IHT, slightly complex situation

Scottish_Dorset

Hello all,

This is a follow up from a previous question asked, just trying to refine my understanding.  My mother-in-law has a property worth approx £750K and cash assets of approx £50K.  She was awarded her house on her divorce but 25% of the value would go to her ex-husbands's estate on her death or if she sold it.  She is unlikely to sell it.  He ex-husband has now died, he had an estate valued at £160K, he owned no property, his home belonged to his second wife.  

My mother-in-law is leaving the property to her two sons and the cash to her grandchildren.  Am I right in thinking, that she will have a combined IHT free allowance of a £500K.  The house valuation of £750K at 75% (her ownership part of the house) would be £562.5K.  This, less IHT free allowance, along with the £50K cash would mean £112.5K would be exposed to IHT, therefore £44.88K to pay (at 40% IHT).  Her ex-husband's portion of the house, £187.5K, which would go to his widow and she wouldn't have to pay IHT as his allowance of £500K would not have been reached.  That is £187.5K (25% value of the house) plus the £160K he had in assets when he died.  His will stated that his new wife would be the main beneficiary on his death.  

I understand, I believe, that the valuation of the estate would be slightly less after funeral and other costs were deducted, but is this the right idea of calculation?

Many, many thanks!

Keep_pedalling

I am not 100% sure on this, IHT is normally based on beneficial ownership and your mother would seem to be the beneficial owner of the house. How is ownership shown on the land registry? 

Scottish_Dorset

Keep_pedalling said:

I am not 100% sure on this, IHT is normally based on beneficial ownership and your mother would seem to be the beneficial owner of the house. How is ownership shown on the land registry? 

There is a charge against the property relating to the 25% to be passed on to her ex-husband, or to his estate since he has now passed away.

Keep_pedalling

To go off on tangent a bit, does her will take into to account that she may no longer own a house at the time of death which could disinherit her children and leave her grandchildren with everything? 

Grumpy_chap

Scottish_Dorset said:

Hello all,

This is a follow up from a previous question asked, just trying to refine my understanding.  My mother-in-law has a property worth approx £750K and cash assets of approx £50K.  She was awarded her house on her divorce but 25% of the value would go to her ex-husbands's estate on her death or if she sold it.  She is unlikely to sell it.  He ex-husband has now died, he had an estate valued at £160K, he owned no property, his home belonged to his second wife.  

My mother-in-law is leaving the property to her two sons and the cash to her grandchildren.  Am I right in thinking, that she will have a combined IHT free allowance of a £500K.  The house valuation of £750K at 75% (her ownership part of the house) would be £562.5K.  This, less IHT free allowance, along with the £50K cash would mean £112.5K would be exposed to IHT, therefore £44.88K to pay (at 40% IHT).  Her ex-husband's portion of the house, £187.5K, which would go to his widow and she wouldn't have to pay IHT as his allowance of £500K would not have been reached.  That is £187.5K (25% value of the house) plus the £160K he had in assets when he died.  His will stated that his new wife would be the main beneficiary on his death.  

I understand, I believe, that the valuation of the estate would be slightly less after funeral and other costs were deducted, but is this the right idea of calculation?

Many, many thanks!

Her Estate looks as though it will exceed the IHT threshold.
I do not believe that she can benefit from unused allowance in the ex-Husband's Estate.  I believe that will pass to his new Wife (Widow).

She needs to be sure that the 25% of the house that passes to the ex-Husband's Estate is structured such that it never formed part of her Estate.
It will be for the Executor's of the ex-Husband's Estate to determine any IHT due on that portion.
This looks like it could be complex for the Executor's of the ex-Husband's Estate as they will not be able to prepare final Estate Accounts until MiL passes on, which may be many years.

Does the value to be inherited by the ex-Husband's Estate freeze now that he has passed on, or continue to vary if the property value continues to vary?

Scottish_Dorset

Keep_pedalling said:

To go off on tangent a bit, does her will take into to account that she may no longer own a house at the time of death which could disinherit her children and leave her grandchildren with everything? 

No, the property goes to her two children, grandchildren get cash gifts.

