IHT and Joint Tenant Property

Jesus_take_the_wheel

I would be grateful for any clarity on the following. Thank you in advance.

A house has been owned by mother and daughter as joint tenants (meaning each owns 100%) for well over 7 years.  The mother has passed away meaning that the daughter automatically becomes the sole owner via survivorship. However, for the purpose of IHT, the house has been valued and that value has been halved to contribute towards the deceased estate value.  The half value is £115,834 (The average of valuations provided by 3 estate agents and halved). I would be grateful if the following queries could be clarified. Thank you for your time.

1)      The IHT guidance seems to suggest that I deduct a further 10% from the deceased half (I believe this would be £11, 583) making a house value to contribute towards the deceased estate of £104, 251. I don’t expect you to check my calculations. I just hope to be advised on whether I am correct to deduct this further 10%. Thank you.

2)      Two solicitors, who are aware of the joint tenancy, have informally advised that £500,000 can be inherited before IHT is expected. I believe that they must be adding the nil rate band of £325,000 and the RNRB of £175,000. However, on using the calculator provided by HMRC, it says that only £100,000 of the RNRB’s £175,000, can be used. Is this because the mother’s ‘half’ is less than £175,000? If so, does this mean that the amount not liable to IHT will be £425,000 rather than the £500,000 that the solicitor’s suggest or might I be missing something? Thank you.

3)      In using the calculator mentioned in point 2 above, I am asked ‘Did the residence pass to a direct descendant’ with options to tick;

Yes, all of it passed

Yes, some of it passed

 As joint tenants, I was unsure whether to tick the option of ‘some of it’ as the daughter already owned it, but for the purpose of IHT it has been halved, or, ‘all of it’ because all of the house is owned by (passes to) a direct descendant.

 4)      As joint tenants, I believe that the house contents are also valued as joint tenants (half mother, half daughter).  If this is correct, will these automatically be inherited by the daughter as the house itself is even though the value will need to contribute to the deceased estate for IHT purposes, or, will these need to be valued for other beneficiaries (There is no Will)?

 5)      If the house contents are not automatically owned by the daughter, are you able to explain how they will be distributed to the other beneficiaries. For example, the daughter bought an inexpensive, charity shop, sofa to be used in the house about 9 months before her mother passed. Will the value be halved and then what will be considered the mother’s half, shared between the other beneficiaries?

 6)      On reading the HMRC guidance, it seems to say that the fee for probate cannot be deducted from the value of the deceased’s estate. On reading an online solicitor’s page, it suggests that it can. I am wondering whether this discrepancy might be explained by the following:

 The probate fee cannot be deducted from the value of the estate before calculating it for IHT, but when the estate is ready to be distributed between the beneficiaries, it can be deducted.

 Thank you so much for your time. I want to make sure that I am doing this correctly as I really don’t want HMRC or probate to query anything. I am tired and grieving. Thank you.

 

 

 

Keep_pedalling

If the daughter lived with her mother then the household items would usually be classed as joint assets. For IHT purposes lumping all the household goods for a nominal sum will suffice. 

What was the marital status of the deceased? Ignore minor stuff like household items what is the total value of her estate?

NorthYorkie

Re your Question 1: see the Valuation Office Manual at Inheritance Tax Manual - Section 18: undivided shares - Guidance - GOV.UK which refers to a 15% discount if the daughter is exercising her right of occupation.

Question 2: Yes, you only get the Residential Nil Rate Band on the lowest of (a) the value of Mother's share of the residence or (b) £175,000.

Question 3: Yes, the whole of the mother's interest in the residence passed to a direct descendant.

Questions 4 & 5: see above

Question 6: Probate fees cannot be deducted in valuing the estate for Inheritance Tax purposes see IHTM28381 - Liabilities: law relating to debts: legal background - HMRC internal manual - GOV.UK, nor can they be deducted in arriving at the taxable income of a residuary beneficiary of the estate, see TSEM7914 - Deceased persons: Personal representatives' expenses: What expenses are not allowable? - HMRC internal manual - GOV.UK

Jesus_take_the_wheel

Hello Keep-Pedalling, thank you for your time,

Jointly owned house contents- 

After many years of the mother and daughter living at the jointly owned property together,  the daughter moved out.  A few years ago, the daughter  became the main carer for her ill mother,  being there daily, though officially lived at another address. Does this mean that the house contents are no longer considered jointly owned? If this is the case, do I now need to list each item separately for intestacy rules?

Marital status-

The mother was divorced.

Estate value-

The total value of the mother's estate is about £250,000. I understand that this is below the nil rate band of £325,000, but thought that using the RNRB (making £425,000) was wise as HMRC will see that the estate value is well below the threshold for IHT which might help things run smoothly.

I have completed the form which checks whether IHT is due because I believe that I must do this, but on providing a house value for a jointly owned property and for RNRB, it has provided 2 values at the end. Must I make a choice on which I do?

Thank you for your time.

Jesus_take_the_wheel

Hello NorthYorkie,

Thank you for your time in answering my questions and for providing the links. 

