Strange Clause in Will !

loiner

https://forums.moneysavingexpert.com/discussion/comment/82170854#Comment_82170854

The answer is No to both questions. She certainly cannot handle the hassle. I'm hoping to help her see sense very shortly.

loiner

Another thought crossed my mind during yet another 03:45 moment. She has 3 months to take up the option else the option will lapse and then has to complete within 2 months unless otherwise agreed between the parties. She won't be given an agreement to extend, so what if she has Exchanged the contract to purchase during the 2 months but not yet Completed? In the forthcoming days I cannot instruct her solicitors to stop the process as I am not their client.

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/82170865#Comment_82170865

Also reminder of the additional council tax she will be paying while owning two houses. This could be double on the family home while it is not occupied.

loiner

https://forums.moneysavingexpert.com/discussion/comment/82170903#Comment_82170903

Yes I had thought of that, thanks. Trouble is, it's me that's thinking of everything and her and her husband are completely oblivious to everything, yet they are the ones who stand to benefit the most.

lincroft1710

How will your sister finance purchasing the property? She can't expect her co-beneficiaries to wait around until she is able to sell the house to pay the money to the estate. Or would there be enough actual "cash" in her inheritance to facilitate the purchase.

Someone needs to explain to her with actual figures that SDLT, CGT, costs of owning the house (insurance, utilities, Council Tax, even possibly some maintenance costs) plus estate agent's and solicitor's fees upon selling, will eat into any profit she hopes to achieve from selling the house

Alderbank

https://forums.moneysavingexpert.com/discussion/comment/82170891#Comment_82170891

You don't need to give any instruction to her solicitors.

As your sister neither needs nor wants the house she will have used an estate agent to find a buyer and will have engaged a conveyancing solicitor who will arrange for her to buy and sell on the same day. This is not an unusual transaction.

Is the house in England? If so the legal conveyancing will take place under the 5th edition (I think!) of the Standard Conditions of Sale. If she does not complete on the agreed date then your conveyancer will arrange for your father's estate to charge her daily interest at above bank rate and serve her a formal Notice to Complete. If she has still not completed 10 days later then the estate rescinds the contract, keeps any deposit she has paid (usually 10% so £10,000) and walks away from the sale because she has failed to exercise her option.

However the only foreseeable reason for this to happen would be because her buyer had exchanged but failed to complete. In that case she can in turn claim all her costs from them, which include interest paid to the estate, her loss of deposit and her loss of bargain (the difference between the £100,000 she was paying for the house and her agreed selling price to them).

Buyers exchanging then failing to complete is rare.

Dead_keen

… if the option is taken up, you talk of the Executor being responsible for CGT.

If the option tax treatment is as I suspect (and I keep on saying you should take professional advice based on your own facts) then the position is:

1. Option never granted: no CGT in relation to the option as is not an option.
   
   On the sale of the house, the executor pays CGT on the due on the disposal of the house in the normal way. So a sale to a third-party would be on (i) actual disposal proceeds, (ii) less selling costs, (iii) less value of the house on death. If you decided to shortcut the option process and just sell to your sister for £100,000 then instead of using the actual disposal proceeds of £100,000 to calculate the gain, you would use the market value on the date of the disposal.
   
2. Option granted but not exercised (or if exercised, no completion): The executor has magic-ed an asset out of thin air (the option) and disposed of it (to this sister). So there is CGT on the executor on the disposal of that option (with a £90k deemed market value and roughly £22k of CGT based on made up numbers described earlier).
   
   On the sale of the house, the CGT will be the same as if the option was never granted.
   
3. Granted and exercised (and completion): The magic-ed up option is treated as (i) being disposed of (see my 2. above) but then treated as if it had never existed once the property is sold. So the executor has no CGT to pay on that option once it has been exercised (or if it has been paid, a refund can be obtained after exercise).
   
