Inheritance tax - who pays when several heirs inherit?

Keep_pedalling

Marcon said:

CalJo99 said:

Hmm, problematic I see! Thank you for your answers.

To clarify a bit:

I own two houses (yes, lucky me - except when it comes to cost of upkeep etc etc). My main house (the family home) I want to leave to my only child (ie, direct heir) quite outright, and it should not incur IHT because it will fall within the NRB (courtesy of the £175k exempt uplift allowed to direct heirs). He will also get whatever £££ I'm left with at the point of death! 

So far so good. (I think.)

The problem attaches to the second property - worth a lot less than the family home (so I don't want to swap 'main residence' to it), but it will be hit with the full weight of 40% of its value.

I'm thinking (for complicated family reasons) (when are family reasons NOT complicated!!!!!), of possibly leaving the second property to my niece and nephew (their father once owned the property - long story!).  

But ONLY ONLY ONLY if the niece and nephew are liable for the hefty IHT whack. I DO NOT WANT that IHT to be paid by my son if he does not inherit the second property.

In other words, if the niece and nephew want their dad's old house back 'free' as a legacy, they are going to have to pay the IHT due on it.

The nightmare scenario is that they get the second house, and my son has to pay their IHT on it!! NO THANKS.

If I go down the niece and nephew path, I must absolutely be sure they pay the IHT if they inherit the second property. And, if they refuse, or cannot afford it , that it passes instead to my own son, and he has to pay the IHT (or sell it, which is most likely, to raise the IHT amount) (he won't be able to sell it to the niece and nephew, as, if they can't afford the IHT, they certainly can't afford the whole value of the second property!)

As I say, it's a complicated situation. 

It's only the second property I'm considering leaving to my niece and nephew, nothing else from my estate. 

It's not complicated, but you do need a solicitor to draw up the will - definitely not a DIY job. And you do need to take the emotion out of it (always easier said than done) and just recognise this for what it is: a pretty straightforward situation for a legal professional.

Leave your main residence to your son.

Don't leave the other property to anyone, but put a provision in your will that your second property is to be sold and the proceeds should be used firstly to pay any IHT due on the estate, and secondly the remaining balance from the sale to be divided as follows [insert whatever you fancy here]. If the niece and/or nephew want to buy the property, then that's for the executors to deal with at the time.

Add any other provisions you want to cover everything else you are leaving.

Leaving the main residence to his son is not a safe option. What happens if the OP looses mental capacity and has to go into care? The likely house that would need to be sold would be the main residence as it would not be occupied and not subject to CGT.

p00hsticks

Grumpy_chap said:

Won't this second property be liable for CGT at time of death? 

As I understand it, not if it is still in the OP's possession at the time of their death - then instead of CGT the current value forms part of the estate which is potentially liable to IHT instead. 

user1977

For a start, do these potential beneficiaries actually want to own these specific properties? Or are you just wanting to divide the estate by the rough values which apply to them?

As others have said, you should bear in mind the possibility of either/both properties having been sold before you die (but possibly after the point when you're still capable of updating your Will, or you just not getting around to it in time).

People do tend to get excited about what will happen to the "family home" when they die, but in a huge proportion of cases it's already been sold to pay for nursing homes etc.

Grumpy_chap

p00hsticks said:

Grumpy_chap said:

Won't this second property be liable for CGT at time of death? 

As I understand it, not if it is still in the OP's possession at the time of their death - then instead of CGT the current value forms part of the estate which is potentially liable to IHT instead. 

Thanks.
I had assumed the Estate would be liable for CGT deductible from the value of the property, but what was left liable for IHT as well (assuming above the threshold).

Keep_pedalling

Grumpy_chap said:

p00hsticks said:

Grumpy_chap said:

Won't this second property be liable for CGT at time of death? 

As I understand it, not if it is still in the OP's possession at the time of their death - then instead of CGT the current value forms part of the estate which is potentially liable to IHT instead. 

Thanks.
I had assumed the Estate would be liable for CGT deductible from the value of the property, but what was left liable for IHT as well (assuming above the threshold).

CG is wiped out on your death and replaced by IHT if your estate is large enough. CGT does apply on gains on estate assets between date of death and disposal.

Marcon

Keep_pedalling said:

Marcon said:

CalJo99 said:

Hmm, problematic I see! Thank you for your answers.

To clarify a bit:

I own two houses (yes, lucky me - except when it comes to cost of upkeep etc etc). My main house (the family home) I want to leave to my only child (ie, direct heir) quite outright, and it should not incur IHT because it will fall within the NRB (courtesy of the £175k exempt uplift allowed to direct heirs). He will also get whatever £££ I'm left with at the point of death! 

So far so good. (I think.)

The problem attaches to the second property - worth a lot less than the family home (so I don't want to swap 'main residence' to it), but it will be hit with the full weight of 40% of its value.

I'm thinking (for complicated family reasons) (when are family reasons NOT complicated!!!!!), of possibly leaving the second property to my niece and nephew (their father once owned the property - long story!).  

But ONLY ONLY ONLY if the niece and nephew are liable for the hefty IHT whack. I DO NOT WANT that IHT to be paid by my son if he does not inherit the second property.

In other words, if the niece and nephew want their dad's old house back 'free' as a legacy, they are going to have to pay the IHT due on it.

The nightmare scenario is that they get the second house, and my son has to pay their IHT on it!! NO THANKS.

If I go down the niece and nephew path, I must absolutely be sure they pay the IHT if they inherit the second property. And, if they refuse, or cannot afford it , that it passes instead to my own son, and he has to pay the IHT (or sell it, which is most likely, to raise the IHT amount) (he won't be able to sell it to the niece and nephew, as, if they can't afford the IHT, they certainly can't afford the whole value of the second property!)

