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

Sea_Shell

My understanding of a DoV is that it makes the inheritance (of the 1/4 house) as if you'd received it directly from the deceased's will, without it ever forming part of the original beneficiary's estate, rather than being a gift from them.


Am I wrong?

Daniel54

I agree with Sea Shell

The Deed of Variation changed your father's will “as if “ his will left you and your brother 25% of the property.In doing so,the value of half the house will have eroded the percentage nil rate band remaining  to your mother from his estate.

This being the case,your mother did not gift the two of you those shares of the house,they were left to you under the varied terms of your father’s will.

The value of the property for your mother’s estate will be the 50% she owned



 

theoretica

I think you have missed the bit about your mother also inheriting her late husband's IHT allowance.  With her 325 exemption + his 325 exemption (the percentage of this not used up by the DOV) plus some residential allowance if needed (depending on values at the time of the DOV) you should be clear of any IHT - with the right paperwork!

buddy9

In accord with other posters.

If the deed of variation applied for IHT purposes, then it is treated that your late father was the donor, and it does not seem to be a gift with reservation. And your mother’s estate only includes half the house.

The variation will have used up some of your late father’s IHT allowance. If you establish the 1997 house value and determine what percentage of the nil rate band at the time was used by the DoV, then the unused percentage becomes available as Transferable Nil Rate Band in addition to your mother’s NRB of £325k.

For example, half the share of a house now worth c£250k might have used up around 15% of the NRB in 1997 leaving 85% available. 85% of current NRB is around £275k.

So roughly this could be an excepted estate if the net estate value was below about £600k (325 +275).

It looks like an excepted estate with transferable nil rate band from a predeceasing spouse. An IHT return is not needed for an excepted estate, but you will need a grant of confirmation.

Keep_pedalling

alfaetrin said:

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.

It won’t fall under GWR but it will have used up some of your father’s transferable NRB. The exemptions you have in full are her NRB, her RNRB and his transferable RNRB. This will give a total exemption of £575k based on the house value of £250k. The rest should be covered by his unused transferable NRB, unless you have included the whole house as part of the 600k valuation (it should be 50%).

Back in 1997 the NRB was £215k or £200k if he died before 6th April. How much of that was used depends of the value of the house back in 1997. For example it the house was worth £150k back then and he died on the 1st April the DoV would have used up £75k (32.5%) so you would still have 77.5% of today’s NRB available (£343.75k) so no IHT will be due but you will have to submit a full IHT return in order to claim the RNRB.

The one tax issue you will face when selling the property is CGT on the share transferred to you and your sibling back in 97. This will be based on the gain in value between you becoming the owner and the sale price (less selling expenses). Had a your mother been given a life interest this would not be the case.

alfaetrin

Just to say thanks for all the helpful replies, it's much appreciated. I'm a lot clearer about the situation now.