Strange Clause in Will !

NedS

Given the clear and unambiguous way the will is worded, does your sister have the means to take up the option to buy and pay the estate £100,000 within the prescribed 3 month + 2 month period? If they do not have the financial means to make the purchase, then the option listed in clause 5 fails.

saajan_12

https://forums.moneysavingexpert.com/discussion/comment/82168369#Comment_82168369

While the word 'either' may have made it even more clear, from my read its clear enough as is; the second half of an 'or' clause never negates the first half. The first half holds, so that is sufficient. If you can buy A or B and B doesnt' exist, you can still buy A.

A = a house he has a share in and at <address>

B = a house he has a share in and lives in

If the condition on B overrode the condition on A, then they would have just said its an option to buy a property he owns and lives in, no need to mention the address.

Savvy_Sue

https://forums.moneysavingexpert.com/discussion/comment/82168302#Comment_82168302

But am I right in thinking that the RNRB allowance would still have been in play, even if he had sold his house prior to death?

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/82168208#Comment_82168208

The RNRB is not list when you home is sold to downsize, move into rental accommodation or move in with family. This is all covered with the downsizing rule, so your advice was misplaced.

poseidon1

As is usual with these kind of posts we only given one side of the equation, ie the inference of unjust preference in favour of one child to the detriment of the others. What we don't get to see are all the attendant circumstances.

In the present case apart from the fact the father ended his days in the home of the favoured child, I believe a further inference can be drawn in relation to the nature of the father /daughter relationship in that she would appear to have potentially made herself available to the father ( prior to his infirmity) by electing to live very close by ( 50 metres away we are told).

It would be useful to know whether there is any coincidental timing between daughter moving close to father, and the execution of his Will, ie has she been living close by the entire 17 years or longer.

Dead_keen

Attached are copies of dad's very simple Will, apart from the notorious clause! 

It looks like it has been thought through and not some random bit that the drafter made up on the spur of the moment. Bearing in mind I am not a lawyer, I struggle to see why it would not be an effective provision requiring you, as executor, to grant your sister the option over the house within two months of the grant of probate.

So from a CGT perspective, it looks like the grant of the option is a disposal for CGT purposes by the executor. The base cost is nil. The proceeds to work out the capital gains will be the market value of the option. What's the market value? Who knows! You would work out the market value of the property when the option is granted first and then, for practical purposes, deduct the £100,000. So let's pretend the house is worth £190,000 on death (and that is what IHT value of the estate is based on) and £195,000 when the option is granted. In that case I'd say the option had a market value of £95,000 give or take. I say give or take because there is a possibility that an uninsured truck will crash into it by the time the option is exercised (so the option is worth less) or the housing market goes up by then and because of the time value of money of not having to pay for the purchase price for a bit. But with a three months' exercise period and a two month period to complete, that's not going to make a big enough difference for me to choose some other number.

So on my made up numbers, the executor makes a £95,000 capital gain on the grant of the option and has to pay CGT on £92,000 (since there is a £3,000 exempt amount) at 24%. So just over £22,000.

As I said before, if the option is exercised then that tax charge is tipexed out. The grant and exercise of the option is then treated as a single disposal of the house, with the executor's gain being £95,000 deemed market value of option + £100,000 exercise price - £190,000 value of death, giving a £5,000 gain and £480 of CGT. Good news. And the SDLT is just based on the £100,000.

But the bad news is the option is not exercised and the £95,000 gain stays. The property is then sold for, say, £200,000 (after costs) and so there is another £10,000 gain.

So you need proper advice from someone who understands these tax rules and may help get the estate in to a better position. What that might be will depend on the rest of the estate and what the beneficiaries fancy doing. For example:

a. Option never intended to be exercised: Sister does deed of variation getting rid of the option before it is granted. That's a £22,000 better answer than her not exercising the option or disclaiming it.

b. Option to be exercised: I'd still think about a DoV in case something goes wrong (e.g. exercise the option but can't get a mortgage and so can never pay the purchase price). Assuming the estate is big enough, you guys might want to do DoV to (i) get rid of the option, (ii) give the whole house to the sister, and (iii) give £33,333 extra cash to the two brothers. If the estate is not big enough to pay out the extra £66,666 (e.g. it is just a house plus £50,000) then the sister paying the extra privately will mean that the DoV won't be effective for CGT or IHT but (after taking advice) you might ask who cares about that. Oh, also take proper SDLT advice as a DoV does not change the position for SDLT purposes and it does contain a supa-dupa anti-avoidance rule meaning SDLT might still be due on £100,000 (but I have no clue).

As I mentioned before, the tax treatment of options is not something that most normal solicitors will know off of the top of their head.

Grumpy_chap

The Will was written in 2007.

The OP states that their Father was 98 when he passed.

That means he was 79 when the Will was written.

Perhaps he never expected to survive to the good age that he managed and, assuming the timeframe would be rather short, set the fixed value for the property as a tool to avoid future disagreements about the value for the house to be sold / offered to the nominated sibling.

The OP and siblings should be celebrating the extra years they were able to enjoy with their Father beyond the expectation when the Will was prepared.

The Will seems clear about the option to the nominated sibling.

Does the nominated sibling have the funds to purchase the property within the timeframe, and meet SDLT levies etc?

How large is the total Estate and is the nominated sibling able to use there share of the remaindermen distribution to fund the purchase of the property?

loiner

https://forums.moneysavingexpert.com/discussion/comment/82168684#Comment_82168684

To expand slightly, our sister did not move to her bungalow to be close to dad. For many years she previously lived 50m up the road in the opposite direction!

At the time the Will was written, 19 years ago, Dad’s perception was that his house was superior to our sister’s house. He included clause 5 in his Will to give her the option to buy his house with the intention that she would then live there. In Feb 2025 our sister bought the bungalow. At this time, she had serious health issues which have sadly worsened and was (and still is) a wheel chair user. It was no longer realistic, practical or beneficial for her to purchase and move into dad’s house on his eventual death as he originally intended. A few weeks after she bought the bungalow Dad reached the age of 97. At this stage he was also suffering ill health. He was in and out of hospital on many occasions and arranging an amendment to his Will was the very last thing on his mind. Unless our sister now decides to sell her bungalow and move into his house as he intended, which clearly will not happen, the Clause 5 option to purchase his house is no longer relevant. The property should be sold on the open market and the proceeds split in equal shares, after selling costs, in accordance with the remainder of his assets.

Keep_pedalling

it might not be relevant in terms of the original intention but unless the will stipulated that she could only take up the option if she then made it her permanent residence then there is nothing stopping her buying it from the estate then selling it for the full market price.

There would be some taxation issues with this, she would have to pay additional SDLT of 5% (assuming the house location is England, more if in another part of the UK) and create a CGT liability on its sale. Does she need the extra money or want that hassle?

loiner

https://forums.moneysavingexpert.com/discussion/comment/82169008#Comment_82169008

That's a very comprehensive post and I thank you for it, as, indeed, I thank everyone else who has responded.

I did start by saying I'm a 1st time Executor. I have made assumptions, some of which are probably wrong. I had assumed that, if the option was not taken up, the house would be sold and the proceeds shared equally without CGT (unless there is a small difference between the value quoted for Probate and the value achieved). I get the impression from your post that that is incorrect.

Also, if the option is taken up, you talk of the Executor being responsible for CGT. I had assumed the person granted the option would be responsible for CGT based on actual selling price (say £190K) minus the option price of £100K. Is that also wrong?

Please also see my reply to poseidon1 above.