Inheritance Tax - claiming exemption FA 1986 s102b(4) - form IHT403 & IHT404

mime20

Hello All,

I'm dealing with my father's estate and have some questions which I'm hoping to get some help with.

As background, I've lived in the same house with my parents all my life (I have a health condition). Back in 2002 they changed the ownership from them being 50/50 joint tenants to the 3 of us (my dad, mum & me) being tenants in common holding a 1/3 share each. They continued to pay the bills. They were advised at the time that the part of their share they gave to me wouldn't be a GROB (or POAT) as long as we all continued to live together and they paid all or at least their share of the bills. And after 7 years if this all continued it would be out of the estate. So that's all complied with.

House is worth £980,00 if sold complete, and I understand my dad's 1/3 share can be discounted by 10% = £294,000 as me & my mum (the co-owners) are remaining in occupation of the house as our main residence.

First question is re form IHT404 - jointly owned assets, Q1 p2: in box C where it asks date joint ownership started do I put the 2002 date when we all became joint owners or should I also put when they originally bought the house between them?

In box F (value of whole item), I take it I put £980,000 and in box G (value of deceased share) £294,000 - the discounted amount?

Second question is re form IHT403 - do I put the details of this transfer on p5 - "Gifts with reservation of benefit" ticking the "yes" box on q8: (...the decesed continued to have use & enjoyment, or a right or benefit, from the gifted asset?) claiming the FA 1986 s102b(4) exemption "under type of relief"? Or do I put in in box 19 - "Earlier transfers", ticking the "no" box on q8 as it isn't a gift with reservation of benefit?

Also, wherever it goes, for the "value at death" (of the 1/6 my dad gave me) do I put 1/6 of the full market value or 1/6 of the full value discounted by 10%?

Thanks in advance.

Keep_pedalling

If the only thing your father has left you is a 1/6th share of the house then an IHT return is not required as everything going to your mother is going to be covered by spousal exemption (unless there were not married or in a civil partnership). All that bequest does is use up part of his NRB which will not be transferable to your mother’s estate.

mime20

Hi, @Keep_pedalling,

sorry probably wasn't clear,

the 1/6 was given in 2002 when ownership was changed from my parents owning half each to my parents and I having a 1/3 share each. He has now left me his remaining 1/3 (and my sibling some money). 

It's the 1/6 that was previously given that I want to claim the exemption from being a gift with reservation of benefit (s102b) and I want to know how to account for that on the form.

Thanks

Keep_pedalling

Sorry I thought you meant his share was equally split between you and your mother. The original gift was not a gift with reservation of benefit as you are living there so it fell out of his estate under the 7 year rule so you don't need to declare it. 

Does the bequest to you and your brother exceed £325k? If it doesn’t you won’t need to do an IHT return. If it does then you will need to one as you will need to chain some of his RNRB to avoid having to pay IHT.

It is possible that it might be better to make a deed of variation to put the share of property into an immediate post death interest trust with your mother as the beneficial owner (you would automatically inherit it on her death) as this will avoid your estate being hit with a big IHT liability if you died before your mother, but it would wait to see what changes are applied to the IHT rules in the budget before doing that.

mime20

@Keep_pedalling

Hi, the bequests total £322,000 (so just under the NRB). I thought maybe by claiming the RNRB of £175,000 would mean that more of the "ordinary" NRB would be able to be passed on to be used on my mother's death - in case the RNRB is abolished at some point - or is that not how it works? Would you know?

Thanks

Keep_pedalling

mime20 said:

@Keep_pedalling

Hi, the bequests total £322,000 (so just under the NRB). I thought maybe by claiming the RNRB of £175,000 would mean that more of the "ordinary" NRB would be able to be passed on to be used on my mother's death - in case the RNRB is abolished at some point - or is that not how it works? Would you know?

Thanks

I can see nothing that says you can’t claim the RNRB to reduce the amount of TNRB being lost, but I am not 100% sure on that. It would be an unusual move as it means you have to do a full IHT return where one would normally not be required but I can see you line of thinking here.