IHT for living tenant, siblings died earlier 10 August 2022 at 9:16PM in Deaths, funerals & probate 7 replies 312 views

Papakura

Dear All

Property was split between three siblings on death of our grandmother. My aunty, a spinster, was allowed to live in the house until married or she passed away

She died last year but both of her siblings had already passed away previously. The solicitor has put the entire value of the house, not 1/3, into the IHT calculation for my aunty thereby incurring a IHT burden

Is there any way around this as aunty was only entitled to 1/3 of house in original Will?

Thank you

getmore4less

If there was a life interest giving the right to live there then the solicitor is probably right.

The aunt living in the house got full beneficial interest for life.
IHT is based on beneficial interest.

How long ago did the grandparent die there were rule changes bit that was some time ago.

I did read that there are complications if a remainderman dies but did not understand it properly.

Keep_pedalling

When you say she was allowed to live there, was this because grandmother’s will gave her a life interest, her siblings did this through a deed of variation or was it an informal agreement between the siblings?

Papakura

Thank you both for your replies. I've been struggling with this and have only just received the opinion of the solicitor after querying this a few weeks back.

Grandparent wrote the Will in 1983 and died in 1985

In the Will, a trustee was appointed alongside the aunty and the estate was split 3 ways between three daughters, aunty was the eldest daughter. The intention was to protect the house for the aunty to live in. She lived there until last year but her two sisters died before her. If she had died or left the house or married while the sisters were alive then the house would have been split. As it is, the 7 children of both sisters inherit the whole estate. Aunty did not have children or a husband.

So it is a little sad but I suspect she calculated that there would be no IHT due and I obviously have a duty to her, my grandparents and the beneficiaries as I am one of two executors.  

74jax

Papakura said:

Thank you both for your replies. I've been struggling with this and have only just received the opinion of the solicitor after querying this a few weeks back.

Grandparent wrote the Will in 1983 and died in 1985

In the Will, a trustee was appointed alongside the aunty and the estate was split 3 ways between three daughters, aunty was the eldest daughter. The intention was to protect the house for the aunty to live in. She lived there until last year but her two sisters died before her. If she had died or left the house or married while the sisters were alive then the house would have been split. As it is, the 7 children of both sisters inherit the whole estate. Aunty did not have children or a husband.

So it is a little sad but I suspect she calculated that there would be no IHT due and I obviously have a duty to her, my grandparents and the beneficiaries as I am one of two executors.  

So did the other 2 sisters never get their inheritance? But the 3rd sister had full use of the house throughout?
If so, it seems the solicitor is doing things correctly as per Benefifical Interest. 
I'm not sure why Aunty would think no IHT would be due though. This would (should) have been pointed out when she made the Will. 

Keep_pedalling

As this trust came into effect before the rules were changed in 2006, the life interest trust deferred any IHT due on the grand parent’s death (the threshold was £67,000 back then) and placed it on the estate of the life tenant, so For IHT purposes the whole house is treated as part of your aunty’s estate.

Setting up a LIT for a non-spouse since the change does not defer the IHT, but the property may be subject to CGT on the death of the life tenant.

https://www.ts-p.co.uk/publications/life-interest-trusts/download

Papakura

74jax said:

So did the other 2 sisters never get their inheritance? But the 3rd sister had full use of the house throughout?
If so, it seems the solicitor is doing things correctly as per Benefifical Interest. 
I'm not sure why Aunty would think no IHT would be due though. This would (should) have been pointed out when she made the Will. 

No, they did not get their third share of the house but there would have been a small amount of money shared out.
Aunty did not go to the best solicitor I think! The Will was very basic. But she had jotted down all of her investments and was aware that the house was owned 3 ways so I presume she was planning off her own bat.

Thank you 74ajx

Papakura

Keep_pedalling said:

As this trust came into effect before the rules were changed in 2006, the life interest trust deferred any IHT due on the grand parent’s death (the threshold was £67,000 back then) and placed it on the estate of the life tenant, so For IHT purposes the whole house is treated as part of your aunty’s estate.

Thank you
This must be the reasoning of the Solicitor too
Much appreciated