Unmarried partners, tenants in common: IHT and will questions

wizzywilc

I am seeking advice on a very sad situation. A relative is seriously ill with terminal cancer, and her partner is concerned that he may lose his home when she dies because of IHT. They want to marry but at present because of Covid no marriages are possible, even under the emergency procedures. They are both in process of drawing up wills.

They own a house worth £850,000 as tenants in common: 50% each. There is a joint mortgage of £145,000 outstanding. Her other main assets are a life insurance worth £150k, and a pension lump sum death grant, possibly about £90k. These may fall outside the estate, as written in trust/discretionary but if not, IHT would come into play.

My relative wants some money to go to her daughter, but wants her partner to be able to stay in the property. My understanding is that he could probably not support the mortgage on his own.

My questions are:

1) If my relative draws up a will in contemplation of marriage, would the will still be valid if she were to die before the marriage could take place? 

2) How is the tenancy in common valued for IHT purposes? I have seen references to a 15% discount but cannot find chapter and verse in the HMRC manuals.

3) If she leaves her share of the house to her children, with a stipulation that her partner can live there for a period, how would this be treated for IHT purposes – would all or some of the residence nil rate band be applicable?

I shall of course suggest a STEP solicitor, but it would be helpful to get a better feel for the situation first. Any other ideas would be welcome.

Keep_pedalling

1. Yes

3.  Not sure, the RNRB is not available where a life interest trust for unmarried partners is concerned but I don’t know how a shorted period if being allowed to stay effects it.

Was the insurance put in place to cover the mortgage?

xylophone

https://www.fjg.co.uk/blog/2019/03/13/the-residence-nil-rate-band-a-common-misunderstanding

Dox

wizzywilc said:

I shall of course suggest a STEP solicitor, but it would be helpful to get a better feel for the situation first. Any other ideas would be welcome.

Not when someone is terminally ill - get on with suggesting the STEP solicitor. 'Other ideas' here may not be applicable to the situation (or just plain wrong), which will only lead to delay and confusion. There are all sorts of issues to consider not least the possibility of fully commuting (plain English: taking the lot as cash) any pension benefits - will depend on the type of pension/rules of the particular scheme, but worth checking.

getmore4less

Life interest trusts don't help as the property is taxed on the life tenants death without the transferable nil rate band when not married.
Get a solicitor on the case ASAP it it not an easy one to get round and will require cooperation by children.
There is probably something that be done that makes use of the nil rate bands and allows the partner to stay in the house  maybe with some kind of debt structure around the house for the daughter. 

getmore4less

An example.
Once you account for the mortgage the IHT on the house would be £11k  but if the partner gets it there is no nil rate band for when they die.
If daughter gets the share no tax as there is RNRB, then the daughter lends the partner the money to by the house share, paying with the money(no money changes hands). 
The partner then owns the house with a debt to the daughter, reducing their future IHT liability. 
There are issues with this approach but give an idea. 
There will be better ways to do something that reduces IHT. 

xylophone

These may fall outside the estate, as written in trust/discretionary 

The death grant is normally at the discretion of the pension trustees so falls  outside the estate.

If the policy is written in trust it would normally fall outside the estate.

They can check on the above.

even under the emergency procedures.

They have checked?

https://www.pat.nhs.uk/patients-and-visitors/emergency.htm

https://news.sky.com/story/coronavirus-terminally-ill-mans-wedding-wish-granted-as-council-uses-emergency-powers-11984717

wizzywilc

Re status of life insurance and death grant: they are checking at the moment.
Re marriages: no civil ceremonies are possible at the moment although the Justice Minister is "looking at it" - the information on the link is pre-Covid. Marriages under an archbishop's special licence are still legal and they are pursuing this, though there may be difficulties as both are divorced. 

sheramber

 Not pre-covid. That is the whole point of the report.

After a risk assessment, the council decided emergency powers could be used to fulfil their dream, even though weddings are currently suspended due to the pandemic.

On 30 April, with the legal paperwork done, registrar Dawn Galloway and her deputy Sarah Teece married the couple in their home in Hemlington, Middlesbrough. 

wizzywilc

Sorry, it's the first link that is not covid-updated. I've offered to research the Middlesborough case and contact the couple's local registration authority, though I suspect not many local authorities would consider using such powerrs.

wizzywilc

Many thanks for your responses which have been helpful. I am delighted to let you know that the Church of England has come up trumps and they are getting married on Wednesday. Other issues are still being sorted, but at least the shadow of IHT has lifted.