Complex situation: how to avoid inheritance tax/ capital gains involving international Jordanian law

RosieAnn

I would like some advice about the below situation.

My partner is originally from Iraq and has lived in the UK the past 15 years. My partner's mother lives in London. She and my partner are British citizens. Her flat is owned by her mother (my partner's grandmother) which was bought in 2012. The reason the ownership of the flat is under the grandmother is around the time of buying the flat, the mother's mental health wasn't well and the family felt it was in the best interests to have the grandmother as the legal owner. The grandmother lives in Jordan and is not a British citizen. The grandmother is 85 years old.

It is very common in Jordan not to make wills and inheritance without a will will follow the Sharia law- where the next male lineage inherits 2/3s of the inheritance and the remainder is divided. The grandmother is a widow and has 3 children, an elder son and 2 daughters. The grandmother and mother both don't have wills. Therefore, there is risk upon the grandmothers death, the flat may need to be sold and the mother will not have a home. My partner's mothers financial situation is very unstable. She has no pension or savings. She would not afford rent so it is essential that the flat remains her home.

We want to protect my partner's mother and consider transferring the ownership of the flat from the grandmother to the mother. I am not certain of the implications of doing this. Would the grandmother or mother then be liable for CGT ? And if the grandmother passed away within 7 years (which is highly possible) would be liable for inheritance tax?

The grandmother has no other assets in the UK apart from a savings account (less than £10K). The market value of the flat is around £325K. It was bought for £175K back in 2012. We probably would just meet the inheritance tax threshold which is £325K. Using the HMRC CGT calculator - we would need to pay £30K. We don't have these funds. 

Or should we just keep the flat in the grandmothers name? And then she creates a will that states upon her death the flat is transferred to her daughter. Would this avoid CGT or would this still need to paid upon death? If so, then we may have more funds as her property in Jordan could help cover those costs. 

Clearly we need to get professional advice but I wondered whether anyone could clarify what taxes we are liable for as the property is owned by an international citizen. Also would you recommend transferring ownership or creating a will or is putting the flat in trust an option?

theoretica

Complex indeed.  If the grandmother makes a will she would need to ensure that it is valid in England.  I believe that the intestate distribution of property in England would follow the English system, not that of Jordan.  So 1/3 to each child, not 2/3  1/6  1/6.

silvercar

My gut feeling is that, without a will, inheritance of a UK property will follow UK law. Happy to be corrected.

There is no CGT on death, the value for inheritance tax is the value at the date of death.

RosieAnn

silvercar said:

My gut feeling is that, without a will, inheritance of a UK property will follow UK law. Happy to be corrected.

There is no CGT on death, the value for inheritance tax is the value at the date of death.

Thank you, so you think creating a will would be safer? Inheritance of a UK property - does this not just follow inheritance tax law ? It would be go to the spouse (there is none) or children - of which there are 3 - my partner's mother is the only residing one in the UK. The other 2 live in the US. I don't think the other 2 children would want the inheritance of the flat as they understand it is her home!

Emmia

RosieAnn said:

silvercar said:

My gut feeling is that, without a will, inheritance of a UK property will follow UK law. Happy to be corrected.

There is no CGT on death, the value for inheritance tax is the value at the date of death.

Thank you, so you think creating a will would be safer? Inheritance of a UK property - does this not just follow inheritance tax law ? It would be go to the spouse (there is none) or children - of which there are 3 - my partner's mother is the only residing one in the UK. The other 2 live in the US. I don't think the other 2 children would want the inheritance of the flat as they understand it is her home!

But the flat has value, and unless the estate has enough cash /other assets to provide equal bequests to the other siblings they may demand the flat is sold to pay their inheritance. Especially the son, who might expect 2/3rds of the value.

RosieAnn

Emmia said:

RosieAnn said:

silvercar said:

My gut feeling is that, without a will, inheritance of a UK property will follow UK law. Happy to be corrected.

There is no CGT on death, the value for inheritance tax is the value at the date of death.

Thank you, so you think creating a will would be safer? Inheritance of a UK property - does this not just follow inheritance tax law ? It would be go to the spouse (there is none) or children - of which there are 3 - my partner's mother is the only residing one in the UK. The other 2 live in the US. I don't think the other 2 children would want the inheritance of the flat as they understand it is her home!