Scottish_Dorset

Grumpy_chap said:

Scottish_Dorset said:

Hello all,

This is a follow up from a previous question asked, just trying to refine my understanding.  My mother-in-law has a property worth approx £750K and cash assets of approx £50K.  She was awarded her house on her divorce but 25% of the value would go to her ex-husbands's estate on her death or if she sold it.  She is unlikely to sell it.  He ex-husband has now died, he had an estate valued at £160K, he owned no property, his home belonged to his second wife.  

My mother-in-law is leaving the property to her two sons and the cash to her grandchildren.  Am I right in thinking, that she will have a combined IHT free allowance of a £500K.  The house valuation of £750K at 75% (her ownership part of the house) would be £562.5K.  This, less IHT free allowance, along with the £50K cash would mean £112.5K would be exposed to IHT, therefore £44.88K to pay (at 40% IHT).  Her ex-husband's portion of the house, £187.5K, which would go to his widow and she wouldn't have to pay IHT as his allowance of £500K would not have been reached.  That is £187.5K (25% value of the house) plus the £160K he had in assets when he died.  His will stated that his new wife would be the main beneficiary on his death.  

I understand, I believe, that the valuation of the estate would be slightly less after funeral and other costs were deducted, but is this the right idea of calculation?

Many, many thanks!

Her Estate looks as though it will exceed the IHT threshold.
I do not believe that she can benefit from unused allowance in the ex-Husband's Estate.  I believe that will pass to his new Wife (Widow).

She needs to be sure that the 25% of the house that passes to the ex-Husband's Estate is structured such that it never formed part of her Estate.
It will be for the Executor's of the ex-Husband's Estate to determine any IHT due on that portion.
This looks like it could be complex for the Executor's of the ex-Husband's Estate as they will not be able to prepare final Estate Accounts until MiL passes on, which may be many years.

Does the value to be inherited by the ex-Husband's Estate freeze now that he has passed on, or continue to vary if the property value continues to vary?

Yes, that is how I understand it.  She will have her own allowance plus the allowance for passing on to her direct descendants, her two sons and grandchildren.  They divorced about 35 years ago, the house is registered in her name only since the divorce.  Will she be able to reduce some of the 25% value (it has gone up a lot, it was built by the family business about 65 years ago) with the work she has funded over the last 35 years.  

Also, will her ex-husband's new wife now have to pay CGT as this house wasn't his primary residence for the last 35 years,  He didn't own another property, the house he lived in was in his second wife's name only.  His second wife is the executor of his estate and she has already administered it, so far.  My husband and his brother got £3K each, his second wife got £150K.

RAS

We've just seen a situation where the spouse was left two properties with the residual sum split three ways between the spouse and children. 

Fortunately the spouse has got a replacement house but the value of the other new house is now included in the residual sum.

If I understand what you've said about correctly, if the house is sold before death her children get nothing. The grandchildren will get their cash gifts if there's enough cash. Who are the residual beneficiaries, because they could end up with the bulk of the estate.

Scottish_Dorset

RAS said:

We've just seen a situation where the spouse was left two properties with the residual sum split three ways between the spouse and children. 

Fortunately the spouse has got a replacement house but the value of the other new house is now included in the residual sum.

If I understand what you've said about correctly, if the house is sold before death her children get nothing. The grandchildren will get their cash gifts if there's enough cash. Who are the residual beneficiaries, because they could end up with the bulk of the estate.

The house won't be sold until she has died.  She is 90 now and has no intention of moving.  It is in her will that the bulk of her estate will go to her two children.

Keep_pedalling

Scottish_Dorset said:

Keep_pedalling said:

To go off on tangent a bit, does her will take into to account that she may no longer own a house at the time of death which could disinherit her children and leave her grandchildren with everything? 

No, the property goes to her two children, grandchildren get cash gifts.

So what happens if she ends up in care and the house is sold to fund that care? Her children won’t have a house to inherit but there could still be plenty of cash for the GC to inherit. 

Scottish_Dorset

Keep_pedalling said:

Scottish_Dorset said:

Keep_pedalling said:

To go off on tangent a bit, does her will take into to account that she may no longer own a house at the time of death which could disinherit her children and leave her grandchildren with everything? 

No, the property goes to her two children, grandchildren get cash gifts.

So what happens if she ends up in care and the house is sold to fund that care? Her children won’t have a house to inherit but there could still be plenty of cash for the GC to inherit. 

I can understand you Devil's Advocate point of view, however that is not what I am asking.  I am asking specifically about the IHT with a charge over a property and how this would be calculated.