Pros and cons of leaving share of house to child+child's spouse vs just child

Baggy2000

For a couple owning a house as tenants in common then what are the inheritance tax pros and cons of the first to die passing on their 1/2 share to a child and the child's spouse vs to just the child? For example numbers let's assume the house is worth £500k and the first person has £200k savings in their sole name.
Presumably, the nil rate band is unaffected so there would be no inheritance tax as £450k (1/2 share of £250k plus £200k savings) is less than £500k and there would remain £50k unused allowance for the surviving person to use on their death.

Keep_pedalling

The normal way of protecting your children’s inheritance of a share of your home is via an immediate post death interest trust. Where the couple are married or in a civil partnership, this avoids any IHT being paid on the first death, avoids a CGT liability when the house is sold later down the line, avoids losing your children their first time buyer status, uses none of of your NRB exemptions and protects the surviving spouse as they retain beneficial ownership of the home (50% of the legal ownership is held in the Trust).

These are fairly common clauses in wills especially if you are relatively young and  surviving spouse is more likely to remarry, and you can discuss this with your solicitor when making your wills.

PS. This is nothing to do with pensions so I have asked for this to be moved to the deaths, funerals and probate board.

Baggy2000

Thanks. In the scenario I gave I believe the spouse of a child still counts as a direct descendant.

Savvy_Sue

Baggy2000 said:

Thanks. In the scenario I gave I believe the spouse of a child still counts as a direct descendant.

I am not sure the child's spouse would count as a direct descendent. But all the drawbacks outlined by Keep_pedalling would still apply, even if they did. 

Plus ... since child's spouse is mentioned, we're talking adults. So you ignore the possibility of an IPDI Trust, and leave your half of a house to your adult child and spouse. Sadly, they divorce. They each own 1/4 of the house, and that is taken into account when their assets are considered. It's not a pretty divorce, and one of them wants as much as possible out of the other - to the extent that they would push for sale of the house (which the surviving parent still lives in, remember) in order to get what they want. 

Or, one of them needs to claim means-tested benefits. Their 1/4 of the house is taken into consideration, meaning their claim is turned down. But obviously, that 1/4 house is no actual use in putting food on the table, so what to do? See above. 

So can you see any actual disadvantage to a suitably worded IPDI Trust, which would enable the survivor to downsize / sell up and move into supported accommodation, and cover the scenario of remarriage or cohabitation?

Keep_pedalling

Baggy2000 said:

Thanks. In the scenario I gave I believe the spouse of a child still counts as a direct descendant.

They do, but your estate would not be able to take advantage of the RNRB, as your standard NRB is always used first.

Believe me making a will along the lines you propose is just asking for trouble for those you leave behind. I have outlined the cons there are no pros.