But the flat has value, and unless the estate has enough cash /other assets to provide equal bequests to the other siblings they may demand the flat is sold to pay their inheritance. Especially the son, who might expect 2/3rds of the value.

There will be her property in Jordan and small amount of savings. I don't think the son will expect the flat to be sold as he is on good terms with his sister and mother.
However, saying that upon death of his father 5 years ago, - he did inherit 2/3s and only 1/3 was left - split among the wife (grandmother) and 2 daughters. 

Emmia

RosieAnn said:

Emmia said:

RosieAnn said:

silvercar said:

My gut feeling is that, without a will, inheritance of a UK property will follow UK law. Happy to be corrected.

There is no CGT on death, the value for inheritance tax is the value at the date of death.

Thank you, so you think creating a will would be safer? Inheritance of a UK property - does this not just follow inheritance tax law ? It would be go to the spouse (there is none) or children - of which there are 3 - my partner's mother is the only residing one in the UK. The other 2 live in the US. I don't think the other 2 children would want the inheritance of the flat as they understand it is her home!

But the flat has value, and unless the estate has enough cash /other assets to provide equal bequests to the other siblings they may demand the flat is sold to pay their inheritance. Especially the son, who might expect 2/3rds of the value.

There will be her property in Jordan and small amount of savings. I don't think the son will expect the flat to be sold as he is on good terms with his sister and mother.
However, saying that upon death of his father 5 years ago, - he did inherit 2/3s and only 1/3 was left - split among the wife (grandmother) and 2 daughters. 

The prospect of money can change everything, I'd get the Grandma to seek legal advice to ensure that her assets in the UK are distributed as she would like.

RAS

Under normal circumstances, the first question would be what does grandma want to happen? But it appears that a communal decision was made about ownership in which grandma may or may not have had much say?

Where did the money come from to buy the flat? Did or even do that person(s) expect their investment to remain within the family ownership, but not necessarily in mum's ownership? How is the property registered with Land Registry?

Property owned in the UK by an intestate estate would normally be distributed equally between children. 

Does grandmother ever come to the UK? Given her age, is she able to make financial decisions? And would she want to?

One option might be for her to make a will leaving the property to the children, in line with her preferences, but to leave the mum life interest in the property. That would allow mum to Iive there for the rest of her days, but after her death the equity would be distributed in line with the percentages in grandma's will.

Grandma might have a £500k IHT allowance as the property would be inherited by direct descendants.

Voyager2002

I second the idea of a life interest, as suggested by RAS. 

RosieAnn

RAS said:

Under normal circumstances, the first question would be what does grandma want to happen? But it appears that a communal decision was made about ownership in which grandma may or may not have had much say?

Where did the money come from to buy the flat? Did or even do that person(s) expect their investment to remain within the family ownership, but not necessarily in mum's ownership? How is the property registered with Land Registry?

Property owned in the UK by an intestate estate would normally be distributed equally between children. 

Does grandmother ever come to the UK? Given her age, is she able to make financial decisions? And would she want to?

One option might be for her to make a will leaving the property to the children, in line with her preferences, but to leave the mum life interest in the property. That would allow mum to Iive there for the rest of her days, but after her death the equity would be distributed in line with the percentages in grandma's will.

Grandma might have a £500k IHT allowance as the property would be inherited by direct descendants.

To answer your questions

1. The property was bought for my partners mother when she moved to the UK with her son (my partner) back in 2012. She is a single mother and the grandparents very much brought my partner up. The money came from the grandparents 

2. The grandparents opinion is that the flat is to be their daughters in the UK. The only reason they chose to put into the grandmothers name, was at the time of buying the flat, my partners mothers (their daughter) was not very well (mental health problems). They were supposedly advised ' it was safer' to put it in their name .... I don't know what lawyer recommended this as basically it has created all this mess.

3. The grandmother does come to the UK but is becoming more frail and I imagine this year will be the last. She has the capacity to make decisions. 

4. The grandmother would like the property to go to her daughter solely and not split between her children. The other 2 children are significantly financial better off. The flat would also be my partners sole inheritance upon his mothers death- he is the only child and the mother has no other assets. 

RosieAnn

Voyager2002 said:

I second the idea of a life interest, as suggested by RAS. 

Would this not mean though my partner would not get any inheritance upon his mothers death? The flat has always been intended to be my partners mother, just legally it is not owned by her! Due to personal circumstances when buying it