants in common' arrangement and considerations 1 and 2 listed above, we'd be disappointed to discover that inheritance was payable in our situation, but we would like to understand which consideration or consideration(s) come into play please . Is anyone able to confirm please?

I also have a supplementary question please :-

Our other question concerns that sale of the property. Originally, Dad owned the property, and this was transferred to the four of us as stated above under a DoV. As three of the four tenants in common survive currently, can anyone confirm how we go about selling it please. i.e. Does probate grant us access to mum's quarter to allow us to sell it on her behalf, or do we each somehow inherit a third of mum's quarter each ending up with a third of the property each? We are a tad confused as to how the sale process will work if mum is not around to agree the sale of her quarter. Aty the point of selling the bungalow, if we have probate, presumably it won't be an issue?


Can anyone advise please?
Thanks so much in advance.

Russ

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I shall repeat my post from the other board:

When you get probate you'll all get a third of your mothers part so all end up with one third each.

However the deed of variation looks like a gift to me. Your mother gifted each of you 25% of the property. Those gifts are still part of her estate and have to be declared. Assuming property gift work the same way as other gifts then there is tax relief up to the seven year threshold when no tax is normally payable on gifts. I imagine the value of the gift is worked out from the property price when the value is gifted and that is the figure that needs to be declared. This looks like the complex bit to me. You and your siblings might be liable for capital gains if that is the case.

The inheritance tax threshold is £425000 so it seems unlikely any inheritance tax would be payable. Also the value can be reduced by at least 10% (£90000 instead of £100000) where there are multiple owners.

My only expertise is that I did the probate for my parent estates and they were tenants in common with each half passing to my brother and me.

Although not relevant I doubt this would have protected you from care costs though. Council's are very hot on this sort of thing these days.

Margot123

As there is a considerable amount of money at stake, plus a complicated DOV, you would be best advised to consult a solicitor.

A few pounds spent getting proper legal advice will save a lot of guesswork and stress.

Linton

ice_man_71 wrote: »

........
Our other question concerns that sale of the property. Originally, Dad owned the property, and this was transferred to the four of us as stated above under a DoV. As three of the four tenants in common survive currently, can anyone confirm how we go about selling it please. i.e. Does probate grant us access to mum's quarter to allow us to sell it on her behalf, or do we each somehow inherit a third of mum's quarter each ending up with a third of the property each? We are a tad confused as to how the sale process will work if mum is not around to agree the sale of her quarter. Aty the point of selling the bungalow, if we have probate, presumably it won't be an issue?


Can anyone advise please?
Thanks so much in advance.

Russ

On death all of Mums assets become part of her estate under the management of the executor. Probate gives legal confirmation of this. So the executor has the authority to sell the 1/4 house just as Mum would have done.

Keep_pedalling

I am afraid this avoidance of care fees may have backfired on you rather. I do not believe the DoV means the 3/4 of the house that the siblings own counts as a gift with reservation, but if the property has increased in value significantly in the last 7 years then each of you will have a capital gains liability once the house is sold.

Because her share of the property is only £100k then her estate cannot make use of her husbands transferable primary residence nil rate band, so if there are other significant assets that could cost up to £40k in additional IHT.

MichelleUK

ice_man_71 wrote: »

Hello,

Posting this time in the right place as I posted it in home selling originally !! Apologies .......

We would appreciate any help please.

I've tried to be as brief as possible.

Mum and Dad lived in a bungalow, 100% owned in Dad's name only (as was common place back in the 50's I understand)
There are 3 sons all of whom live locally in our own homes (of which I am one). Family all get along nicely. Happy days, oh how I miss them !!
Dad passed away in 2011 and left everything to Mum.
The three sons, AND MUM then agreed soon after Dad's passing in early 2012 to do a deed of variation resulting in a 4 way 'Tenants in common' arrangement between Mum, me, and the other two boys of the bungalow.
We did this to protect Mum's entire value of her bungalow against the possibility of any care costs at any stage in the future. She was as fit as a fiddle in 2012, and we wanted to ensure that all of the value of Mum's estate was given in a controlled fashion to a care home 'should' it be neccesary.
Mum carried on living in the bungalow until Jan this year when she sadly passed away aged 86 leaving all assets to be split evenly between us 3 sons. i.e. Although we tried to protect against the cost of care, she ended up not requiring any other than basic help which us 3 sons always tried to provide for her.
We now have no need to keep the bungalow and so we'd all like to sell the bungalow and split the assets, to pass on to our kids etc etc

In terms of getting the probate forms completed (to access Mum's quarter property share + liquid assets) - 'PA 1 - probate application form', Section 7 talks about inheritance tax forms iht 205, iht 207 and iht 400 and I think we need to be crystal clear in terms of the magical £325,000 threshold at this point in the process.
As it stands, the bungalow is worth about £400,000 plus she has about £20,000 liquid assets in bank = so £420,000 assets.
So, we 'think' that her estate is valued at £100,000 (£400,000 divided by her quarter) plus £20,000 so around £120,000 and therefore considerably lower than the £325,000 inheritance tax exemption

BUT !!
A work colleague has said that this is voided becuase she was living in it and not paying us rent. She therefore 'benefitted' from it, he said ?? so I'm not sure how that affects us, if at all.
Your colleague is confusing the situation with a 'gift with reservation'. Your mother did not gift you part of her house, effectively your father left it to you. Provided that your deed was properly executed, to HMRC guidelines, they treat is as though the deceased had made the changes to the will for IHT and CGT purposes.
If that does pose a problem, then I am also made aware of two other scenarios that may help us :-

1/ I understand that some changes to inheritance tax were made in the 2015 budget which offered another £100,000 of exemption for in 2017-18, increasing by £25,000 each year where properties can be passed on to surviving children where a will dictates. If this is the case, then even if mum's estate was a total of the £400,000 total value of the bungalow plus £20,000 liquid assets plus £2,000 life policy, then this would equal £422,000 and therefore exempt from the £425,000 threshold - is that correct? No comments on this as it is not relevant to your situation.

