Life tenancy

Shezz

Hi  I just need some confirmation to something my solicitor has told me regarding inheritance tax.

I have lived with my partner for over 30 years. I have 3 children from previous marriage, my partner has no children.

The house is in my name (no mortgage),  to protect my partner if I die first and due to no government laws to protect co habiting partners, I am doing a will so that he gets life  tenancy if I die first, but the house will be left to my 3 sons, I have stated that my partner would live there rent free, but he would need to pay all bills and insurances and to keep the property in good condition, my boys are not worried about this at all.

My solicitor has said that inheritance tax would need to be paid when I die ( which I am not trying to get out off)  but she also said that when my partner dies, Inheritance tax would have to be paid again on his death.

Is this correct as I cannot get my head around why inheritance tax should be paid twice for my son's to eventually inherit it. 

SeniorSam

What is the value of the house that you are gifting into Trust for your sons and how old are your sons?

Shezz

I can only estimate it at this time roughly 325000 to 350000 ish, house prices may go up or down before I go, I understand that the threshold is 325000 and am sure the resident discount is 175,000 as at 2022, if correct then no IHT would be payable even with other assets I hold.

Anything can change at anytime.

my sons are aged between 37 and47

just confused at the solicitor saying it would need to be paid twice

diego_94

If your estate is over £325k then anything above this would be liable for IHT. If your partner dies, and his estate is worth over £325k he as well would have to pay IHT

The only way to get round this is to get married, in which case your allowance passes to him and vice versa.

Shezz

diego_94 said:

If your estate is over £325k then anything above this would be liable for IHT. If your partner dies, and his estate is worth over £325k he as well would have to pay IHT

The only way to get round this is to get married, in which case your allowance passes to him and vice versa.

But if he is a life tenant, does the house then form part of his estate ? 

I know IHT is anything over 325000 but with the resident discount which is (I believe) 175000, then IHT would need to be paid on anything over 500000, is that correct, if it is then I doubt any would need to be paid.

As said I cant get my head around why IHT would need to be paid twice before it going to the boys.

msb1234

Slightly off the point here - but if the house is in your name completely, why are you giving your partner a lifetime tenancy if you should die? Has he contributed to the house financially at all? Would you be happy if he met another woman and mover her into the house? 

I’d amend the wording to him being able to live in the property alone, or has to move into long term care. That way, if he does meet someone else they can’t benefit from your house, and if he goes into long term care your sons can sell the house. 

msb1234

One other thing - would the boys have to pay CGT if the house went up i I value from your death to them getting it once your partner died?

mobileron

I had this issue.was solved by getting married to my partner.She in turn will leave her percentage of the house to my children on death.  No IHT involved.

getmore4less

There are a number off issues with gifting a life interest to a non spouse/civil partner

You don't have a residential nil rate band because you don't meet the qualifying criteria.
In this case you have a property but no valid close beneficiary because it is going into the life trust.

Then the issue is that there is no spouse exemption for the property going into trust.

You get  assessed  for IHT on your full estate.

The life tenant then becomes beneficially interested in the whole property and it falls into their estate.

Not a spouse so no transferable nil rate bands

Then when he dies the remaindermen of the trust(your kids) are not close relatives of his so no residential nil rate band.

KIds inherit at the new value so no CGT for them

Simple solution is as above get married/civil partner



 

 

BrassicWoman

Sounds like it is because you are unwed.

Shezz

getmore4less said:

There are a number off issues with gifting a life interest to a non spouse/civil partner

You don't have a residential nil rate band because you don't meet the qualifying criteria.
In this case you have a property but no valid close beneficiary because it is going into the life trust.

Then the issue is that there is no spouse exemption for the property going into trust.

You get  assessed  for IHT on your full estate.

The life tenant then becomes beneficially interested in the whole property and it falls into their estate.

Not a spouse so no transferable nil rate bands

Then when he dies the remaindermen of the trust(your kids) are not close relatives of his so no residential nil rate band.

KIds inherit at the new value so no CGT for them

Simple solution is as above get married/civil partner



 

 

Hi all thank you for your responses, I am not married and feel it is so wrong to be forced into it to. 

getmore4less thank you so much for your informative post.

if we have a civil wedding, then would the house and my assets go straight to my partner, no need for a life tenancy, would he need to do a will so that it then goes to my children, or can I still specify that it does go to my boys on his death, or as the deeds are in my name can I leave say 20% to him and 80% to my boys.

All this does go over my head a lot, I feel I need to do right by my partner, we have been together for over 30years, also I've worked my socks of to make sure that I am able to leave my boys something.

Being naïve and thinking everything is ok when you younger. in a million years right up to my late 30s I did not dream I would even have a good job that I could actually afford to own my house.  it's only when some (meaning me) grow older and see what does actually happens around you  finally wake up to yourself and open your eyes to check what you have in place, I have had sleepless nights worrying about what to do.

I did go to the Solicitors and still unsure. she actually advised me to not rush into civil partnership so confessed although she did say she would put the clause in the will that we may.


So sorry for all the questions