Inheritance tax and tenants in common

Hazel123

Some help to work this out needed.  Joint owned property between two relatives, held as tenants in common.  It's also a business/smallholding.  Both shares of the property worth more than the IHT tax threshold.  If relative 1 leaves their share to relative 2 in a will, will relative 1 have to pay IHT on the inherited share if relative 2 dies?  If relative 1 leaves their share to their partner (unmarried) as a life interest, then to their children, will the unmarried partner have to pay inheritance tax?

Just thinking this could lead to a double inheritance tax bill.  Property rich, cash short.

Albermarle

 If relative 1 leaves their share to relative 2 in a will, will relative 1 have to pay IHT on the inherited share if relative 2 dies? 

I do not quite follow this question, are you sure you have not got your 1 & 2 mixed up somewhere ?

sheramber

Relative 1/2  does not pay any IHT.

The estate of the person who dies pays any IHT due on the value of the estate before any distribution of the estate to beneficiaries.

Relative 1 dies - any IHT due paid by his executor   to HMRC. before the balance is distributed per will,

If there is enough in the estate to pay IHT without disposing of the smallholding which is willed to relative 2 then relative 2 inherits it.

When relative dies the small holding is part of their estate which will be subject to any IHT.

Similarly if relative 2 dies first then his executor  pays any IHT due before distributing the estate. etc as above.

Note there is business relief for business assets.
https://www.gov.uk/business-relief-inheritance-tax#:~:text=Any ownership of a business,the owner is still alive

Hazel123

Sorry yes I did get the 1's and 2's mixed up :-)

Ok Relative one dies - leaves their share to Relative 2.  Relative 2 then has to pay IHT but doesn't have the cash.  I guess has to borrow it.

Relative 2 then dies and leaves their share to their partner (now worth double so a LOT of IHT) and their partner doesn't have the cash to pay IHT.

This is the issue.  But - I note the link to business relief and will check that out.  That might avoid IHT for Relative 2 if Relative 1 dies but presumably wouldn't apply to Relative 2's partner if it is no longer a business after both 1 and 2 have died.

Presumably you can't rely on selling property to pay the IHT?

Jeremy535897

IHT is a problem where, for example, two elderly siblings jointly own a house that is valuable, but they have little in the way of realisable assets. IHT can be paid over a 10 year period when it relates to property, but with interest.
Perhaps relative 2 should marry or enter into a civil partnership with their partner, as Ken Dodd did on his deathbed.
You should be aware that IHT agricultural property relief and business property relief will not cover the house if it is disproportionate to the size of the land used in the business/smallholding.

Keep_pedalling

If this is a long term partnership they really should get married or become civil partners otherwise there is no spousal exemption. As it stands IHT would be due if he died tomorrow and this could force the sale of the property if there were no other assets to meet the IHT liability regardless of who he leaves it to.