TENANTS IN COMMON

Bobby4puddings

The wife and I live in a mortgage free house, the house in in her name only and I have lived there since 2006.
We have mirrored wills in that in the event of one of us dies everything is left to the other, and after that when the survivor passes away everything is left to share equally between my 3 children (the wifes step children) who are now in there 40's.
I'm sure we will be hit with inheritance tax.
What should we do with the mortgage being in just the wifes name to try and reduce the inheritance tax, should we change the deeds to be 'Tenants In Common' or something else? 

Mark_d

If you're concerned about inheritance tax liabilities then I recommend professional advice on the subject.  There are a number of options open to you and advice would need to consider your full range of assets

p00hsticks

Bobby4puddings said:

I'm sure we will be hit with inheritance tax.

What makes you think that ?

How much do your think your combined estate is likely to be worth ?

Far more people worry about IHT than actually pay it. 

Under current rules, there is no IHT paid when assets are left entirely to spouses. When the second spouse dies, their estate will then inherit the IHT allowance of their deceased spouse, which gives a total IHT allowance of £650k, and if they are leaving property to direct descendants then there is an additional £350k allowance. so unless you think your estate is likely to be worth £1 million plus, you are probably worrying unnecessarily.

 And if it is worth in excess of then, then it might be worth paying for some professional estate planning (although be careful who you go to for that - some will propose solutions that are of little benefit to you but line their own pockets).

Keep_pedalling

p00hsticks said:

Bobby4puddings said:

I'm sure we will be hit with inheritance tax.

What makes you think that ?

How much do your think your combined estate is likely to be worth ?

Far more people worry about IHT than actually pay it. 

Under current rules, there is no IHT paid when assets are left entirely to spouses. When the second spouse dies, their estate will then inherit the IHT allowance of their deceased spouse, which gives a total IHT allowance of £650k, and if they are leaving property to direct descendants then there is an additional £350k allowance. so unless you think your estate is likely to be worth £1 million plus, you are probably worrying unnecessarily.

 And if it is worth in excess of then, then it might be worth paying for some professional estate planning (although be careful who you go to for that - some will propose solutions that are of little benefit to you but line their own pockets).

As the children are only direct descendants of the OP both RNRBs will not be available and if the OP dies first with the current ownership and wills in place neither RNRBs will be available, so if their net assets exceed £650k IHT could be an issue on the second death.

Joint ownership of the home would at least make the OPs RNRB usable if he dies first, but if they do this new wills will be needed. I would suggest you make an appointment with a local STEP solicitor to review your wills and home ownership.

Bobby4puddings

The total estate is worth about £680,000.
Do my children count as direct descendants in relation to the will to my wife who is not the natural mother?
Keep_pedalling ...  what is a OP, and RNRB? Also I thought STEP solicitors dealt with injury/accident compensation?

RAS

Original Poster

Residential Nil Rate Band - the £175k allowance can only be used if property is passed to direct descendent (blood-line or adopted). 

So if you died second, your children can use your RNRB but if your wife survives you, the RNRB is not available.

But, you need to be aware that as you are unmarried, if your partner dies first, her IHT allowance is a total of £325k including the value of the property. 

You might want to consider marriage or civil partnership as inheritance between spouses is IHT exempt.

Bobby4puddings

Hi RAS, thanks for your reply, I am married to my second wife. The 3 children are her step children from my first marriage. So are you saying if I die first my RNRB cannot be passed to her?
Why do they make things so complicated?

Cairnpapple

I understand that step children count as descendants for the purposes of RNRB.
https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band#direct-decs

And STEP practitioners specialise in trusts and estates
https://www.step.org/about-step/public

EasySolution

"Step children" Count in this Instance

RAS

The fact that you are married is really important, as transfers between spouses are exempt.

As you are a blended family one issue is that if either of you die and the survivor remarries, then their spouse inherits some or all the estate. If your wife remarried, the house would go to her new spouse not to your children under intestacy rules. Obviously if she wrote a will, she could leave it to whoever she wished.

In fact with mirror wills, either of you can write new wills to leave anything or everything to whoever you wish, including the cat's home.