Query re tax implications of leaving a rental property in will.

annie42

Re my will I have said that two rental properties should be retained so my husband can benefit from the income until he dies and then be sold and the proceeds given to my grandchildren. He will also get 20% of my residual estate. I could increase that percentage and leave the properties directly to my grandchildren instead which I think may be better in terms of settling my estate within a reasonable time frame. If I leave my will as it is now then the properties remain part of my estate until such time they are sold and I assume there will be a further liability when they are finally sold at increased prices. As another alternative I could just leave the properties direct to the grandchildren and instead ask my daughter, who I know I can trust implicitly, to pay a monthly allowance to my husband out of her share of my estate. Is this a hair brained idea or feasible? Thanks in advance 

kimwp

Are people in your family happy to manage the rental properties?

annie42

The managing agents I use to find and vet tenants are designated to manage them if I die before my husband. 

Keep_pedalling

You should consult a STEP solicitor with regard to drawing up your will. It is likely that the most tax efficient option is for your will to create an immediate post death interest trust. This protects your husband’s security and your GC,s inheritance and avoids a CGT liability for your GC when the properties are sold after his death.

There are however some circumstances where this may result in additional IHT when the surviving spouse is from a second marriage and they have significant assets of their own so professional advice from an appropriate solicitor should be sought. 

DRS1

As mentioned above if you are going to do this then the properties should go into a trust and not be "retained" in your estate.  Administration of your estate is not meant to last for the rest of your husband's life.

You also need to think about who pays the expenses.  Your husband or your grandkids?  You may say the rent will cover it but what if the properties are vacant.  What if they need structural repairs?  A solicitor may talk about income expenses and capital expenses but bear in mind that if the only assets of the trust are the properties there is no money to cover the capital expenses.

It would be much easier to leave the properties outright to your husband.

Keep_pedalling

DRS1 said:

It would be much easier to leave the properties outright to your husband.

Not if her husband is not the father of her children

poseidon1

annie42 said:

Re my will I have said that two rental properties should be retained so my husband can benefit from the income until he dies and then be sold and the proceeds given to my grandchildren. He will also get 20% of my residual estate. I could increase that percentage and leave the properties directly to my grandchildren instead which I think may be better in terms of settling my estate within a reasonable time frame. If I leave my will as it is now then the properties remain part of my estate until such time they are sold and I assume there will be a further liability when they are finally sold at increased prices. As another alternative I could just leave the properties direct to the grandchildren and instead ask my daughter, who I know I can trust implicitly, to pay a monthly allowance to my husband out of her share of my estate. Is this a hair brained idea or feasible? Thanks in advance 

My interpretation of what your will actually states is that 2 properties are held in trust for life for your husband ( to receive the rental income as of right), then on his death the properties are required to be sold and proceeds split between grandchildren.

This sounds very sensible, tax efficient,  non contentious and probably the result of sitting down with a solicitor who has carefully worked out this solution as optimum outcome for the dynamics of your family. 

Despite your thoughts to the contrary this does not 'extend ' the settlement of your estate way into the future. The trust, once established after probate granted, has a life and exsistence of its own during your husband's lifetime. Perhaps the solicitor could have been more expansive in their explanation of this arrangement.

What is not clear to me is why you want to tear up the will in favour of an alternative arrangement that is not IHT efficient ( leaving the properties to grandchildren) and clearly not sensible ( ie expecting your daughter to make informal  hand outs to your husband ).

Apart from the fact that such an arrangement cannot be legally enforced on your daughter, it would be unseemly and embarrassing from husband's point of view..

My question, therefore is what has happened since  the drawing up of your current will, to prompt this complete about face in the arrangements for your husband? 

 As regards the rental properties, what are their current values? If collectively above £325k are you happy for grandchildren to suffer IHT thereon ( under your revised plan of action) bearing in mind your current will ensures no iht arises on the trust for life for your husband .

One last point. If you predecease your husband the properties ( as well as all your other assets ) receive a capital gains tax free uplift. If then held in trust for husband until his death, there is a 2nd occassion when the properties are then increased CGT free. In short death eliminates capital gains tax, although on your husband's subsequent death, IHT may be in point.