Inheritance etc tax

SusanBetts

My parents are in their 90s and not in good health and I feel woefully underprepared for what I will have to deal with at some point.  Their property is worth iro £400,000 and they have approximately the same amount in savings and shares.  I will be the the executor and main beneficiary; I assume they will leave small specific legacies to my three children and possibly my cousin's two.  My brother was removed from the will and (as yet unregistered) EPOA  10+ years ago after treating my parents very badly.  There is a letter to be sent on the death of the first parent to him explaining why he will not benefit from the estate.
They have made mirror wills saying that when the first one dies I will inherit half of their house and the surviving parent will obviously be able to live in it for as long as they want/are able.  This was done many years ago to reduce capital/savings should they need to go into residential care.
Am I right in thinking that the approx £200,000 which I will inherit first will not be subject to IHT as it is below the £325,000 individual limit and that the deceased parent's remaining unused IHT - £125,000 plus the additional £175,000 - will transfer to the second parent's allowance? So the second parent will have a total allowance of approx £800,000?  And that I would only be liable for CGT if and when at some point I sold the property?
I appreciate that I may need to use legal/financial professionals at some point but am just trying to get a basic idea of what I should know.
Many thanks in advance. 

Marcon

SusanBetts said:

My parents are in their 90s and not in good health and I feel woefully underprepared for what I will have to deal with at some point.  Their property is worth iro £400,000 and they have approximately the same amount in savings and shares.  I will be the the executor and main beneficiary; I assume they will leave small specific legacies to my three children and possibly my cousin's two.  My brother was removed from the will and (as yet unregistered) EPOA  10+ years ago after treating my parents very badly.  There is a letter to be sent on the death of the first parent to him explaining why he will not benefit from the estate.
They have made mirror wills saying that when the first one dies I will inherit half of their house and the surviving parent will obviously be able to live in it for as long as they want/are able.  This was done many years ago to reduce capital/savings should they need to go into residential care.

Now might be a good moment to find out where their wills are (if you don't know) and what they say. Never an easy topic to raise, especially with parents who must, given their ages, be in the final years of their life.

So many of these dinky little schemes designed to avoid care fees simply don't work and create more confusion, fuss and potential tax liabilities than they ever save. Might be a good idea to check out whatever they've set up and see if it still holds water, which I suspect could be unlikely.

SusanBetts said:

Am I right in thinking that the approx £200,000 which I will inherit first will not be subject to IHT as it is below the £325,000 individual limit and that the deceased parent's remaining unused IHT - £125,000 plus the additional £175,000 - will transfer to the second parent's allowance? So the second parent will have a total allowance of approx £800,000?  And that I would only be liable for CGT if and when at some point I sold the property?
I appreciate that I may need to use legal/financial professionals at some point but am just trying to get a basic idea of what I should know.
Many thanks in advance. 

Depends how the trust allowing the surviving parent to remain in the house after the death of the first parent was set up.

SusanBetts

Thank you Marcon.  
Their wills are in the safe in their house, and I intend to take a deep breath and have "the conversation" when I see them next week.  ... bearing in mind that I have only ever seen inside the safe twice in my 60 years! I'm not aware that any trust has been set up, just that they are tenants in common so there is no automatic spousal inheritance and I am named as the beneficiary on both the wills, I guess, so that I will inherit half of the value of the house when one of them dies and the remaining half on the death of the second parent.

xylophone

They have made mirror wills saying that when the first one dies I will inherit half of their house and the surviving parent will obviously be able to live in it for as long as they want/are able.  This was done many years ago to reduce capital/savings should they need to go into residential care.

Do you mean that each parent has written a will which leaves his/her beneficial interest in the family home to you as "remainderman" of an  Immediate Post Death Interest in Possession Trust?

Or do you mean that each parent has left his/her beneficial interest to you outright so that the interest vests in you  immediately on the death of your parent?

What exactly does each will say?

seh1116

As far as I know the second option. But I will hopefully have more information after next week. There has been no suggestion so far that a trust has been created. 

Malthusian

"They have made mirror wills saying that when the first one dies I will inherit half of their house and the surviving parent will obviously be able to live in it for as long as they want/are able." is a suggestion that a trust will be created on the first death.

It would be a good idea for them to make new Lasting Powers of Attorney as they are superior to Enduring Powers of Attorney in several respects.

theoretica

I hope they have shared with you how to get into the safe.

getmore4less

Children inheriting part of a house is often not the best option since the transferable nil rate band and residential nil rate band came in.

It leaves that part of the property exposed,  uses up nil rate band and there is a lingering CGT exposure.

The use of IPDI trust are often a better solution.

best to get reviewed.

agree with looking at LPA they can be done now and used when needed.

if the will says has a right to live in the house that creates the trust.

if you do inherit outright it would use up residential nil rate band before the regular nil rate band.

Keep_pedalling

They should definitely look at new wills and putting LPAs in place as a matter urgency. They are well within their combined NRBs so IHT is not a consideration. It seems they both have plenty assets to fund any care they may need, so a surviving spouse is highly unlikely to need any of the assets of their spouse to support them for that, which is a nice position to be in. 

Savvy_Sue

Malthusian said:

"They have made mirror wills saying that when the first one dies I will inherit half of their house and the surviving parent will obviously be able to live in it for as long as they want/are able." is a suggestion that a trust will be created on the first death.

It would be a good idea for them to make new Lasting Powers of Attorney as they are superior to Enduring Powers of Attorney in several respects.

That may be a good way into the conversation: "Since you set up the EPAs, there have been changes, and it might be a good idea to review them and your wills." 

But once they have the LPAs it is worth registering them BEFORE they are needed. 

I hope their wills cover what happens should you die before them. 

Malthusian

Savvy_Sue said:

I hope their wills cover what happens should you die before them. 

Excellent spot. If the Wills say that on the second death "specific legacies to grandchildren and grandnephieces A B and C, and the residual estate to SusanBetts", with no provision for their son as he's been cut out, then if SusanBetts has predeceased, nobody has been named to receive the residual estate, which means intestacy laws kick in, which means the son will inherit 100% of the residual estate. Unless the Will has been specifically written to avoid this.

(I realise the specific legacies are on the first death, going by the OP's post; I'm simplifying to illustrate that the provision for the grandchildren and grandnephieces has no effect on the residual estate.)