Reservation of Benefits/IHT in Scotland

Gimmeaminute

I have what I perceive to be a really complex issue so hoping for some guidance as to what to expect (Solicitor is not available for another month and I don't know if we have got that long TBF). We live in Scotland (moved here from England in 2018) and my MIL is fast approaching end of life. I'll mention @buddy9 now as from what I have read, they are the best person to speak to about the process in Scotland.

So, Scottish law is weird and you cannot disinherit a child. My MIL has 2 kids and if her estate is willed, her son (black sheep of the family who lives in England) stands to inherit many tens of thousands (regardless of her wishes in the will) which she does not want. My MIL would like to be able to gift most of the £200K she has left to her daughter/grandkids, but does not know how to do that to avoid stepping foul of the law, so I'll mention some facts below in the hope that someone can assist.

2013 - My FIL dies. We sell our house in the south of England and move in with MIL, spending the profit from the sale of our house of around £100K installing central heating, extending her house, so garage extension, rear extension, front extension to add a new bathroom. My MIL transfers the house to us (worth around £200K at the time) and there is something written in that says she can stay with us.

2018 - We sell the house and move to Scotland. The house here is entirely in the name of myself and my wife and mentions nothing about my MIL staying with us.

2025 - The house in Scotland is probably worth around £430K now, MIL has already gifted us around £30K over the last few years and she has approximately £200K left in various bank accounts. In case it is relevant, my MIL has not paid any rent or bills for the last 12 years (fine by me as that is what we signed up for).

We think we understand that there is an overall limit of £650K for IHT purposes from her and when my FIL died.

So, my query is, how does my MIL dispose of her £200K quickly so that she gives it to the people she wants to and not her son who couldn't even be bothered to turn up to his father's funeral? I honestly don't think that 'care' will be an issue, so probably does not have to be considered in this case. We are trying if poss to stay under the IHT threshhold.

Thanks for taking the time to read my post, probably not relevant for a large proportion of you.

Keep_pedalling

It is only the movable estate the son will have any claim to not property or land, so if she has the mental capacity to do so she could gift the bulk of her cash savings away now. I don’t think he can make any claim on gifts freely given before death but I am sure buddy9 will be able to throw more light on this.

Gimmeaminute

Thank you. Think another concern is probably if the reservation of benefits continued after the move to Scotland, would IHT include the  current value of the Scottish property, despite it being in the name of my wife and I since 2018? If yes, value plus gifts plus bank balances would possibly exceed £650k. 1st world problems i know, but got 2 kids to put through uni, buy a car, deposit for a house etc so it would be good to know what to expect.

user1977

I'm not aware of any principle that lifetime gifts come into the son's rights at all, the legal rights of the offspring only apply to the estate as at the date of death.

And yes, that sounds like a gift with reservation. Not sure whether your contribution to the previous house means that gets apportioned somehow.

buddy9

By gifting I don’t see how there is potential to fall foul of the law.

I think this would work if the money was gifted to daughter and grandchildren. There is the potential for collation where lifetime gifts can be taken into account in boosting another claimant's (son’s) amount if legitim is being claimed after death. But with a will, the son would be the only potential legitim claimant and collation should therefore not be available.

The GWR is more difficult. I can see the potential link, but not sure how this would fall.

Gimmeaminute

Thanks for your input @buddy9.

So, given that there is nothing mentioned anywhere now about my MIL needing to stay with us in our current house, I think there's a few options about what might be counted towards her estate for IHT purposes. If you could 'best guess' what scenario best fits it would be much appreciated. I promise I will not hold you to it.

So..

1. Capital left plus gifts given out by MIL over the last 7 years.
2. No 1 plus the value of the English house when my FIL died in 2013.
3. No 1 plus the value of the English house when it was sold.
4. No 1 plus the price we paid for the Scottish house.
5. No 1 plus the current value of the Scottish house.
6. Something else.

I am going on the assumption that my MIL gets double the limit, so £650k as her husband died first, so option 5 would mean that we would be extremely close to having to pay some IHT. 

Sorry, would normally just have waited to speak to our solicitor, but ours is not available till mid March and we might not have that long.

Thanks.

buddy9

OK so here is my fiction:

House in England GWR but not full house value because full use not available to MIL. Lets say 50% of value.

House improvements funded by you. Determine how much of the sale value reflected improvements (very subjective) say 15%

Say 35% of the sale value reflects the GWR.

Determine what % of the Scottish house purchase price represents 35% of the English house sale value (=X%). Consider X% of the Scottish house value at time of MIL’s death to be the GWR total.