Intestacy, Joint Tenants & IHT Liabilities?

woodbine66

Keep_pedalling said:

The house is not part of his heritable estate as it passes to your mother by survivorship, so his total heritable estate is £550k and under intestacy rules £436k (£322 + 50% of the remainder) goes to your mother and £114 to his children. No IHT will pay payable because the amount going to your mother is covered by spousal exemption, but the amount of the transferable NRB to your mother’s estate will be reduced but 35% leaving her estate with £886k in exemptions. 

You have not said what sole assets your mother owns so it is not possible to say what her estate’s liability is likely to be, but with house valued at £900k (I have assumed you only gave a 50% share in the above figures) and £436k inherited from her husband her estate is going to be significantly into IHT terretory.

Dying intestate does not have a negative impact on their joint IHT liability, as the reduction in transferable NRB is cancelled out by the amount the children inherit directly from his estate. 

Thanks for your answer, keep pedalling. First thing I must point out is the figures I gave in my OP are slightly misleading. The total value of the marital home is £450,000. So presumably because the home is owned as joint tenants, the value of the home that transfers to my mother is half the value, ie. £225,000. (Total of father's estate = approx £775,000).Apologies, I have corrected the figures in op.

My mother's only real assets are savings totalling £70,000.

woodbine66

Mands said:

Keep_pedalling said:

The house is not part of his heritable estate as it passes to your mother by survivorship, so his total heritable estate is £550k and under intestacy rules £436k (£322 + 50% of the remainder) goes to your mother and £114 to his children. No IHT will pay payable because the amount going to your mother is covered by spousal exemption, but the amount of the transferable NRB to your mother’s estate will be reduced but 35% leaving her estate with £886k in exemptions. 

You have not said what sole assets your mother owns so it is not possible to say what her estate’s liability is likely to be, but with house valued at £900k (I have assumed you only gave a 50% share in the above figures) and £436k inherited from her husband her estate is going to be significantly into IHT terretory.

Dying intestate does not have a negative impact on their joint IHT liability, as the reduction in transferable NRB is cancelled out by the amount the children inherit directly from his estate. 

I think the whole house is 450k, not the father's half. See here:

https://forums.moneysavingexpert.com/discussion/6551656/marital-home-iht-exeption-still-apply-if-estate-varied-to-son#latest

Thanks, yes, you're right. I have corrected my OP.

woodbine66

Keep_pedalling said:

Mands said:

Keep_pedalling said:

The house is not part of his heritable estate as it passes to your mother by survivorship, so his total heritable estate is £550k and under intestacy rules £436k (£322 + 50% of the remainder) goes to your mother and £114 to his children. No IHT will pay payable because the amount going to your mother is covered by spousal exemption, but the amount of the transferable NRB to your mother’s estate will be reduced but 35% leaving her estate with £886k in exemptions. 

You have not said what sole assets your mother owns so it is not possible to say what her estate’s liability is likely to be, but with house valued at £900k (I have assumed you only gave a 50% share in the above figures) and £436k inherited from her husband her estate is going to be significantly into IHT terretory.

Dying intestate does not have a negative impact on their joint IHT liability, as the reduction in transferable NRB is cancelled out by the amount the children inherit directly from his estate. 

I think the whole house is 450k, not the father's half. See here:

https://forums.moneysavingexpert.com/discussion/6551656/marital-home-iht-exeption-still-apply-if-estate-varied-to-son#latest

So it seems the OP’s mother has no sole assets so the total joint net worth is actually bang on £1M meaning no or little IHT is likely to be due in the future. 

Do you have power of attorney for your mother? If the plan is to keep the rental property she is going to be lumbered with becoming a landlord unless the plan is to sell the rented property. 

Thanks again. My mother has an additional £70,000 ish in savings of her own. Yes, joint net worth will be approx £1M plus mother's £70,000 savings. Interestingly I saw an example on a website using NRBs and RNRBs including where unused ones were carried over to the surviving spouse's estate. Is there any special planning we need to do to make this happen - bearing in mind my father's estate is an intestacy?