2/ I am also made aware of a scenario where a couple owned a property and the Mum passed away in 1988, and the Dad survived until recently. In this case, the surviving children were able to combine BOTH sets of inheritance tax together to form an exemption of £325,000 x 2 (£650,000) to eliminate being liable for inheritance tax. Does that also apply in our case? That will have been because the deceased left 100% of their estate to their spouse. Your Dad did this originally but your DOV changed it. You will need to look at the total of your Dads estate and see what percentage ended up with your Mum to see if you can use any of your Dads allowance.

In any case, with the 'tenants in common' arrangement and considerations 1 and 2 listed above, we'd be disappointed to discover that inheritance was payable in our situation, but we would like to understand which consideration or consideration(s) come into play please . Is anyone able to confirm please?

I also have a supplementary question please :-

Our other question concerns that sale of the property. Originally, Dad owned the property, and this was transferred to the four of us as stated above under a DoV. As three of the four tenants in common survive currently, can anyone confirm how we go about selling it please. i.e. Does probate grant us access to mum's quarter to allow us to sell it on her behalf, or do we each somehow inherit a third of mum's quarter each ending up with a third of the property each? We are a tad confused as to how the sale process will work if mum is not around to agree the sale of her quarter. Aty the point of selling the bungalow, if we have probate, presumably it won't be an issue? As all 3 owners are the residuary beneficaries, you can do what you want. It will probably be easier/cheaper not to transfer the remaining quarter to yourselves - the solicitor can sort it all for you when completing the sale paperwork.

Finally, do not forget that the 3 brothers potentially have a capital gains tax liability from the date that your father died to the date that you sell.

Can anyone advise please?
Thanks so much in advance.

Russ

Please see the comments in red.

Yorkshireman99

MichelleUK wrote: »

Please see the comments in red.

Even more reason to get urgent paid for professional advice.

nom_de_plume

My understanding would be no inheritance tax as well below the threshold, particularly with the benefit of there being some unused IHT allowance from Dad (£325,000 less 75% of value of bungalow at date of Dad's death)

Dad passed away in 2011 and left everything to Mum.

but a very real risk of Capital Gains Tax.

On the selling aspect you will need to obtain probate and then the property can be sold. I believe I'm correct in saying there will be no need to transfer the property to the 3 sons. Armed with probate your solicitor can proceed with a sale with the ownership as it currently stands.

AnotherJoe

grahawk wrote: »

However the deed of variation looks like a gift to me. Your mother gifted each of you 25% of the property. Those gifts are still part of her estate and have to be declared.

I believe that is wrong. IANAL but AIUI a deed of variation has the effect of making it as if the will said whatever the deed says. Its literally as if it was written into the will. Thats the entire point of it. If it was as you say, eg it was a gift from mother, a DOV does nothing and is pointless.

grahawk wrote: »

You and your siblings might be liable for capital gains if that is the case.

That is quite possible but not because of the gift from mother, since it wasn't a gift from mother, it was inherited from father (thats what the DOV does)

However, they inherited 1/4 of a house in 2011. If the house has risen in price since then, lets say 50%, then the £100k value of each share now, was worth £66k then, so each has made £33k which is about £22k above the limit which means tax is due on that £22k. Might be anywhere from £4k-£7k.

grahawk wrote: »

Y
Although not relevant I doubt this would have protected you from care costs though. Council's are very hot on this sort of thing these days.

I suspect it would, its a valid strategy, though AFAIK it hasn't been tested in court. The only bit the council could contest would be the DOV, since the actual fact of a standard will where one parent leaves their share to children is wholly valid.

getmore4less

Did the DOV include a life interest?

that will change the way the assets are treated for CGT and IHT.

Tom99

[FONT=Verdana, sans-serif]It sounds like you won't need this but when you value a share of a property you don't just take the %age share owned eg £400k * 25% = £100k.

[/FONT] [FONT=Verdana, sans-serif]The share is less valuable because it is difficult to sell just a share of a property, rather than the whole, so depending on circumstances you usually deduct between a further 10%/20%

[/FONT] [FONT=Verdana, sans-serif]So in your mothers case the value of the 25% share is probably £80k-£90k not £100k

[/FONT] [FONT=Verdana, sans-serif]See VO Inheritance Tax Manual for a further explanation:

[/FONT] [FONT=Verdana, sans-serif]http://manuals.voa.gov.uk/corporate/publications/Manuals/InheritanceTaxManual/sections/r-section_18/b-iht-man-s18.html[/FONT]