Second parents death and totally confused with IHT

Ice66

Father died in 2014 when half of their house was left to me to hopefully prevent IHT. This accounted for £175000 in value which i understand was taken from his allowance of £325000. No extra allowance as available then so only £150000 to transfer to my mother who has recently passed away.

So her half of the house which now passes to me is worth approx £220000 and she has various other accounts and shares etc approximately £625K so looks like I am going to end up having to pay a lot of IHT as her allowance of £500000 plus the £150000 from my father leaves a shortfall.

Can anyone advise whether I have interpreted the situation correctly or if there is anything I can do.

Thankyou

Ice66

Keep_pedalling

No you have not, you have not allowed for the residential NRBs which provides another £350k of exemptions.

It is also possible you don’t actually own half the house if your father’s will was drafted correctly. Does your father’s will have a clause that gave your mother the right continue living in their home? If it did then it created an immediate post death interest trust would be the legal owner of his share until your mother’s death.

Ice66

Thankyou Keep Peddling

At the time they wrote the wills they were given advice by a accountant who said that I had used up £175K of my fathers nil tax allowance. As he died i n 2014 I did not think that there was any extra allowance for property in place then so he only had the 325K allowance. Yes my mother did have a life interest in the property.

Does this put me in a better position?

thanks

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81883091#Comment_81883091

Yes you are in a better position as ‘your’ share of the home is legally owned by a trust. You mother was the beneficial owner. This means none of your father’s NRB will have been used but for IHT purposes the whole house forms part of her estate. You now have two full NRB allowances to cover up to £650k of her estate and if you need more you have her residential NRB you can use adding a further £175k of exemptions and if that was not enough you have a transferable residential NRB from your father as well.

If any residential NRBs is required you will need to do a full IHT return to claim it. It wasn’t necessary at the time of your fathers death but since then this sort of trust had to be registered with HMRC, do you know if that was ever done?

Ice66

I am not sure whether the trust was registered. I know that my name was added to the deeds to replace my fathers.

So am i correct in assuming that I can claim 2x £175K as well as the full allowances for both parents?

I am just getting completely confused with it all at present. Do you think that this is doable by an amateur or will professional help be required.

thanks

poseidon1

Just to summarise, mothers taxable estate at death comprises:

• Entire value of the house at her death ie £440k not £220k. This by reason of her life interest.
• Other Assets totalling £625k

Her grand total is therefore £1,065,000.

Against this she has her complete £500k NRBs together with your father's £500k NRBs as indicated by Keep_pedalling.

The accountant that advised in 2014 clearly did not understand/appreciate the IHT treatment of the life interest for your mother ( an IHT exempt gift to her at the time).

So yes there is an IHT exposure but only on the £65k exceeding £1m. Your father's will did a good job of preserving all his NRBs for use by your mother's estate.

Your state of confusion is noted, and since you are now dealing with two separate events (termination of the house trust and probate for your mother's estate) you may well need professional assistance in handling the reporting for each.

This is especially the case since you seem unaware of the need to register the trust with HMRC from 2022 onwards, and the fact that the trust will now be separately liable for its proportion of IHT payable on the £65k taxable surplus estate. I think you will struggle conceptually with the two separate IHT reporting obligations required here ( most people do).

Can you access the services of the firm of solicitors that drafted your father's will and are any of the solicitors there STEP qualified ?

RAS

I'm curious about the fact that you were "added to the deeds" to replace your father.

If your mother had the right to live there granted by the will, that was not necessary.

Have you looked at lived in the house at any time since your father died?

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81883154#Comment_81883154

As per poseidon1’s reply you should take professional advice from a STEP solicitor as it seems the property transfer was to you personally rather than you as a trustee and the trust not being registered with HMRC. This became a requirement in 2022 and if you did not do it no one ealse would have.

Ice66

No I have not lived there. Seems like the whole thing is a mess. Can this still be registered as nothing has been done since my father died. My mother took advice from an accountant on his death but nothing has been registered.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81884437#Comment_81884437

Bear mind , at this point you would be seeking to register a trust that terminated on your mother's death so you would be simultaneously reporting a first registration together with a subsequent important trust event (your mother's death).

See link below to HMRC's trust registration portal ( you need to scroll all the way to the bottom to access the online process) -

https://www.gov.uk/guidance/register-a-trust-as-a-trustee

As regards obtaining probate and handling the IHT trust termination, you will need professional help. Your circumstance is outside the experience of most of the forum contributors here who DIY probate.

I therefore ask again is your father's original solicitor an option here?

Ice66

There wills were mirror wills by Irwin Mitchell so yes they are still available. Not too sure whether they are the correct choice for advice considering the present situation