If I have interpreted the information correctly, it seems to suggest that expenses incurred after the date of death, such as probate fees, cannot be deducted from the estate value for IHT purposes, as you suggest.

When I requested a WiIl Search with the National Will Register, I was told that their fee would be deducted from the estate. Perhaps it can be deducted from the estate after it has been calculated for IHT.

Thank you again. You have helped me get on
Teresa

NorthYorkie

I am a bit confused! Was the daughter living at the house or not? You say that the daughter 'moved out' at some point in the past and then you say that, as a carer, she attended every day but "officially" lived at another address. What does this mean? 
If the daughter was not exercising her right of occupation, then the discount from the valuation mentioned earlier would only be 10%.

You say that the estate is only valued at £250,000 (which I assume includes the value of her half-share of the house?), so there is no IHT due and the question of who owns the contents is irrelevant for those purposes. As the mother did not leave a will, then her estate will be distributed under the intestacy rules. Are we to assume that the daughter is the only child of the mother? If so she will inherit the lot, so it really doesn't matter who owned the contents.

Jesus_take_the_wheel

Hello NorthYorkie,

Thank you for getting back to me.

I understand that only 10% is likely to apply because you stated that 15% would apply if the daughter was exercising her right of occupation. I don't think that she would qualify for 'exercising right of occupation' as explained below and think that 10% is fine.

Being very close to her mother, the daughter didn't move far (just down the road). On her mother becoming ill several years later, the daughter was named as the main carer being their daily to support her mother and her needs. However, she maintained her residency  (eg driving license, council tax, etc)  as the address that she moved to.

With regards to the household contents, I am trying to establish who probate will accept as owning them for the following reason ( though I understand that this might now have moved to a probate query rather than an IHT one and might need to be asked elsewhere)

I understand that the rules of intestacy will apply and that the value of the estate (excluding the jointly owned property which automatically passes to the daughter via survivorship) will be shared among the beneficiaries. If the daughter, as the joint owner of the property (and now the only owner), owns the household items, I won't feel the need to find a precise value for each item because it is already obvious that the estate's value will be well below IHT. However, if the daughter is considered not to own them, I believe that the items (or their value) will be included in the estate to be distributed to the beneficiaries under intestacy rules. In this sense, it could be a more laboursome task. It won't be much, but I am so tired and grieving and want to do this correctly so that it will be accepted on first submission.

Thank you again

sheramber

When my father dued my mother inherited the house as joint owner.
 

The solicitor valued the contents at a nominal £500 as second hand goods have minimal value. 

Jesus_take_the_wheel

Hi Sheramber,

Thank you for your input.

 As joint owner, I imagine that your mother was also the joint owner of the household contents, so I can see how a nominal value would suffice (If IHT is unlikely).

In this case, if probate do not accept the daughter as the owner, I believe that whatever I put the value as will be distributed between all beneficiaries. In this case, it might need to be precise. On another thread, I recall reading that probate wanted evidence for every penny. I am trying to be as conscientious as I can so that the first probate application is accepted. 

NorthYorkie

You refer to 'all beneficiaries', so therefore it is not just the daughter who will benefit under the Intestacy rules.
In my opinion, the fact that the house itself was jointly owned by the mother and daughter does NOT necessarily mean that the contents were also jointly owned. It would ultimately be a question of fact (which may now be impossible to determine) as to who owned what. The contents could be split into personal items (jewellery, clothing etc.) and furniture/furnishings. The daughter moved out of the house some time ago and she would have taken her personal items with her. She would, I assume, have had to furnish her new home, either by buying new furnishings or taking some from mother's house. Either way, I think there is a strong argument for saying that all the contents at the date of death are part of the mother's estate and fall into the residue to be shared between all the beneficiaries. (An exception here might be the sofa you mentioned in your first post - this could be a gift from daughter to mother and therefore the mother's property or it might still be the daughter's property. But the value involved will be insignificant, so it doesn't really matter.)

You have expressed concern that the Probate Service may not accept the figures/assets put forward in the probate application (actually you will be applying for Letters of Administration). As far as I am aware, the Probate Service do not seek to check the figures; they merely record the application and issue the Letters of Administration, Remember that all you are asked for is an estimate of the value of the estate.

The main question that you need to resolve is what are you going to do with the contents? For personal items it may be that the beneficiaries would like, say, a particular item of jewellery as a memento, or a particular piece of furniture. If everyone is agreeable then I would let them take those items. Anything remaining should probably then be sold and the proceeds distributed equally.

I am assuming there is no bad blood amongst the beneficiaries and no prospect of any dispute between them over the distribution of the estate. 

Jesus_take_the_wheel

Thank you for your time in providing a detailed, considered response,. NorthYorkie. 

I had read it some time ago, but was having a chat and a think.

Perhaps, in my conscientiousness, I have read into the literature too deeply. It suggests that probate can request evidence for the valuations, though I guess that I will need evidence of how I conduct the estimates anyway and as the estates value will be well under the value required for IHT, they might not be bothered on the valuations being precise..

As for who owns what, I think that they would rather own none of it and have the mother back again. 

Thank you for talking it through with me