First time buyer status & property inheritance

se2020

Keeping this brief,

Parent has passed away.
Property, owned outright,  has been left in the will to 4 children with the provision that the parents partner can remain in the property for as long as they wish.


3 of the 4 children currently have ftb status.

2 of those are actively house searching and have deposits in LISA'S

At what point does the ownership of the property pass to the children in this situation?

How do the children avoid loosing the benefits of FTB status & paying Lisa penalties?

Thanks for any advice!

p00hsticks

@Keep_Pedalling has previously posted a reply to similar queries over on the 'Death, Funerals & Probate' board, so I'm hoping they may be able to help on this one. I think a lot will depend on the exact wording of the will as to whether it is effectively creating a trust. 

NorthYorkie

Please let us know the precise wording of the will as it refers to the property.

se2020

There are 3 or 4 pages of the will that refer to the property, 
I'll see if I can work out how to upload photos of those pages or I can type them out manually.

It does state "trustees"  multiple times and looks like it has been professionally written so hopefully this situation has been accounted for?

Keep_pedalling

It is almost certain that her will has created an immediate post death interest trust. This puts legal ownership into trust but beneficial ownership resides with her partner. The children are classed as remaindermen and don’t inherit anything until the trust is wound up on his death or once he no longer has use of the property.

This does not affect the children’s status as property owners or for claiming benefits. 

Was your mother married to her partner? If not there could be IHT issues if her estate exceeds £325k.

se2020

Keep_pedalling said:

It is almost certain that her will has created an immediate post death interest trust. This puts legal ownership into trust but beneficial ownership resides with her partner. The children are classed as remaindermen and don’t inherit anything until the trust is wound up on his death or once he no longer has use of the property.

This does not affect the children’s status as property owners or for claiming benefits. 

Was your mother married to her partner? If not there could be IHT issues if her estate exceeds £325k.

This is pretty much my understanding from reading it. 
Partner has a lifetime interest and it does not pass to the children until partner passes away or goes into care.

No, not married. The value of the property will be over £325k but not much in the way of assets apart from the property (that I am aware of at this stage)

Keep_pedalling

se2020 said:

Keep_pedalling said:

It is almost certain that her will has created an immediate post death interest trust. This puts legal ownership into trust but beneficial ownership resides with her partner. The children are classed as remaindermen and don’t inherit anything until the trust is wound up on his death or once he no longer has use of the property.

This does not affect the children’s status as property owners or for claiming benefits. 

Was your mother married to her partner? If not there could be IHT issues if her estate exceeds £325k.

This is pretty much my understanding from reading it. 
Partner has a lifetime interest and it does not pass to the children until partner passes away or goes into care.

No, not married. The value of the property will be over £325k but not much in the way of assets apart from the property (that I am aware of at this stage)

Unfortunately with the house going into trust rather than directly to her children the residential NRB can’t be claimed so there will be an IHT liability as spousal exemption can’t be claimed either.

What is the value of the house? 

se2020

Keep_pedalling said:

se2020 said:

Keep_pedalling said:

It is almost certain that her will has created an immediate post death interest trust. This puts legal ownership into trust but beneficial ownership resides with her partner. The children are classed as remaindermen and don’t inherit anything until the trust is wound up on his death or once he no longer has use of the property.

This does not affect the children’s status as property owners or for claiming benefits. 

Was your mother married to her partner? If not there could be IHT issues if her estate exceeds £325k.

This is pretty much my understanding from reading it. 
Partner has a lifetime interest and it does not pass to the children until partner passes away or goes into care.

No, not married. The value of the property will be over £325k but not much in the way of assets apart from the property (that I am aware of at this stage)

Unfortunately with the house going into trust rather than directly to her children the residential NRB can’t be claimed so there will be an IHT liability as spousal exemption can’t be claimed either.

What is the value of the house? 

