Help with IHT following death of already deceased father's widow.

miguelmoya

Help needed please. My mother passed long before my father. He remarried and passed ten years ago BUT his second wife only passed this year. She was more wealthy than my father and owned a larger share of their house. My father's estate was lower than the IHT threshold but his widow's will be higher. Her family have appointed a lawyer to wrap up her estate. Said lawyer has written to me advising the quite substantial tax that will be charged against my father's share of the house. I cannot understand why any tax would be applicable as my father's estate (including the revision with his share of the house when sold) will remail comfortably beneath IHT threshold. HIs share of the house was held in a will trust for me and my siblings. Any comments welcome, thanks in advance.

NorthYorkie

We really need to know the exact wording of your father's will as it affects his share of the house (presumably held as tenants in common, but in what proportions?). Did he leave a life interest to his second wife with it only passing to you and your siblings on her death?

miguelmoya

Thanks NorthYorkie, yes they were tenants in common. My dad held 1/3 and his now deceased widow held 2/3. He gave free of tax to his trustees (just me and his widow) his beneficial share of the house. When the trust period ended, the trustees (only me left) shall 'hold any property as an accretion to his estate'. The trustees were to hold my dad's share on trust. 

miguelmoya

a snippet of the lawyer's letter; please note the newly deceased estate was well above IHT threshold prior to any house valuation. 
'I enclose a summary of the Estate Assets and the Trust Assets. As the total value of both the Estate and Trust Assets exceed the Inheritance Tax Nil Rate Band, there is a liability for Inheritance Tax in the sum of £xxx.xxx.xx. The Inheritance Tax payable is apportioned between the value of the share of the property in the Will Trust and the assets in Mrs X’s Estate. We have therefore calculated that the property in the Will Trust equates to X% of the value of the total Estate and therefore, the Inheritance Tax payable by the Will Trust is £xx,xxx.xx. The remainder of the Inheritance Tax payable will be borne by the Estate.'

NorthYorkie

You have told me who the trustees of your father's will trust are but that's not the point. Please state the exact wording of your father's will in respect of who benefits. Does it permit his second wife to occupy his share of the house during her lifetime?

Keep_pedalling

It sounds like his will created an immediate post death interest trust. This puts the legal ownership of the house in trust but the beneficial interest resided with his spouse, and for IHT purposes the whole house forms part of her estate so yes IHT can apply to to your father’s share.

What is the value of the house? What was the value of your father’s other assets? Who did he leave them to? 

miguelmoya

Yes she was allowed to stay in the house until her own passing. And to be held in trust by the trustees until then. Sorry i'm not sure i have too much more info to go on.

miguelmoya

Thank you Keep_pedalling, House circa £550k. My father had little other assets, if totaled today with 1/3 of the house at current supposed price would be approx £280k. It was valued for IHT after his death far less of course. He left his assets (other than smaller sums to grandchildren etc) to me and my siblings. 

Keep_pedalling

With both transferable NRBs available her estate would need to exceed £1M before IHT kicks in. If that is the case I a not sure how that tax burden is legally shared out among the beneficiaries. You would think that as assets are covered totally by his NRB then all of the tax should fall on her residual beneficiaries rather than your father’s trust. I think you need to take your own professional advice as it is very possible that the solicitor is wrong especially if their are not trust specialists. 

NorthYorkie

As second wife had a life interest in the trust assets (1/3 share of house + anything else), she is regarded as the beneficial owner of those assets and therefore their value is treated as part of her estate for IHT purposes. If this and her 'free estate' exceeds the available nil rate bands then IHT will be due on the total value. That liability is to be shared between the trustee of your father's will trust and the second wife's executors and will be apportioned pro rata to the respective values. So the solicitors are right.

If the trust has no other assets out of which its liability can be paid then it looks like the property (or at least its share thereof) will need to be sold, either jointly with the executors or maybe on its own to whoever inherits the remaining 2/3rds under the second wife's will. The tax may be paid by instalments.

miguelmoya

Keep_pedalling, thank you