IHT and tenants in common

Jibergurt

Hi. My parents own their house as tenants in common and each will leaves their half of the house to my and my sibling. My mother is terminally ill. When she dies her half goes to me and my sister, and it won't be worth £325000. I assume her money will go to my dad. When my father passes we will then get the other half of the house, and the rest of the estate gets distributed as per his will. Does this mean we avoid paying IHT as the house as a whole will be worth more than £325000? This wasn't why they set it up as tenants in common, but just curious. They have lived there for nearly 15 years. 

poppystar

Does your father have the right to live there after your mother’s death? - per your mother’s Will 

Jibergurt

Sorry, I am unsure tbh, we wouldn't kick him out anyway, but would that make a difference? 

Keep_pedalling

Jibergurt said:

Sorry, I am unsure tbh, we wouldn't kick him out anyway, but would that make a difference? 

I am sure you would not do that, but things like divorce, pre-deceasing  your parents or running into financial difficulty could certainly effect your father’s security.  Not setting up a life interest trust could also have tax implications in the future as you could end up with a capital gains liability when the house is eventually sold.

naedanger

A couple can leave up to £1 million to their children IHT free.

Suppose your mother had £325,000 in cash plus her share of the home was worth £175,000 and suppose your father also had  £325,000 in cash plus his share of the home was worth £175,000.

Then if they each died they could leave their £325,000 tax free to whoever they choose. And they could leave their share of the house to their children tax free.

However if they instead left some of the money to their spouse that amount gets added on to the surviving spouse's IHT limits. So if your mother left £100,000 to someone else and everything else to your father then his IHT limits (if every allowance is claimed by his estate) would be £325,000 plus £225,000 (his wife's remaining IHT allowance) plus the house up to £350,000 provided it is left to his children.

So the IHT limits are quite generous in my view. (And your mother leaving you and your brother a share of the house was probably IHT neutral.)

[I think all this is broadly correct. If it isn't I am sure it will be corrected by others.]