Do we need to pay Inheritance Tax

Blue_Manc

My mum passed away last week, and we are working to get everything in order. My three sisters and I have been named executors of her estate. I was my parents' carer (my dad passed away a few years ago) and have always lived in the family home with them. According to the will, I have the right to stay in the house without being forced to sell by any of my sisters, though I will likely sell in the future, as the house is too big for just me. Based on similar properties in the area, we estimate the house is worth around £550k.

We are all quite inexperienced in dealing with these matters and are unsure about the inheritance tax implications. We are particularly confused about whether we have been left the house in the will or if it means something different. Any guidance would be greatly appreciated.

Flugelhorn

as your parenst will  each have had an inheritance tax allowance which could be transferred to the surviving  spouse .  if the property is left to family  you are unlikely to have to pay any IHT unless  the estate including property  is in excess of £1 million

Keep_pedalling

As above assuming your father left everything to your mother then there will be no IHT if the total estate value does not exceed £1M. On the same assumption, If his estate is less than £650k you also won’t need to do an IHT return. 

The will creates an immediate post death interest trust and until you decide to move out the trust will be the legal owner of your home with you as the beneficial owner. Your siblings cant  inherit until the house is sold. As the beneficiary of the trust this could have IHT implications for your estate should you meet an untimely early demise or you decide not to sell and stay put.

Blue_Manc

Thanks both, that's really helpful.

@Keep_pedalling "As the beneficiary of the trust this could have IHT implications for your estate should you meet an untimely early demise or you decide not to sell and stay put."

In what way? (just thinking ahead!)

Sea_Shell

"The will creates an immediate post death interest trust" 

Do these sort of trusts need to be registered with HMRC?

RAS

IPDI trusts do now have to be registered with HMRC. People were quoting 2 years post death, but one recent poster was fined by HMRC after 90 days.

Can't remember if that was 90 days post death or post probate, but I did find a reference to 90 days in one gov.uk document, which applies in specific circumstances.

Blue_Manc

What's a IPDI, is it bad and how do we deal with it?

poppystar

Blue_Manc said:

What's a IPDI, is it bad and how do we deal with it?

No, it’s not bad. It gives you the security of your home until such time as you wish to leave or pass yourself. In other words your siblings can’t access their share of the house yet - hopefully this won’t be bad in terms of relationships. The comment above re your own estate is that if you are still there when you die the whole amount will be taken to be yours as you have had the beneficial ownership of it, so it could have an impact on if or how much your own estate will be liable for IHT at that point. For your siblings there is a benefit as there will be no liability on them at that point for CGT (capital gains) which they would have had had there not been an IPDI. 

Overall I’d say it is good as there will be no immediate pressure on you to move or sell when you have already had a big change in your life. 

RAS

An Immediate Post Death Interest Trust isn't bad. 

It secures your right to live in the house and protects your siblings from the costs of maintaining the house, any benefits issues, CGT, or second home SDLT and prevents claims against it as an asset if any relationship breaks down.

Since you are living in the house CGT isn't an issue for you. 

I would get on registering it with the HMRC as my vague recollection is that the shorter time period refers to IPDI trusts where the beneficial owner isn't a spouse? 

You need to ask K_p about the IHT implications for your estate.
 

poseidon1

poppystar said:

Blue_Manc said:

What's a IPDI, is it bad and how do we deal with it?

No, it’s not bad. It gives you the security of your home until such time as you wish to leave or pass yourself. In other words your siblings can’t access their share of the house yet - hopefully this won’t be bad in terms of relationships. The comment above re your own estate is that if you are still there when you die the whole amount will be taken to be yours as you have had the beneficial ownership of it, so it could have an impact on if or how much your own estate will be liable for IHT at that point. For your siblings there is a benefit as there will be no liability on them at that point for CGT (capital gains) which they would have had had there not been an IPDI. 

Overall I’d say it is good as there will be no immediate pressure on you to move or sell when you have already had a big change in your life. 

What poppystar said, except if you die whilst still in residence your estate will be limited to your nil rate band  (£325k) only. 

Since your sisters or their descendents would inherit  the property at that point, since they are not direct descendents of you, the £175k residence nil rate band would be disallowed for your estate - see below

https://techzone.aberdeenadviser.com/public/iht-est-plan/residence-nil-rate-band-guide#:~:text=Direct descendants,-Children, grandchildren and&text=However, foster, adopted, wards,then no RNRB is available.

In other words there would likely be IHT payable on your death assuming the NRB remains unchanged and the property value continued to appreciate whilst occupied by you.

Selling the property would terminate the trust and release your siblings 2/3rds share of the proceeds. Only issue is whether your 1/3rd would be sufficient for you to find something suitable.

Sea_Shell

poppystar said:

Blue_Manc said:

What's a IPDI, is it bad and how do we deal with it?

No, it’s not bad. It gives you the security of your home until such time as you wish to leave or pass yourself. In other words your siblings can’t access their share of the house yet - hopefully this won’t be bad in terms of relationships. The comment above re your own estate is that if you are still there when you die the whole amount will be taken to be yours as you have had the beneficial ownership of it, so it could have an impact on if or how much your own estate will be liable for IHT at that point. For your siblings there is a benefit as there will be no liability on them at that point for CGT (capital gains) which they would have had had there not been an IPDI. 

Overall I’d say it is good as there will be no immediate pressure on you to move or sell when you have already had a big change in your life. 

The bits I've highlighted...

The OP states that they will probably sell, eventually, as the house is too big. There is no rush to do this.

However, whilst you get to continue to live there, your 3 siblings are unable to benefit from the ~£130k that would be due to each of them following a sale.

With that in mind, will you be able to afford to sell and buy somewhere else with your £130k??

Although this is obviously what your parents wanted, they may not have considered the potential wider sibling dynamics, over time.


Hopefully it will all work out for you all.