The example is on here (it's the second example down, Mr & Mrs Jones, £1M estate) - 

https://anthonygold.co.uk/insight/nil-rate-band/

Yes, have LPA for mother. Keeping rental property as she has low income (bit of savings interest plus tiny state pension only). I'll do all the work for it, but we use an agent so this is limited.

woodbine66

gjcody said:

woodbine66 said:

My father has just died without making a will. He is married to my mother and I have one brother. His assets are;

Marital home owned with mother as joint tenants - £450,000

Rental property owned in his sole name               - £425,000

Savings and cash in bank                                      - £125,000

TOTAL                                                                   - £1,000,000

My questions are;

As an intestacy, I understand that £322,000 of his estate plus 50 per cent of the remaining estate goes to our mother? As the marital home is owned by our parents as joint tenants, is it's total value excluded from this calculation?

Can anyone tell me what the immediate IHT liability will be on this estate please? What reliefs and exemptions are available?

Also, if the estate is divided between the three of us according to the intestacy rules (ie. £322,000 plus 50% to mother, rest to us), what will the IHT liability be when our mother passes away? Is there anything we can do before or after the administration of our father's estate to lessen IHT liabilities due when our mother passes away?

Final question - by not making a will, has our father inadvertently increased our IHT liabilities?

I hope all of the above makes sense and hope I'm not asking too much. If any futher info is needed please ask. Thanks in advance of any help.

I will make 2 posts to keep things simple. 

If you are looking for a route with no IHT I would suggest you and your brother "disclaim" your inheritance. That will leave your mother as the only person with a right of inheritance, and she will pay no IHT as a Spouse.  This would also enable her Executor to claim your father's Allowances when dealing with her Estate, giving an Allowance of £1m.  

You cannot though take as much as a dirty sock from your father's Estate.

Thanks, that's an interesting answer. So even with my updated figures in my op (meaning father's estate is only really approx £775,000), do you still advise to disclaim our inheritance from father and let it all pass to our mother? Can I ask what we need to do to diaclaim the inheritance? 

As an alternative, could my brother and I use Deeds Of Variation to allow our mother to keep 100% of father's intestate estate?

woodbine66

gjcody said:

Second Post

Though you have not listed them separately, mother also gets - all of the personal possessions of the deceased.

Whilst the Joint property must pass to mother under survivorship, 50% of its value must be included in your IHT calculation or mother may be saddled with the bill later. Google: Tax on Property you inherit Joint Ownership .gov and it would be wise to look at IHT 404 Form.

Were any of the bank accounts, etc Joint?

Are you positive there no Will, everyone would be home and dry if one was found.

The calculation for the Estate incl 50% of Joint Tenancy Property is 775000, minus IHT Allowance of 325000 = 450000 @ 40% 180000. This is calculated with no consideration of Gifts in the last 7 years, deductible expenses such as the funeral, etc.  I can think of no other Allowances that could be applied, rental properties are not liable for Business Relief.

Mothers future IHT Allowances would be £325k, Nill Rate Band: £175k, RNRB for the family home, plus the Executor should claim your fathers £175k RNRB.

 

Yes, sadly it does seem your father made a blunder, but the end is undecided (re-read Post 1 again)! Had he handed everything to mother she would have had zero liability and a £1m IHT Allowance on her demise.

Seriously, get professional advice, you can never cover the ins and outs of everything this complex on here. There will also be his Income tax to deal with along with probable CGT from the second property.  

Thanks again. No all their accounts are sole accounts.

Can't find any wills. Possible he could have done one with a solicitor, but we wouldn't have a clue which one.

woodbine66

NorthYorkie said:

 Apart from his or her initial post, Woodbine has not bothered to respond to any of the questions raised, so it's really not worth anyone's time to bother to post any response.

Sorry if my replies were a little slow in coming. I am still here and very grateful for everyone's help. Unfortunately it's quite a busy time when a very close relative dies.

woodbine66

I think a re-cap is needed. Bearing in mind that father's intestate estate is total value approx £775,000, is the consensus that we have 3 choices to avoid/minimise IHT -

1) We do nothing and under the rules of intestacy my mother inherits an estate valued at £661,000 I get £57,000 and my brother gets £57,000

2) We disclaim our inheritance of £57,000 each and let the whole estate pass to our mother

3) We complete Deeds Of Variation so that my brother's £57,000 and my £57,000 are varied to our mother meaning the whole estate passes to our mother?

