Inheritance tax help

GillyB26

My son (15) has inherited his Aunty's house, but it's in trust until he's 25. Her partner (early 70's) has life tenancy. Who will be liable for paying the IHT (approx 60k)? My Solicitor has told me it's the partner with the life tenancy, but that doesn't seem correct to me. The life tenant has been told by his legal helper (not a Solicitor) that it's my son who is liable but I will need to pay it on his behalf? I'm really worried as there is no way I can afford to pay it. The house is worth approx £450k.

Keep_pedalling

First off it seems her will has created an immediate post death interest trust so your son has inherited nothing at this stage. The estate is responsible for paying any IHT and if it does not have enough liquid assets to pay it the house will need to be sold to meet the bill. A smaller house can then be purchased for her partner to live in.

Who has she appointed as executors? Who inherits the rest of the estate (based on a £60k IHT liability there should be around £40k in liquid assets)

I presume that she and her partner were not married or in a civil partnership, but was she previously widowed by any chance?

As the will has created a IPDI trust, legal ownership resides with the trust but beneficial ownership resides with her partner until he dies. Your son is classed as a remainderman and will inherit on the partners death or when he no longer requires the property. The trust also forms part of her partner’s estate for IHT purposes so this could be a double whammy. These sort of trusts are great for married couples and civil partners not so much for unmarried ones. 

Keep_pedalling

It would help if you could post the exact wording (redacted all personal info) of the clauses relating to the house and the 25 year age clause.

GillyB26

She appointed a Solicitor as Executors but they have renounced the executorship, won't explain why.

The rest of the estate is about £25k, she has left £5k to my son, her partner, her best friend and the new owners of her dog. 

Her and partner are not married, she never has been and had no children. I don't think he has ever been married but has several children. I will add he took Tunisian residency a few years ago as he has a factory out there, so he only wants to use the house when he is visiting England, and plans to move back here permanently when he retires I think. He is adamant that the house isn't being sold though. 

Keep_pedalling

GillyB26 said:

She appointed a Solicitor as Executors but they have renounced the executorship, won't explain why.

The rest of the estate is about £25k, she has left £5k to my son, her partner, her best friend and the new owners of her dog. 

Her and partner are not married, she never has been and had no children. I don't think he has ever been married but has several children. I will add he took Tunisian residency a few years ago as he has a factory out there, so he only wants to use the house when he is visiting England, and plans to move back here permanently when he retires I think. He is adamant that the house isn't being sold though. 

I think the reason the executors have renounced is that she has left a major financial mess behind her and they don’t want to be involved. Her partner is going to have little choice in the house being sold because of the IHT liability.

You almost certainly need professional help here from a STEP solicitor who is qualified to deal with trusts, but if you can provide the details of those clauses we can hopefully help with how to proceed.

One more question, do those cash bequests say anything about being free of IHT?

Flugelhorn

He is likely to have to sell the house unless he can help by funding the IHT

Keep_pedalling

Flugelhorn said:

He is likely to have to sell the house unless he can help by funding the IHT

Or more accurately the estate will have to sell the house it’s not his to sell.

poseidon1

GillyB26 said:

My son (15) has inherited his Aunty's house, but it's in trust until he's 25. Her partner (early 70's) has life tenancy. Who will be liable for paying the IHT (approx 60k)? My Solicitor has told me it's the partner with the life tenancy, but that doesn't seem correct to me. The life tenant has been told by his legal helper (not a Solicitor) that it's my son who is liable but I will need to pay it on his behalf? I'm really worried as there is no way I can afford to pay it. The house is worth approx £450k.

This sounds like a complete an utter mess.

Taking most of what you say at face value, there appears to be a £475k estate split £450k the house and £25k cash.

The unmarried Aunt purportedly left the house on life interest to partner, with small pecuniary cash legacies in respect of the £25k.

Problem here there is only a £325k nil rate band, so the remaining £150k estate carries a tax burden of £60k at 40%.

If it was not for that fact the solicitors were the original executors, this had all the hallmarks of a DIY will made by someone who had no idea what they were doing.

However, this appears to be a solicitor drafted will, with the firm concerned looking to back out of a mess they appear to be responsible for.

