First time buyer status & property inheritance

poseidon1

se2020 said:

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.

As regards the IHT liabilty it will be on the entire estate after deducting the £325k nil rate band. Therefore, if for example there is a further £100 k of cash assets, this attracts a further £40k of IHT thereon.

Intial task therefore is to total up the entire value of the estate, calculate tax thereon and determine to what extent there maybe a cash shortfall to pay the tax  in due course. This will mean getting to grips with the complicated IHT 400 reporting form. You may decide to delegate that task to a solicitor given there is quite a learning curve involved.

In the interim, the executors will need to set up  an executors bank account to receive  the rental income during the estate administration period. The deceased personal accounts will be frozen as soon as the bank is notified of the death.

Hopefully the surviving partner has their own personal income sources to keep themselves going whilst the estate is being administered. The administration, accounting and taxation  of the estate could get quite messy if they have to be maintained from the estate assets from day one.

Smalltownhypocrite

If the will is not settled then they do not own the house.

I went through this exact thing and had to get legal advice as I was worried too. 

A will (or intestacy) can remain open indefinitely and the house remains 'owned' by the deceased but must be managed by the 'executor' until everything is settled (transferred into a new owners name either by a beneficiary taking legal ownership or through a sale and dispersal of money to the beneficiaries) as a family member has a lifetime guarantee to live their it cannot be settled. The house does not belong to the people who will eventually benefit yet. 

If they buy a house before settling the will or with part money from the sale of the house they are still first time buyers. They only lose that if the house is transferred into their name before buying a house.