   On the sale of the house pursuant to the option the executor's CGT gain would be calculated as (i) market value of option on grant (my illustrative £90,000), plus (ii) the £100,000 exercise price received, less (iii) cost of sale (e.g. legal fees), less (iv) market value on death. So not much or a loss.

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?

That's not quite right. The person who grants and exercises the option can also deducted the market value of the option on grant. So if the option had a £90,000 market value on grant and your sister sold the property for £190,000 with no selling costs the capital gain would come out at zero.

As I keep saying, this is a complicated area based on your actual facts, so take proper advice from someone who is competent to give advice on the option and IHT aspects. I say complicated but I guess it is actually more that this kind of situation (options over property following death) is unusual, especially with the interaction (or lack of it) with the normal rules for assenting a property to a beneficiary (where there is no CGT on the executor). Most tax advisers just won't be aware or familiar with them or, if they are, they will be familiar with the rules for employee share options which disapplies much of what I said (thanks to a famous tax case involving a really friendly lady from the Inland Revenue called Beryl).

Dead_keen

If so the legal conveyancing will take place under the 5th edition (I think!) of the Standard Conditions of Sale. If she does not complete on the agreed date then your conveyancer will arrange for your father's estate to charge her daily interest at above bank rate and serve her a formal Notice to Complete.

If the executor agrees to that (i.e. standard terms) all well and good. But:

She won't be given an agreement to extend,

In which case the contract for sale will not be under the standard conditions of sale but just pursuant to the few terms of the option (see extract from will posted earlier). All the fancy stuff mentioned in standard conditions will not apply (unless agreed otherwise). So that means that the sister's right to buy will lapse if she fails to pay by the deadline. So no completion and the executor would then try to sell the property in the normal way (e.g. with an estate agent and whatever standard conditions of sale are agreed).

To me, that will mean that a back-to-back sale by your sister to a third-party is very unlikely to be possible unless she has all the cash she needs upfront (or she takes on the risk of selling something she will never own, which is a bit foolish if you ask me).

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82170891#Comment_82170891

You are not looking at this chronically or as a straightforward contractual agreement .

The first key event that needs to occur is you obtaining the grant of probate. The clock does not start on all subsequent events until probate is in place.

Once probate obtained you as executor are required within 2 months thereafter to draw up and serve the option agreement on your sister for the purchase at the £100k. The sooner you do that the better since the time pressures to comply then switch to her.

Once you have served her with the written option agreement she has a strict 3 months to then serve you with her acceptance.

The moment your sister serves the trustees with her acceptance of the option she then as a strict 2 months thereafter to complete the purchase. You are under no obligation to extend that time limit by agreement, or by discretion waive that limit if she breaches. In short you make her completion of the purchase on a' time of the essence' basis outside of which the whole agreement laspes.

Since 'time stamps' are involved with this process I would expect both parties to adhere to appropriate service and acceptance formalities as if this were an arms length transaction between unconnected parties, so there is no dispute as to when time limits run and expire.

Your father unwisely structured this 'benefit' in favour of your sister as a contractual arrangement. On your side suggest you try and remove all emotion and conduct this matter as if you were dealing with an unconnected third party.

A couple of tax points mentioned by @Dead_keen. Your sister may have right to purchase at under value but the 2nd property stamp duty will be by reference to the property's true market value on the contract date. Up to you if want to bother mentioning that fact to her, but it does increase her purchase cost.

As regards the potential estate CGT aspects, you should take appropriate tax advice. However if there is any estate tax exposure arising from this, and since the Will is likely silent upon whom this should fall, in my view the liability should accrue to your sister and her share of residue adjusted accordingly. Obviously another potential area for dispute.

loiner

https://forums.moneysavingexpert.com/discussion/comment/82170891#Comment_82170891

School boy error ! I was forgetting that I would also be using a conveyancer as I would effectively be the seller of the house. I was just considering my sister as the purchaser. My apologies.