Right now if the will is entirely silent on the issue of IHT, then tax is payable by each recipient in proportion to the amount they immediately inherited. However the majority of the IHT bill is payable on the house, which clearly should be sold unless the surviving partner wants to pay from his own resources. Neither your son or yourself have any IHT exposure beyond the small amount due on his £5k legacy.

Returning to the firm that drafted the will and  who were supposed to be executors, there is a possibility that they could have been negligent in not realising the  IHT consequences of what they had drafted given the unmarried status of their client.

 It seems to me the life interest beneficiary should be taking legal advice on the possibility of suing the firm for damages for what appears to faulty advice, since he stands to lose the most at this stage.

However, this will be of no concern to HMRC who will want their £60k 6 months after death, so the life tenant ( especially ) will need to get his head around the fact that the lion's share of the tax needs to be raised from the property or himself ( HMRC are not concerned which). Worse case scenario HMRC raise an assessment, place a legal charge on the house and force a sale to recover. The partner can't bury his head in the sand.

At this moment in time, and with the solicitors having renounced, who are the replacement executors/trustees?

As for the age 25 vesting age for your son, that is a confusing provision and it would be helpful to have sight of a redacted copy of the will to determine exactly to what that relates.

Flugelhorn

Keep_pedalling said:

Flugelhorn said:

He is likely to have to sell the house unless he can help by funding the IHT

Or more accurately the estate will have to sell the house it’s not his to sell.

absolutely!

Ms_Chocaholic

GillyB26 said:

I will try to post the clauses later but there's an awful lot of words there to write out. 

Can you take a photo and redact it that way or even with pieces of paper put over the personal info will do, that might be easier than having to type it all out.

Keep_pedalling

poseidon1 said:

GillyB26 said:

My son (15) has inherited his Aunty's house, but it's in trust until he's 25. Her partner (early 70's) has life tenancy. Who will be liable for paying the IHT (approx 60k)? My Solicitor has told me it's the partner with the life tenancy, but that doesn't seem correct to me. The life tenant has been told by his legal helper (not a Solicitor) that it's my son who is liable but I will need to pay it on his behalf? I'm really worried as there is no way I can afford to pay it. The house is worth approx £450k.

This sounds like a complete an utter mess.

Taking most of what you say at face value, there appears to be a £475k estate split £450k the house and £25k cash.

The unmarried Aunt purportedly left the house on life interest to partner, with small pecuniary cash legacies in respect of the £25k.

Problem here there is only a £325k nil rate band, so the remaining £150k estate carries a tax burden of £60k at 40%.

If it was not for that fact the solicitors were the original executors, this had all the hallmarks of a DIY will made by someone who had no idea what they were doing.

However, this appears to be a solicitor drafted will, with the firm concerned looking to back out of a mess they appear to be responsible for.

Right now if the will is entirely silent on the issue of IHT, then tax is payable by each recipient in proportion to the amount they immediately inherited. However the majority of the IHT bill is payable on the house, which clearly should be sold unless the surviving partner wants to pay from his own resources. Neither your son or yourself have any IHT exposure beyond the small amount due on his £5k legacy.

Returning to the firm that drafted the will and  who were supposed to be executors, there is a possibility that they could have been negligent in not realising the  IHT consequences of what they had drafted given the unmarried status of their client.

 It seems to me the life interest beneficiary should be taking legal advice on the possibility of suing the firm for damages for what appears to faulty advice, since he stands to lose the most at this stage.

However, this will be of no concern to HMRC who will want their £60k 6 months after death, so the life tenant ( especially ) will need to get his head around the fact that the lion's share of the tax needs to be raised from the property or himself ( HMRC are not concerned which). Worse case scenario HMRC raise an assessment, place a legal charge on the house and force a sale to recover. The partner can't bury his head in the sand.

At this moment in time, and with the solicitors having renounced, who are the replacement executors/trustees?

As for the age 25 vesting age for your son, that is a confusing provision and it would be helpful to have sight of a redacted copy of the will to determine exactly to what that relates.

Would it be possible, depending on the wording of the will, that the bequest that create the IPDI trust could actually fail if the house has to be sold?