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Gift with Reservation Issue?

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Gift with Reservation Issue?

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Mickey666Mickey666 Forumite
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Scenario: Married couple with one child.  Married couple's home is owned outright as Tenants-in-common.  Two questions:
Firstly, on first death, the 'half' of the house owned by the deceased (or an equivalent portion up to the max IHT-free amount - 425k I believe?) is willed to the child. The house ownership remains as TiC but now between the child and the surviving spouse.   The surviving spouse continues to live in the house.  My assumption is that there is no gift-with-reservation issue because the property transferred has been willed rather than gifted, ie being dead, the former TiC owner cannot reserve any benefit from the transferred property!  Is this correct?
Secondly, if the child decides to move into the house as their main residence, does the TiC ownership with their surviving parent have any tax implications, other than the usual IHT rules, either immediately or on subsequent death of the surviving parent (surviving parent's will leaves everything to child).  ie, if surving parent's estate is less than £425k then no IHT is payable on second death.  Is this correct?
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  • edited 20 February at 5:25PM
    Keep_pedallingKeep_pedalling Forumite
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    edited 20 February at 5:25PM
    After April 6th the combination of NRB and RNRB will be £500k so £1M for a couple with children and their own home.

    Normally if leaving your half of the house to a child you would give your spouse a life time interest which means you child can’t touch their inheritance until the survivor no longer needs it or dies. This has the advantage of providing long term security of your spouse, and because your share is held in trust it will be exempt from CGT when eventually sold.

    Leaving you your half to children is done for 2 reasons, to protect the whole value being swallowed up in care costs for the survivor, which bearing in mind the survivor in this case would still have more than sufficient assets to pay their own care costs, so is not really necessary, and to protect your child’s assets if you don’t trust the survivor to do the right thing should they remarry.

    We are in a similar situation but we trust each other implicitly, so prefer the simplicity of the survivor inheriting everything on the first death.

    Please don’t try any DIY your wills or use unregulated will writers do it properly with a local solisitor.
  • Mickey666Mickey666 Forumite
    151 posts
    100 Posts
    Normally if leaving your half of the house to a child you would give your spouse a life time interest which means you child can’t touch their inheritance until the survivor no longer needs it or dies. This has the advantage of providing long term security of your spouse, and because your share is held in trust it will be exempt from CGT when eventually sold.
    Yes, I've heard of the 'life-time interest' thing, but surely the survivor already has a 'lifetime interest' through being one of the TiC?  AIUI, without their agreement the house could not be sold by tthe child, so that would usually be enough security I'd have thought.  I also don't get the CGT thing because when the house is eventually sold, it would already be GT-exempt by virtue of it being the main residence of both TiC (assuming the child moves in as soon as they inherit after the first death).  If all this is correct then I'm thinking it would make things a lot simpler and not require any trusts and all that entails.

    PS: not trying to avoid solicitors here by DIYing a will, just trying to understand options - we already have solicitor-drafted wills, but thinking about possible variations after first death.

  • Keep_pedallingKeep_pedalling Forumite
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    Without a LI the surviving spouse does not have the same security as he/she would do if owned 50/50  with a beneficiary. What happens if the beneficiary runs into financial difficulty or gets involved in an expensive divorce. What happens if they pre decease their parent? 

    With a LI the survivor can move or downsize without requiring the permission of a co- owner.

    As for CGT it’s a bit of a big assumption that whenever the time comes that they will actually want to move in to the family home, most children do not want to do that, this is not a simple solution, a LI trust is far simpler and carries far less risk.

  • Mickey666Mickey666 Forumite
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    "What happens if the beneficiary runs into financial difficulty or gets involved in an expensive divorce. What happens if they pre decease their parent? "
    Fair points, but what would happen in those examples?  The child cannot sell the house without the surviving spouse's agreement can they, so they cannot be thrown out can they?  if they pre-decease the surviving parent then their share in the house would be determined by their will, hopefully back to the surviving parent but even if someone else the surviving parent still can't be forced to sell up can they?

