IHT, Tenants in Common and Lifetime Interest

sacherlover

A friend is getting conflicting information about IHT.

His wife has died. The house (£500k) was held as Tenants in Common (50:50) and about £340k in savings, mostly held in her name so have to complete Probate.

Will leaves wife's share of house to her son (husband's step son) with lifetime interest for husband to stay in house.

Looking at IHT205 form last week and speaking with Probate Office, they said with house valued at £500k and that amount of savings there is a hefty amount of IHT to pay.

Yet Solicitor firm who wrote the Will said smallish Joint Bank Account will transfer over to husband with no IHT, his percentage share of savings in her accounts from the Will will also transfer over with no IHT and the house MAY transfer over without IHT due to the lifetime interest.

Would appreciate any help in explaining this to my friend.

Yorkshireman99

sacherlover wrote: »

A friend is getting conflicting information about IHT.

His wife has died. The house (£500k) was held as Tenants in Common (50:50) and about £340k in savings, mostly held in her name so have to complete Probate.

Will leaves wife's share of house to her son (husband's step son) with lifetime interest for husband to stay in house.

Looking at IHT205 form last week and speaking with Probate Office, they said with house valued at £500k and that amount of savings there is a hefty amount of IHT to pay.

Yet Solicitor firm who wrote the Will said smallish Joint Bank Account will transfer over to husband with no IHT, his percentage share of savings in her accounts from the Will will also transfer over with no IHT and the house MAY transfer over without IHT due to the lifetime interest.

Would appreciate any help in explaining this to my friend.

Get a solicitor who is qualified in IHT. The problem can resolved by using a DOV.

Savvy_Sue

sacherlover wrote: »

Yet Solicitor firm who wrote the Will said smallish Joint Bank Account will transfer over to husband with no IHT, his percentage share of savings in her accounts from the Will will also transfer over with no IHT and the house MAY transfer over without IHT due to the lifetime interest.

Possibly worth asking when this will was written, as changes made to the law in recent years may have meant the will was effective as the law stood then, but does not achieve the same result now.

However, as YM says, a DOV should be able to resolve this.

getmore4less

Look up IPDI trust, the trust gets spouse exemption and then is effectively belongs to hubby for his estate but is protected for the remainder an.

What is happening to the rest of the assets how are they getting split?

How much is not going to hubby?

SeniorSam

I believe that the allowance for the family home will be lost due to half the house being passed in Trust and with both nil rate band allowances of £325k each, then there will be IHT to pay on second death..

Following the home allowance as well as the nil rate bands, it may have been better not to transfer half the house in Trust, but the Will can be changed within 2 years of death. With all the wife's assets passing to the spouse, then the allowance for the home will be allowed and possibly no inheritance will be the result. Seek solicitors advice, preferably a STEP qualified solicitor.
Sam

nom_de_plume

I think using a Deed of Variation will create a potential problem often discussed on this forum in that the original beneficiary is the step son of the surviving partner and would therefore leave himself open to completely losing any inheritance.

SeniorSam

Deed of Variation needs to be agreed by all beneficiaries and therefore the step son would not agree unless his interest was the same. Without the DOV, the potential to inheritance tax is increased and would leave all beneficiaries worse off. A qualified solicitor can advise the beneficiaries correctly.
Sam

Mojisola

SeniorSam wrote: »

Deed of Variation needs to be agreed by all beneficiaries

By all beneficiaries who are adversely affected by the changes.

getmore4less

His wife has died. The house (£500k) was held as Tenants in Common (50:50) and about £340k in savings, mostly held in her name so have to complete Probate.

Will leaves wife's share of house to her son (husband's step son) with lifetime interest for husband to stay in house.

nil rate band either get used or transferable the can't get lost

The Nil rate band allowance for the family home does not "get lost" as it is not used it becomes transferable.

The life interest trust(IPDI) makes the value of the house exempt(Spouse exemption).

Until we know what happens to the rest(£340k) of the assets difficult to make any suggestions or speculate the impact on the survivors IHT liabilities

SeniorSam

Just to clarify matters. Both nil rate band allowances will be available to set against the estate value when the second spouse has died. The new Family House Allowance that was launched in 2017 and will increase annually until 2020 would normally be allowed in addition IF the first to die had passed all assets to the remaining spouse.

In this case, we are advised that a Trust was set up to pass the half ownership of the family home into Trust. With such an arrangement, the Family House Allowance will NOT BE ALLOWED. THAT is why it is suggested that the Will be changed by Deed of Variation, so that the home passes to the surviving spouse and on her death, both nil rate band allowances will be available PLUS the Family House Allowance. Keeping the TRUST will result in Inheritance Tax being paid.

Many schemes to shelter part of the family home, or other assets in Trust will ned to be re-considered in view of his rule, Facts need to be checked and that is why a STEP qualified solicitor has been suggested.

Hope this helps to clarify what some people may not have understood.
Sam

badger09

SeniorSam wrote: »

Just to clarify matters. Both nil rate band allowances will be available to set against the estate value when the second spouse has died. The new Family House Allowance that was launched in 2017 and will increase annually until 2020 would normally be allowed in addition IF the first to die had passed all assets to the remaining spouse.

In this case, we are advised that a Trust was set up to pass the half ownership of the family home into Trust. With such an arrangement, the Family House Allowance will NOT BE ALLOWED. THAT is why it is suggested that the Will be changed by Deed of Variation, so that the home passes to the surviving spouse and on her death, both nil rate band allowances will be available PLUS the Family House Allowance. Keeping the TRUST will result in Inheritance Tax being paid.

Many schemes to shelter part of the family home, or other assets in Trust will ned to be re-considered in view of his rule, Facts need to be checked and that is why a STEP qualified solicitor has been suggested.

Hope this helps to clarify what some people may not have understood.
Sam

I apologise if I have misunderstood, and I do appreciate that you have expertise in this area. I'm also not sure I'm explaining myself clearly:o

BUT, my understanding was that the Additional IHT Threshold (Family House Allowance?) was available providing the home was passed to direct decendants. In this case, the step son is a direct descendant of the deceased wife and the IPDI does not affect this.