Inheritance Tax

smoothound

Firstly, thank you for reading.

hoping for some advice/opinions on inheritance tax. This involves my Mum and Dad. Mum has recently died and their Will had them as tenants in common in their house so as I understand it they both owned 50% of the property. The Will says when one dies, my Mum in this case, her 50% transfers to me - I am their only child.

Their Will was written up around 15 years ago when both were in good health and was recently checked by a Solicitor who verified it was fit for purpose. My parents did this so I would hopefully avoid inheritance tax when that day comes, my parents home will likely be over the tax threshold.

Dad lives at the house and that will not change so presently me now owning 50%, previously my Mums, is neither here nor there. My concerns however are as follows;

- Do we need to notify anyone now such as Land Registry that the property is now 50% Dads, 50% mine?
- Would this create a problem from a home insurance perspective?
- Is there anything else we should be doing now to mitigate inheritance tax in the future?

For the avoidance of doubt I am not trying to get any monies now but want to make sure my parents (hopefully) prudent planning years ago is not ruined now by us not doing something we should following Mums death.

I realise some of these questions are not wholly around tax but any advice would be appreciated.

antrobus

The executor of your mother's will needs to take it to probate.

uknick

smoothound wrote: »

- Do we need to notify anyone now such as Land Registry that the property is now 50% Dads, 50% mine?

Yes. But the problem with this could be capital gains tax for you if you don't live in the property.

smoothound wrote: »

- Would this create a problem from a home insurance perspective?

No, at least not in my experience

smoothound wrote: »

- Is there anything else we should be doing now to mitigate inheritance tax in the future?

First, work out possible value of your father's estate. If it's below the allowable nil rate bands then nothing to worry about. If it is and you really want to minimise the estate's exposure to IHT then you really should talk to a professional; an accountant or a STEP registered solicitor.

smoothound

Thanks for the advice;

Antrobus, both me and my father are Executors of the Will. I considered Mum's Will straightforward (as her assets are split equally between me and Dad) and thought I did not need probate. My wife and I have recently been through probate for her deceased Uncle but that was different as monies were left to 7 Nieces and Nephews so more complex and not immediate family. I think we should again contact the Solicitor

UKnick I am mindful of Capital Gains Tax but at present I have gained nothing - the property will not be sold while my Dad is living there so neither he or me have gained right now. The estate right now I would estimate to be worth around 600,000 with most of this being the property value so over thresholds and tax bands I suspect.

Thanks again for your help.

zagfles

Is it in some sort of trust? Because this sort of arrangement can cause a whole load of other potential problems if not, for instance:

If you buy a house for yourself or move, you might have to pay the higher rate of stamp duty as it's a second property.

If you lose your job and need to claims means tested benefits, property you own but don't live in usually counts as capital for means tested benefits, making you ineligible.

If you haven't yet bought a house, you might miss out on the various types of first time buyer help from the govt as these don't apply if you already own a property.

Potential CGT as mentioned.

Ironically with a £600k joint estate, and assuming your parents were married, no IHT would have been payable anyway had your father inherited everything from your mother, since your mother's £325k is unused (spousal exemption) and your father now has a £650k IHT threshold.

I'd be having a word with the solicitor who recently said it was fit for purpose! It sounds like the sort of arrangement that was drawn up before the rules were changed to allow transfer of unused nil rate band between spouses. It's not really necessary for IHT purposes now and can cause other problems as above. Though I've heard of people who use this sort of arrangement to dodge potential care home fees, not sure if it works for this.

Tom99

[FONT=Verdana, sans-serif]Sounds like a will drawn up before the inherited Nil Rate Band was introduced.[/FONT]
[FONT=Verdana, sans-serif]You might want to consider a Deed of Variation making your Dad the sole beneficiary.[/FONT]
[FONT=Verdana, sans-serif]He will then have a total NRB of £1m by 2020 and you will not have any CGT problems if the house increases in value over the next few years.[/FONT]

smoothound

Zagfles & Tom99 - thanks for your replies, very helpful and much appreciated.

Just to give you some information on myself - I am a home owner with my wife (no mortgage anymore), we have no plans to move in the near future.

Mum and Dad were married when Mum died and had been for many years.

I am confused on the inheritance tax point. I understand that if my father had inherited all he would have gained my Mums tax allowance in addition to his own and so likely over the IHT limit but ...... when dad dies I would still be subject to the limit of £325K (or whatever it is at the time) and I would not gain any additional allowance so would be liable for IHT tax. As I understand it the Will avoids this issue but in turn makes me subject to CGT. May be a case of 'out of the frying pan and into the fire'?

smoothound

Sorry, should have added there is no Trust.

Tom99

smoothound wrote: »

Zagfles & Tom99 - thanks for your replies, very helpful and much appreciated.

Just to give you some information on myself - I am a home owner with my wife (no mortgage anymore), we have no plans to move in the near future.

Mum and Dad were married when Mum died and had been for many years.

I am confused on the inheritance tax point. I understand that if my father had inherited all he would have gained my Mums tax allowance in addition to his own and so likely over the IHT limit but ...... when dad dies I would still be subject to the limit of £325K (or whatever it is at the time) and I would not gain any additional allowance so would be liable for IHT tax. As I understand it the Will avoids this issue but in turn makes me subject to CGT. May be a case of 'out of the frying pan and into the fire'?

[FONT=Verdana, sans-serif]If a DOV made your father sole beneficiary of your mother's will then there would be no immediate IHT on your mother's estate.[/FONT]
[FONT=Verdana, sans-serif]You father would then inherit all of your mother's NRB of £325k plus her RNRB of £175k (in 2020) so have a total IHT free allowance of £1m (in 2020) providing his estate could use all of the RNRB.[/FONT]
[FONT=Verdana, sans-serif]At the moment only a small portion of your mother's unused NRB will pass to your father since it is being used on the inheritance to you, so your father's tax free amount will be a lot less than £1m but he will obviously have fewer assets since you will own half the house.[/FONT]

zagfles

smoothound wrote: »

Zagfles & Tom99 - thanks for your replies, very helpful and much appreciated.

Just to give you some information on myself - I am a home owner with my wife (no mortgage anymore), we have no plans to move in the near future.

Mum and Dad were married when Mum died and had been for many years.

I am confused on the inheritance tax point. I understand that if my father had inherited all he would have gained my Mums tax allowance in addition to his own and so likely over the IHT limit but ...... when dad dies I would still be subject to the limit of £325K (or whatever it is at the time) and I would not gain any additional allowance so would be liable for IHT tax. As I understand it the Will avoids this issue but in turn makes me subject to CGT. May be a case of 'out of the frying pan and into the fire'?

No. When one of a married couple dies, they have a £325k IHT threshold, which is not used up by anything they leave their spouse. It is only used by any amounts they leave to other people, eg children. Any unused IHT threshold can then be passed onto their spouse.

So if your Mum left everything to your Dad, your Dad would now have a £650k IHT threshold. If say she'd left £50k to you and the rest to your Dad, your Dad would now have a £600k threshold.

In addition to this, there's a new rule about leaving a family home to your children, this increases the threshold. See https://www.gov.uk/inheritance-tax So your Dad might now have a £900k IHT threshold.

I'd say the solicitor you saw who told you the will was still fit for purpose has misadvised you. If a DOV as mentioned above is possible (not sure of the rules on this), it might be something to look into. Perhaps go back to this solicitor who (mis?)advised you to sort in return for you not suing him!

smoothound

Thanks for your replies. Sorry to ask but what is DOV and NRB abbreviations for?