Inheretance tax on property left to unmarried partner

regency_man

Looking for some inheretance tax guidance.

My parents are long-time divorced and my father has for the last 20 years been in a relationship with, and cohabiting with, a life-long friend, who is also divorced.  They have made it clear they never intend to marry or enter a civil partnership but (intend) to live together until either of their deaths.  He is highly likely to outlive her as she is 10 years older.

My father is, frankly, poor, he lives on his state pension and has no more than a few thousand in savings and owns no property.  His partner owns that property and multiple others that are rented out, she is for want of a better word, rich, I would estimate her property estate to be in the region of £2-3 Million from what I've seen and I have no idea what cash/investments she has.  My father, for his part, does all the improvements and maintenance on the properties but does not have any ownership of them nor does he get 'paid' for this.  I think this is a pretty raw deal, but he doesn't like to talk about it and he is happy in his life, so I have left this alone.

His partner has written into her will that the home they currently live in (deeds and title all in her name) will be left to my father on her death.  I estimate the value of this property to be in the region of £500k.

He is very happy with this and considers it be be very generous of her, which it is.  However I am concerned he is overlooking the tax implications of this. Because her estate is over the thresholds, am I right in thinking that this is likely to trigger a 40% inheritance tax bill on the property, which he will be wholly unable to pay, forcing him to sell the property to pay the bill and end up without a home to live in.  Is this accurate (I know there are a lot of other factors but broadly)?

I do not beleive this is her intent, her desire from what I've heard her say is to leave him the house they built and lived in together and he be able to live in it for the rest of his life also.  Is there any way she can structure the will to account for this?  Or will there always be tax for my father to pay forcing the sale?

Thanks

JGB1955

Her estate will be responsible for paying any inheritance tax - not your father.

regency_man

JGB1955 said:

Her estate will be responsible for paying any inheritance tax - not your father.

OK, but if her wealth is primarily in property (which to the best of my knowledge it is) and she does not have enough cash to fund the tax bill, will that in itself force the sale of the property or properties to cover this?  If that is the case, what will my father receive, the residual in cash?

MEM62

regency_man said:

JGB1955 said:

Her estate will be responsible for paying any inheritance tax - not your father.

OK, but if her wealth is primarily in property (which to the best of my knowledge it is) and she does not have enough cash to fund the tax bill, will that in itself force the sale of the property or properties to cover this?  If that is the case, what will my father receive, the residual in cash?

Quite possibly but that is for the executors of her will to determine.  It is their responsibility to settle such matters.  

sheramber

What is to happen to the rest of her estate?

Will the other  properties be sold or are they to be inherited by someone?

buddy9

If the estate is likely to be substantial, it might be possible in the will to leave the house  ….free of taxes in respect of death and of expenses of transfer and of mortgage debts……..

These costs would then be met from other components of the estate.

regency_man

sheramber said:

What is to happen to the rest of her estate?

Will the other  properties be sold or are they to be inherited by someone?

I believe they are to be left to the children as rental properties, with sitting tenants, if such a thing can be stipulated.  From what I've heard, she doesn't want the offspring to do a big 'sell off' and just take the money.  

Flugelhorn

the executor will have to find the IHT from somewhere - might mean selling off a property so that all the others can be retained 

I doubt she can insist on the children continuing a rental business - once they have inherited it is likely that they can do what they like with the properties. Much will come down to how the estate is split between them and what they want to do -some may wish to sell, some may wish to keep. TBH could be an utter nightmare and sounds like your dad can just stay where he is as going to take them ages to sort

Emmia

regency_man said:

sheramber said:

What is to happen to the rest of her estate?

Will the other  properties be sold or are they to be inherited by someone?

I believe they are to be left to the children as rental properties, with sitting tenants, if such a thing can be stipulated.  From what I've heard, she doesn't want the offspring to do a big 'sell off' and just take the money.  

Tenants can be evicted, and the property sold shortly afterwards if the children inherit tenanted properties.

Keep_pedalling

She could stipulate in her will that his bequest is free of all tax meaning that all the IHT will come from the rest of her estate.

The sensible thing to do would be to marry or form a civil partnership as that would mean his bequest would be covered by spousal exemption. This would also reduce the amount of IHT to be payed on her children’s inheritance.

There is another issue here in that in leaving him her home her estate looses the residential NRB.
She really should speak to a financial advisor who specialises in inheritance planning.

Sea_Shell

In the absence of any "watertight" wording, would it be at the sole discretion of the executor as to which property to sell to pay IHT?