Will all of the above choices have the desired effect of either meaning no or minimal IHT? Is one method better than the other? Are there risks with any of the choices.

Practically speaking, option 1 would possibly be more difficult as it would either mean having to sell a property or alternatively leave my mother asset (ie. the houses) rich and cash poor. I think my brother and I can survive without the money for now.

Many thanks to everyone who has given their time to offer invaluable advice. It is much appreciate. Apologies if my replies are not always rapid. In the circumstances there's 1,000 and 1 things to do. I'm still here though and reading all replies.

Keep_pedalling

woodbine66 said:

I think a re-cap is needed. Bearing in mind that father's intestate estate is total value approx £775,000, is the consensus that we have 3 choices to avoid/minimise IHT -

1) We do nothing and under the rules of intestacy my mother inherits an estate valued at £661,000 I get £57,000 and my brother gets £57,000

Based on yout numbers that is correct.

2) We disclaim our inheritance of £57,000 each and let the whole estate pass to our mother

3) We complete Deeds Of Variation so that my brother's £57,000 and my £57,000 are varied to our mother meaning the whole estate passes to our mother?

Will all of the above choices have the desired effect of either meaning no or minimal IHT? Is one method better than the other? Are there risks with any of the choices.

Practically speaking, option 1 would possibly be more difficult as it would either mean having to sell a property or alternatively leave my mother asset (ie. the houses) rich and cash poor. I think my brother and I can survive without the money for now.

Many thanks to everyone who has given their time to offer invaluable advice. It is much appreciate. Apologies if my replies are not always rapid. In the circumstances there's 1,000 and 1 things to do. I'm still here though and reading all replies.

If you make a deed of variation and everything goes to your mother, it does not really make much difference to her estate’s IHT liability, but I would do the deed of variation as as you quite rightly point out this would leave her cash poor if you and your siblings inheritance came out of his savings rather than you taking a share of the ownership of the rental property instead.

Her estate would only just be in IHT territory so the amount of IHT would be quite low. Gifting could potentially reduce this but your mother would have to survive 7 years for that to succeed.

There is no hurry in doing this as you have 2 years to do a DoV so I would concentrate on all the more important stuff first.

Does your mother have a financial lasting power of attorney in place? If not that is something that should be considered especially if she does not want to take on the responsibility of being a landlord. 

Daniel54

The full value of their jointly owned house will pass to your mother, free of any tax.

You should work using the figures provided by Keep-pedalling

None of these three options will affect the ultimate IHT payable.But in any case the total value is currently very near to IHT territory but I would suggest not making decisions based on what could be only a minor amount of IHT payable.

I can't see any point in you and your brother not taking the inheritance now.All options 2 and 3 do is drop that money back into your mother's eventual estate

But I think you are right to be concerned that your mother will have so much of her asset wealth tied up in two properties

One option we used was to loan  some or all our inheritance ( from our father's will) back to my widowed mother.The loan agreements were written up by a solicitor and one  original copy of each letter kept with her original will.When she died the loans were straightforward liabilities to the estate and re-paid ,reducing the value of the estate for probate and IHT purposes.

I would add that you will all have a lot more financial flexibility if you sell the rental property and think of using capital and income from the proceeds to assist your mother in her future years.This might have the incidental by-product of reducing her final estate.Should she ever need residential care, then the money will also be freely available

I'm sorry for your loss and know this is a difficult time for everyone

WillowLeaf

Not sure if the idea is to plan to minimise mother's IHT as well at this point, appreciate there is a lot going on, as well as looking after mother.

So her estate will be £1M + £70k savings + £114k DoV total = £1.184M

£184k x 40% would be £73,600 IHT tax due when that time comes, assuming income or expenditure doesn't change that.

She could gift money, but that defeats the point of the DoV. It looks to my untrained eye that mother's cash needs keeps her above the IHT threshold, as you don't want to sell the rental property. Lesser of two evils really.

Also, could this service help? https://www.nationalwillregister.co.uk/  - I've never used it so can't vouch for it but it might be an option.

This service organises banks to search for lost bank accounts, quick and easy and free - https://www.mylostaccount.org.uk/