Can't work out if mother's estate attracts IHT

alfaetrin

Despite carefully reading through all of the gov.uk IHT guidance, I still can't work out if our late mother's estate does or does not attract IHT or, if so, how much of the estate attracts IHT.

* live in Scotland
* widowed mother passed away June 2023
* the will leaves all divided equally between brother and myself
* total estate, including house around 600k
* house worth around 250k
* when our father passed away in 1997, our mother transferred ¼ share of house to me, ¼ to brother, ½ remained with herself
* she continued to live in house until passing

It's the "Gifts with Reservation" area that is really confusing me. I can't work out if, after the 325k allowance:
1. IHT is payable on the whole estate, including house
2. IHT is payable on movable estate plus her 50% share of value of house, or
3. 500k rule for house applies, therefore IHT payable only on value of total estate above that amount.

Any clarification would be much appreciated

theoretica

Did your father leave everything to his wife?  If so, you can probably claim his allowances too and reduce IHT to zero with the right paperwork.  You may, however, need to pay CGT on the increase in value on your 1/4 of the house since 1997, when it is sold.

alfaetrin

theoretica said:

Did your father leave everything to his wife?  

Yes, our father left everything to his wife (our mother).

Sea_Shell

alfaetrin said:

theoretica said:

Did your father leave everything to his wife?  

Yes, our father left everything to his wife (our mother).

Did she gift after inheriting, or do a Deed of Variation?


(I don't know if that changes things, but it might)

alfaetrin

Sea_Shell said:

Did she gift after inheriting, or do a Deed of Variation?

(I don't know if that changes things, but it might)

It was a Deed of Variation

Keep_pedalling

alfaetrin said:

Sea_Shell said:

Did she gift after inheriting, or do a Deed of Variation?

(I don't know if that changes things, but it might)

It was a Deed of Variation

A deed of variation is pointless in these situations as although half the house would not pass into her estate the DoV would use the equivalent amount of transferable NRB, however having said that with an estate currently valued at £600k there will be no IHT due as the remaining exemptions will cover it. If you need to claim either residential NRB a full IHT return will be required. 

buddy9

alfaetrin
Did the deed of variation create outright ownership for the share received by you and brother, or was it conditional such as a liferent?

Keep_pedalling

The other issue here (assuming there was no life interest and  
that neither of them lived with their mother) is the the OP and their sibling are going to have a hefty CGT liability when the house is eventually sold.

alfaetrin

Thanks for the replies so far.

To be honest, though, I'm still not sure if my late mother's estate will or won't attract IHT.

Is the threshhold for paying IHT likely to start at 325k, or will it start at 500k including the value of her house? The outcome could make a difference of up to 100k for my family and that of my brother.

buddy9

alfaetrin said:

Is the threshhold for paying IHT likely to start at 325k, or will it start at 500k including the value of her house? The outcome could make a difference of up to 100k for my family and that of my brother.

Probably neither of these. Are you able to answer my question about the deed of variation?

alfaetrin

buddy9 said:

Did the deed of variation create outright ownership for the share received by you and brother, or was it conditional such as a liferent?

Thanks for the follow up, Buddy9.

There is no mention of any conditions on the deed of variation granting ¼ share of our mother's house to my brother and ¼ to myself, except to note that she intended to continue living there. Therefore my understanding is that we have outright ownership of "our" portions of the house. However, as our mother continued to live in the house until her passing, and was not paying us any rent for our ¼ + ¼ = ½ share of the property, I am concerned that it therefore falls under the "Gifts with Reservation" regulations, and will as a consequence attract full IHT after the 325k allowance on her estate.

My hope is that the threshhold for IHT in our case will be 500k including the value of the house, but I can't work out from the gov.uk website if this is the case or not.

With up to 100k of IHT resting on the outcome, this is a massive concern for my brother and myself.