    "As for CGT it’s a bit of a big assumption that whenever the time comes that they will actually want to move in to the family home, most children do not want to do that, this is not a simple solution, a LI trust is far simpler and carries far less risk."
    Another fair point, but a general one.  In this case I'm talking about a house that's been in the family for a few generations and where the child explicity wishes to live there ('child' being 25 btw), at least until both parents are deceased, after which who cares what happens ;)

  • DairyQueenDairyQueen Forumite
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    Whose interest do you wish to protect? 

    Yes, the child could force a sale unless a LI was in place and the child's future spouse would have a claim in the event of divorce. The child could bequeath his/her share to anyone they chose and that person could also force a sale.

    The welfare of the surviving spouse is not best served by what you propose. 25-year-olds are likely to marry, form a civil partnership, have children, get divorced, move away, or accept overseas job offers. Some of these events will put the survivor's home at risk legally. Others may prompt the adult child to self-justify pressuring the parent out of their home.

    What if the survivor requires residential care? Or needs to move to different accommodation?

    LI is intended to protect a surviving spouse from any possibility of loss or exploitation. It sounds like this parent needs exactly that.
  • Mickey666Mickey666 Forumite
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    Whose interest do you wish to protect? 

    Yes, the child could force a sale unless a LI was in place and the child's future spouse would have a claim in the event of divorce. The child could bequeath his/her share to anyone they chose and that person could also force a sale.

    How could a sale of a property held as TiC be forced to be sold if one of the joint owners refuses to sell?  I understand that pressure could be applied etc, but if one party simply refuses to sign on the dotted line then I don’t understand how the property could be sold.
  • Keep_pedallingKeep_pedalling Forumite
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    Mickey666 said:
    Whose interest do you wish to protect? 

    Yes, the child could force a sale unless a LI was in place and the child's future spouse would have a claim in the event of divorce. The child could bequeath his/her share to anyone they chose and that person could also force a sale.

    How could a sale of a property held as TiC be forced to be sold if one of the joint owners refuses to sell?  I understand that pressure could be applied etc, but if one party simply refuses to sign on the dotted line then I don’t understand how the property could be sold.
    It would take a court order, but it can be done. You can’t have a system where a joint owner is forced to maintain that ownership against their wishes. Likewise a creditor could force the sale if one of the owners was in debt, and it would have to be sold if a divorce court took it into account as part of a settlement. 
  • Mickey666Mickey666 Forumite
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    So what’s the point of TiC then?
    I can understand that a court/creditor could force a joint owner to sell THEIR interest in a TiC property, but it seems completely unfair to force an innocent party to sell up their interest as well.
  • Keep_pedallingKeep_pedalling Forumite
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    Mickey666 said:
    So what’s the point of TiC then?
    I can understand that a court/creditor could force a joint owner to sell THEIR interest in a TiC property, but it seems completely unfair to force an innocent party to sell up their interest as well.
    Because it is the only way you can leave your share of the house to anyone other than the surviving joint tenant.

    Fred and Freda own a house as joint tenants, Fred wants to leave his share to his 2 children from a previous relationship and Freda her share to her nieces. They convert ownership to TIC make new wills which both include protection for the surviving partner with a life interest trust. This guaranties both sets of beneficiaries eventually receive their legacies, and the survivors interest are protected until they die or  no longer need the house. The LIT also has the advantage of avoiding CGT down the line.

    You can’t just look at TIC in isolation you have to look at all the what if situations that may occur, which is what any solicitor worth their salt will do when you meet to discuss the will. LITs are not complex, do not need much in the way of administration. IHT may be an issue but only if you are going over your NRB for non spousal legacies. 
  • Mickey666Mickey666 Forumite
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    100 Posts
    Yes, I understand all those advantages of TiC ownership, but I was more concerned about the previous comments about a TiC ‘owner’ being forced to sell their interest against their will in certain circumstances.  I wonder how many people understand that?

    Also, while your example is a perfectly valid one in those circumstances, what about those with rather simpler family arrangements, eg what if Fred and Freda only had one child and none from previous relationships?   I understand that solicitors should point out ‘what ifs’ but sure;y only those that would be actually relevant to the client in question.
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