Estate planning and IHT – can the family house be kept somehow?

VT82

My mum (a 65yo in OK health) has a big estate and is trying to make arrangements for the future. She is married to my dad but for a couple of reasons her focus is on how to equitably pass her assets to her kids. Assets roughly held as follows:

·        Large family home (£1.3m) – could potentially have a barn converted on the grounds to make an additional smaller home in a few years

·        Pension pot not being used to buy an annuity (£150k)

·        Cash savings in a range of easy access, fixed bonds and ISAs (£350k)

·        1 commercial property and 4 residential properties, held in a limited company, providing rental income (£800k)

She has 3 kids including me, with all of us having our own families. We’re all pretty laid back about this and there won’t be any arguments or grabbiness, but one of my sisters is sentimental about the family home and would like it to be kept unsold and for her family to ultimately live in it. My mum is adamant she wants things to be equal, but with half of her assets being tied up in the house, and with the risk of a large IHT bill to pay by liquidating the other assets, she does not see how my sister’s wish to keep the house would be possible.

We know she is going to need to pay for professional advice, but a few  questions for you helpful lot:

·        Are there ways in which my sister could have the beneficial ownership of the house but somehow the estate is still split equitably (Deed of trust naming me and my other sister as having a share? Putting the house in the Ltd. Co? - we are honestly clueless!)?

·        Are there any obvious steps that could be taken soon to help mitigate IHT in the future, and what would the implications be for my mum?

·        Any recommendations for seeking professional advice regarding IHT planning, especially when it comes to property assets?

Thanks  in advance.

kuratowski

For professional advice, you could search for a firm with expertise in family estate planning, through STEP:

https://www.step.org/directory/firms

doodling

Hi,

Assuming that your Mum has both her and her husband's IHT allowances available and that the pension is dealt with separately then the estate will be a total of around £1.87m after inheritance tax.

That means that each of you should get just over £600k.

If we include the pension money then you each get £650k.

I'll call the sister who wants the house H below and the other one A as a shorthand.

Are you and A willing to give up around £325k of your £650k?  Are you willing to wait to receive the outstanding £325k until when H dies which could be after you have died (i.e. it ends up going to your middle aged children)?  That is assuming a fair split between you and A, you could give up or delay your whole inheritance whilst A got hers when your Mum dies as an alternative, or anything in between, all the way to A giving up hers and you getting yours.

If everyone wanted their money after your Mum's death then H would need to find another £650k, either cash or borrowing (e.g. a mortgage on the house) to be able to afford it.  Can she do that?

There are ways of making this work but unless H can raise the money then they will rely on you and/or A either giving up all/part of your inheritance or delaying it for as long as H lives in the house.

You need to talk to a STEP qualified solicitor.  You may also want to talk to a (independent) financial advisor knowledgeable in IHT planning.  Probably do the solicitor first.

VT82

Thanks. That is really helpful. As much as there is useful stuff on the GOV.UK site about how Inheritance Tax works and what relief might be available, it feels like there can't be a substitute for a STEP qualified solicitor in this scenario. Will follow kuratowski's link

Momanns

This is exactly the thought of thing a professional with experience in estate planning/IHT would deal with. Canvass some companies, they will probably have an initial chat free of charge. See who you feel most comfortable with and go from there.

Given the level of wealth, do you parents use a financial advisor or similar? They may be able to recommend someone. Or some of the larger wealth management companies will provide estate planning as part of the service or for an additional fee.

You will get some excellent advice on this forum but given the sums involved, I would thoroughly recommend doing this properly.

Keep_pedalling

Unfortunate sentimentality and making good financial decisions very rarely go together. The fact that the house alone is well over the IHT exemptions makes mitigating it very difficult unless your mother downsizes and makes gifts with the released cash then she is not going to be able to reduce IHT on that asset unless she gifts shares in the house and pays rent for the previlige of living in her own home.

if you sister can raise the funds to buy out her siblings shares then in all fairness she can’t have the house.

your mothers shares in the Ltd Co will be exempt providing she has held them for at least 2 years.

VT82

Keep_pedalling said:

Unfortunate sentimentality and making good financial decisions very rarely go together. The fact that the house alone is well over the IHT exemptions makes mitigating it very difficult unless your mother downsizes and makes gifts with the released cash then she is not going to be able to reduce IHT on that asset unless she gifts shares in the house and pays rent for the previlige of living in her own home.

if you sister can raise the funds to buy out her siblings shares then in all fairness she can’t have the house.

your mothers shares in the Ltd Co will be exempt providing she has held them for at least 2 years.

I thought the Ltd Co assets weren't exempt under business relief exemptions because it 'mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments' (per GOV.UK website)? If I've misinterpreted that and you are right it would certainly be a positive.

Momanns

VT82 said:

Keep_pedalling said:

Unfortunate sentimentality and making good financial decisions very rarely go together. The fact that the house alone is well over the IHT exemptions makes mitigating it very difficult unless your mother downsizes and makes gifts with the released cash then she is not going to be able to reduce IHT on that asset unless she gifts shares in the house and pays rent for the previlige of living in her own home.

if you sister can raise the funds to buy out her siblings shares then in all fairness she can’t have the house.

your mothers shares in the Ltd Co will be exempt providing she has held them for at least 2 years.

I thought the Ltd Co assets weren't exempt under business relief exemptions because it 'mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments' (per GOV.UK website)? If I've misinterpreted that and you are right it would certainly be a positive.

This is why you need proper, regulated advice.

VT82

Momanns said:

This is exactly the thought of thing a professional with experience in estate planning/IHT would deal with. Canvass some companies, they will probably have an initial chat free of charge. See who you feel most comfortable with and go from there.

Given the level of wealth, do you parents use a financial advisor or similar? They may be able to recommend someone. Or some of the larger wealth management companies will provide estate planning as part of the service or for an additional fee.

You will get some excellent advice on this forum but given the sums involved, I would thoroughly recommend doing this properly.

Thanks, yes very much looking to appoint a professional to advise. No financial advisor at the moment - the cash is held with a view to converting a barn on the main house property at some point, and everything else is kind of taking care of itself, so she didn't see the point in paying for a FA, particularly when the ones who have approached her seemed to want to bill as a % of wealth rather than an hourly rate. Will investigate the STEP list and see what comes up.

thegreenone

Sorry no help on the financials but if your parents convert the barn, which sounds sensible, is Sister who wants the main house aware that as your parents age, she will be first point of call for help - at any time of the day or night? 

My SiL/BiL bought the adjoining semi to SiL's parents (my PiLs) and SiL has been constantly on call.  For years.  I'll leave it there.