Somewhere around £550 at a guess?
Not actually looked into the value of it as I didn't really think it would be relevant as it's not going to be sold. 
So, it needs valuing for probate?
Then IHT becomes due?
Who's liable for the IHT?

Keep_pedalling

se2020 said:

Keep_pedalling said:

se2020 said:

Keep_pedalling said:

It is almost certain that her will has created an immediate post death interest trust. This puts legal ownership into trust but beneficial ownership resides with her partner. The children are classed as remaindermen and don’t inherit anything until the trust is wound up on his death or once he no longer has use of the property.

This does not affect the children’s status as property owners or for claiming benefits. 

Was your mother married to her partner? If not there could be IHT issues if her estate exceeds £325k.

This is pretty much my understanding from reading it. 
Partner has a lifetime interest and it does not pass to the children until partner passes away or goes into care.

No, not married. The value of the property will be over £325k but not much in the way of assets apart from the property (that I am aware of at this stage)

Unfortunately with the house going into trust rather than directly to her children the residential NRB can’t be claimed so there will be an IHT liability as spousal exemption can’t be claimed either.

What is the value of the house? 

Somewhere around £550 at a guess?
Not actually looked into the value of it as I didn't really think it would be relevant as it's not going to be sold. 
So, it needs valuing for probate?
Then IHT becomes due?
Who's liable for the IHT?

The estate is liable for any IHT that is due. I forgot to ask was she also a widow? If she was the estate claim any unused NRB from her husband could avoid the IHT issue. If she wasn’t a widow then I am afraid there is going to be a substantial IHT bill to pay unless you can come to some sort of arrangement with her partner and make a deed of variation.

poseidon1

se2020 said:

Keep_pedalling said:

se2020 said:

Keep_pedalling said:

It is almost certain that her will has created an immediate post death interest trust. This puts legal ownership into trust but beneficial ownership resides with her partner. The children are classed as remaindermen and don’t inherit anything until the trust is wound up on his death or once he no longer has use of the property.

This does not affect the children’s status as property owners or for claiming benefits. 

Was your mother married to her partner? If not there could be IHT issues if her estate exceeds £325k.

This is pretty much my understanding from reading it. 
Partner has a lifetime interest and it does not pass to the children until partner passes away or goes into care.

No, not married. The value of the property will be over £325k but not much in the way of assets apart from the property (that I am aware of at this stage)

Unfortunately with the house going into trust rather than directly to her children the residential NRB can’t be claimed so there will be an IHT liability as spousal exemption can’t be claimed either.

What is the value of the house? 

Somewhere around £550 at a guess?
Not actually looked into the value of it as I didn't really think it would be relevant as it's not going to be sold. 
So, it needs valuing for probate?
Then IHT becomes due?
Who's liable for the IHT?

Bit confusing having two separate threads running on the same topic. Would be helpful if it was merged.

In any event based on the parties being unmarried and an estimated value of £550k for the property, minimally £225,000 is exposed to IHT at 40% ie a £90,000 IHT bill on the house. Of course if the parent left any other assets such as cash, isas etc, there would be further IHT due thereon.

You should note the IHT is payable within 6 months of death, thereafter interest will run on the tax unpaid.

By not marrying the surviving partner, the deceased parent has evidently left behind a real mess for the parties to now resolve, not least being the £90k in tax now on the horizon.

Urgent legal advice is now required for all concerned. I would hesitate to return to the solicitor who prepared the will, since I cannot imagine why no warning was given to the deceased parent of the dire tax consequences arising from these testamentary instructions. Accordingly, strongly reccomend the parties consult a STEP qualified private client lawyer as soon as possible.

Worse case scenario the property may need to be sold and the surviving partner downsize, to raise the necessary cash to pay the IHT. However, there may also be the potential to raise mortgage finance secured on the house, but that of course comes with its own complications.

