difficult will - all left to spouse other than a share of a property. - extra IHT allowances

candytreacle

The property share of the deceased is split between 2 stepchildren and 4 nephews and nieces . This share of the property is likely to be more than the IHT level in itself.  Is there an increase in allowance for IHT purposes in respect of stepchildren only? If so how is the increase in allowance calculated? Does anyone have any experience in this ?

Marcon

candytreacle said:

The property share of the deceased is split between 2 stepchildren and 4 nephews and nieces . This share of the property is likely to be more than the IHT level in itself.  Is there an increase in allowance for IHT purposes in respect of stepchildren only? If so how is the increase in allowance calculated? Does anyone have any experience in this ?

Who is a direct descendent

For residence nil rate band purposes the direct descendant is:

• a child, grandchild or other lineal descendant
• a spouse or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)

This also includes:

• a child who is, or was at any time, their step-child
• their adopted child
• a child fostered at any time by them
• a child where they’re appointed as a guardian or special guardian when the child is under 18

The person who inherits the home does not have to be under 18. A person’s step-child is only someone whose parent is, or was, the spouse or civil partner of that person.

Direct descendants do not include nephews, nieces, siblings and other relatives who are not included in the list above.

One or more direct descendants of the person that’s died can inherit a home, or a share of it.

For a home left to people who are a mixture of direct descendants, other relatives or other people, you must share the value of the home in proportion to the share of the property each direct descendant inherits.

Source: https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band#direct-decs

RAS

Does this "property share" represent part of a property otherwise owned by the deceased's spouse or partner? Is there an Immediate Post Death Interest trust covering the deceased's portion? 

Are the step-children the spouse/partner's children?

candytreacle

The property was jointly owned by deceased and spouse - not in equal amounts.
The stepchildren are the spouse's children. There are no trusts involved. 
The deceased's will stipulates that the deceased's share of the property can only be sold when either the
surviving spouse moves out or dies.

RAS

candytreacle said:

The deceased's will stipulates that the deceased's share of the property can only be sold when either the surviving spouse moves out or dies.

In which case the will creates an Immediate Post Death Interest (IPDI) trust. The father inherits a life interest in the other portion of the property, which is not subject to IHT on the first death. When the second spouse dies the estate may be liable for IHT. Obviously the survivor could live decades and the property be sold before his death and we don't know whether the existing residential allowances will exist or be enhanced.

The restriction detailed in the will needs to be added by the executors to the Land registration detailing the trustees. And the IPDI trust needs reporting to HMRC within two years. 

The will was written like this to ensure that when the property is sold the younger beneficiaries don't get caught for Capital Gains Tax on the increase in value between the first death and the sale.