As I say, it's a complicated situation. 

It's only the second property I'm considering leaving to my niece and nephew, nothing else from my estate. 

It's not complicated, but you do need a solicitor to draw up the will - definitely not a DIY job. And you do need to take the emotion out of it (always easier said than done) and just recognise this for what it is: a pretty straightforward situation for a legal professional.

Leave your main residence to your son.

Don't leave the other property to anyone, but put a provision in your will that your second property is to be sold and the proceeds should be used firstly to pay any IHT due on the estate, and secondly the remaining balance from the sale to be divided as follows [insert whatever you fancy here]. If the niece and/or nephew want to buy the property, then that's for the executors to deal with at the time.

Add any other provisions you want to cover everything else you are leaving.

Leaving the main residence to his son is not a safe option. What happens if the OP looses mental capacity and has to go into care? The likely house that would need to be sold would be the main residence as it would not be occupied and not subject to CGT.

That's what most parents do. How else would they benefit from the nil rate residential band?

Any decent solicitor will be able to explain the options/caveats which need to be included in OP's will.

bobster2

Marcon said:

Keep_pedalling said:

Leaving the main residence to his son is not a safe option. What happens if the OP looses mental capacity and has to go into care? The likely house that would need to be sold would be the main residence as it would not be occupied and not subject to CGT.

That's what most parents do. How else would they benefit from the nil rate residential band?

Any decent solicitor will be able to explain the options/caveats which need to be included in OP's will.

You do not have to leave the residence itself specifically as a named bequest to the direct descendants to benefit from the RNRB.

The RNRB still applies if the residence is not left to a named beneficiary - but simply part of the estate assets that need to be sold and distributed (i.e. part of the residue). 

https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band#inh-home

Where the home forms part of the residue and the residue has passed on to a number of different people, HMRC treat each of them as inheriting a proportion of the home.

The actual home does not have to end up in the hands of the direct descendants. An estate could still be eligible for the residence nil rate band if the estate’s personal representative sells the home as part of the administration of the estate and passes the sale proceeds to the direct descendants.

theoretica

CalJo99 said:

If I go down the niece and nephew path, I must absolutely be sure they pay the IHT if they inherit the second property. And, if they refuse, or cannot afford it , that it passes instead to my own son, and he has to pay the IHT (or sell it, which is most likely, to raise the IHT amount) (he won't be able to sell it to the niece and nephew, as, if they can't afford the IHT, they certainly can't afford the whole value of the second property!)

So are you trying to impose that your niece and nephew must (jointly?) actually continue to OWN the property?  That they can't say thank you, sell it, pay the IHT with some of the proceeds and share out what is left?  That level of controlling what happens after your death will be hard, and for how long must they continue to own it? 

Keep_pedalling

Marcon said:

Keep_pedalling said:

Marcon said:

CalJo99 said:

Hmm, problematic I see! Thank you for your answers.

To clarify a bit:

I own two houses (yes, lucky me - except when it comes to cost of upkeep etc etc). My main house (the family home) I want to leave to my only child (ie, direct heir) quite outright, and it should not incur IHT because it will fall within the NRB (courtesy of the £175k exempt uplift allowed to direct heirs). He will also get whatever £££ I'm left with at the point of death! 

So far so good. (I think.)

The problem attaches to the second property - worth a lot less than the family home (so I don't want to swap 'main residence' to it), but it will be hit with the full weight of 40% of its value.

I'm thinking (for complicated family reasons) (when are family reasons NOT complicated!!!!!), of possibly leaving the second property to my niece and nephew (their father once owned the property - long story!).  

But ONLY ONLY ONLY if the niece and nephew are liable for the hefty IHT whack. I DO NOT WANT that IHT to be paid by my son if he does not inherit the second property.

In other words, if the niece and nephew want their dad's old house back 'free' as a legacy, they are going to have to pay the IHT due on it.

The nightmare scenario is that they get the second house, and my son has to pay their IHT on it!! NO THANKS.

If I go down the niece and nephew path, I must absolutely be sure they pay the IHT if they inherit the second property. And, if they refuse, or cannot afford it , that it passes instead to my own son, and he has to pay the IHT (or sell it, which is most likely, to raise the IHT amount) (he won't be able to sell it to the niece and nephew, as, if they can't afford the IHT, they certainly can't afford the whole value of the second property!)

As I say, it's a complicated situation. 

It's only the second property I'm considering leaving to my niece and nephew, nothing else from my estate. 

It's not complicated, but you do need a solicitor to draw up the will - definitely not a DIY job. And you do need to take the emotion out of it (always easier said than done) and just recognise this for what it is: a pretty straightforward situation for a legal professional.

Leave your main residence to your son.

Don't leave the other property to anyone, but put a provision in your will that your second property is to be sold and the proceeds should be used firstly to pay any IHT due on the estate, and secondly the remaining balance from the sale to be divided as follows [insert whatever you fancy here]. If the niece and/or nephew want to buy the property, then that's for the executors to deal with at the time.

Add any other provisions you want to cover everything else you are leaving.

Leaving the main residence to his son is not a safe option. What happens if the OP looses mental capacity and has to go into care? The likely house that would need to be sold would be the main residence as it would not be occupied and not subject to CGT.

That's what most parents do. How else would they benefit from the nil rate residential band?

Any decent solicitor will be able to explain the options/caveats which need to be included in OP's will.

I hope not, there is no need to name the house to claim that relief or even have a will. 

35har1old

Devongardener said:

Inheritance tax is paid from the estate before any funds  or property title is passed to beneficiaries.    It’s not paid by individual beneficiaries.

What happens if the estate is cash poor