Finally, as an extreme measure, the surviving partner could give up their life interest ( by deed of variation), allow the children to immediately inherit the property and be allowed to stay on as a rent paying tenant in their own right. This would free up an additional £175,000 nil rate band giving  total NRBs of £500k with only £50k then exposed to tax at 40% ( £20k tax ). However, if I were in the surviving  partner's shoes I would find that option extremely unpalatable.

se2020

poseidon1 said:

se2020 said:

Keep_pedalling said:

se2020 said:

Keep_pedalling said:

It is almost certain that her will has created an immediate post death interest trust. This puts legal ownership into trust but beneficial ownership resides with her partner. The children are classed as remaindermen and don’t inherit anything until the trust is wound up on his death or once he no longer has use of the property.

This does not affect the children’s status as property owners or for claiming benefits. 

Was your mother married to her partner? If not there could be IHT issues if her estate exceeds £325k.

This is pretty much my understanding from reading it. 
Partner has a lifetime interest and it does not pass to the children until partner passes away or goes into care.

No, not married. The value of the property will be over £325k but not much in the way of assets apart from the property (that I am aware of at this stage)

Unfortunately with the house going into trust rather than directly to her children the residential NRB can’t be claimed so there will be an IHT liability as spousal exemption can’t be claimed either.

What is the value of the house? 

Somewhere around £550 at a guess?
Not actually looked into the value of it as I didn't really think it would be relevant as it's not going to be sold. 
So, it needs valuing for probate?
Then IHT becomes due?
Who's liable for the IHT?

Bit confusing having two separate threads running on the same topic. Would be helpful if it was merged.

In any event based on the parties being unmarried and an estimated value of £550k for the property, minimally £225,000 is exposed to IHT at 40% ie a £90,000 IHT bill on the house. Of course if the parent left any other assets such as cash, isas etc, there would be further IHT due thereon.

You should note the IHT is payable within 6 months of death, thereafter interest will run on the tax unpaid.

By not marrying the surviving partner, the deceased parent has evidently left behind a real mess for the parties to now resolve, not least being the £90k in tax now on the horizon.

Urgent legal advice is now required for all concerned. I would hesitate to return to the solicitor who prepared the will, since I cannot imagine why no warning was given to the deceased parent of the dire tax consequences arising from these testamentary instructions. Accordingly, strongly reccomend the parties consult a STEP qualified private client lawyer as soon as possible.

Worse case scenario the property may need to be sold and the surviving partner downsize, to raise the necessary cash to pay the IHT. However, there may also be the potential to raise mortgage finance secured on the house, but that of course comes with its own complications.

Finally, as an extreme measure, the surviving partner could give up their life interest ( by deed of variation), allow the children to immediately inherit the property and be allowed to stay on as a rent paying tenant in their own right. This would free up an additional £175,000 nil rate band giving  total NRBs of £500k with only £50k then exposed to tax at 40% ( £20k tax ). However, if I were in the surviving  partner's shoes I would find that option extremely unpalatable.

Thanks,
I kept them as 2 seperate threads as they seemed to be 2 seperate issues belonging in seperate forums.

Firstly, I do not yet know what other assets/cash/isas etc are in the estate.
I presume, as the estate is liable for the IHT that if there are other assets they will be used first to pay the IHT.

Which raises another question, if there is £100k in cash can £90k be used for IHT payment or does that £100k also attract IHT before payment is made?
Ie, will the estate value be classed as £560 after IHT or will the estate be valued at £650 with IHT due on the lot?

I think we would have to do the maths regarding you last point on the partner and a deed of variation handing the property over to the children. This may well be possible as the children have no desire to remove the partner or claim any rent but, as the first post of this thread, 3 of the 4 children would like to keep FTB status if it is possible/worthwhile doing so.

I also don't have any reason to think the solicitor that prepared the will has been incompetent at this stage.
It's perfectly possible that the IHT situation has been fully explained and there may well be funds in place to cover this.

I have found plenty of organised, foldered,  paperwork so far. 
Which is obviously better than having nothing but it is a lot to go through.