Value for IHT of 99% of a house? help

Hi

my parents' inheritance tax planning was complex but part of it involved selling 1% of the family home to my brother who has never left home (he is over 50 and in the end was my mother's carer). The tax advisors said this would reduce the value of the property for IHT purposes by 15%. My brother still lives in the property (so I think he has beneficial ownership?), he is registered as owning 1% with the land registry and there is a property trust that states he owns 1% - my parents drew this up on legal advice, to protect my brother and to ensure the discounted value of the property for IHT purposes.

In practice I don't know how to handle this now both my parents have died (Dad in 2004, Mum last October). I can request a 15% discount for probate purposes but one person has advised that the actual value when the house is sold is the amount on which we pay IHT ultimately, and that once we sell (as we intend) I'd have to pay tax on 99% of the house actual sale price.

In practice my brother will be cooperative about the sale and his due share of the proceeds will be used to buy him a nice flat rather than a rundown 5 bed semi.

My thoughts are, if I owned 1% of a building that someone wanted to sell, I would expect to receive more than 1% of its selling price for being nice and enabling them to sell -- this was the advisors' argument I think (in 2003). So what is right for my brother to receive (this doesn't matter to me personally, my goal is to reduce IHT and ensure he has somewhere to live - there are two other siblings who like me do not live in the house and they have the same benign goals - each of the our of us inherits a quarter of the estate). As I see it, the more my brother receives for his 1%, the less the value of the estate, and the less the IHT.

I have read various bits of case law etc online that suggest a 10% discount is normal for jointly held properties for the actual tax (not just for the probate forms).

Can anyone help, please, as to what value I should use for probate (in a hurry now for end April) and what amount we should pay IHT on?

If my parents hadn't tried so hard to protect the house, their main asset, we'd just have been able to use my Dad's nil rate band now, but it is all far more complex than that.... :(

thanks
Dulce
P.S. Although I only just joined the forum, I've read it for years and it's my goto place for info on all kinds of things - but I couldn't find an answer to this q!
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Comments

  • Yorkshireman99
    Yorkshireman99 Posts: 5,470 Forumite
    edited 23 March 2017 at 6:22PM
    Advice from here however well intentioned is no substitute for paid for professional advice. The potential costs of penalties mean you, at the very least need the probate values calculates d by an IHPt specialist. The IHT manual is a nightmare for novices. It might cost you a few hunred pounds but will be worth every penny.
  • Keep_pedalling
    Keep_pedalling Posts: 16,438
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    edited 23 March 2017 at 5:34PM
    You would only pay IHT on the whole of her share of the house if her other assets alone take her estate over her nil rate band. Did your father leave everything to your mother and how big is her estate?

    Unless your mother lived in Scotland, the value of her share is reduced by 10% for a jointly owned house not 15%.

    https://www.gov.uk/valuing-estate-of-someone-who-died/assets
  • thanks... it's a 5 bed in London so worth around 900K and she has a further 100K in assets. My father's will left her everything, and created a NRB trust for 263K (the house covered this) for which my mother created an IOU.

    So the other assets don't take her full nil rate band - I wasn't aware that made a difference, can you please explain that reference? She died in October 2016 so recent changes don't apply.

    The advice cost my parents a lot (around 6K in 2003) and the outcome seems to be just complication. I've spoken to various specialists and their advice conflicts. I don't mind paying for advice but it isn't clear whom to pay to get reliable advice. The original lawyers said 'we suggest you sue us'. My usual family lawyer says he doesn't understand the trusts. I have read a lot of the official guidance (thanks for the links tho!) and the specific situation doesn't seem to be covered....

    When you say the value is reduced by 10%, how do we claim that in practice? We can apply the discount (15 or 10, whichever) in the probate forms but what happens when we sell, do we still apply the discount to the actual sale price? If so, who gets the difference (I guess it's shared between the equal beneficiaries)

    Sorry if the qs seem naive but I'm genuinely confused....
  • Yorkshireman99
    Yorkshireman99 Posts: 5,470 Forumite
    thanks... it's a 5 bed in London so worth around 900K and she has a further 100K in assets. My father's will left her everything, and created a NRB trust for 263K (the house covered this) for which my mother created an IOU.

    So the other assets don't take her full nil rate band - I wasn't aware that made a difference, can you please explain that reference? She died in October 2016 so recent changes don't apply.

    The advice cost my parents a lot (around 6K in 2003) and the outcome seems to be just complication. I've spoken to various specialists and their advice conflicts. I don't mind paying for advice but it isn't clear whom to pay to get reliable advice. The original lawyers said 'we suggest you sue us'. My usual family lawyer says he doesn't understand the trusts. I have read a lot of the official guidance (thanks for the links tho!) and the specific situation doesn't seem to be covered....

    When you say the value is reduced by 10%, how do we claim that in practice? We can apply the discount (15 or 10, whichever) in the probate forms but what happens when we sell, do we still apply the discount to the actual sale price? If so, who gets the difference (I guess it's shared between the equal beneficiaries)

    Sorry if the qs seem naive but I'm genuinely confused....
    You need a solicitor who is a STEP member.
  • securityguy
    securityguy Posts: 2,462
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    "My thoughts are, if I owned 1% of a building that someone wanted to sell, I would expect to receive more than 1% of its selling price for being nice and enabling them to sell"

    A 99% owner could trivially obtain an order for sale against a 1% owner.
  • Keep_pedalling
    Keep_pedalling Posts: 16,438
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    You need a solicitor who is a STEP member.

    Agree, with that size of estate and the complication of an almost certainly outdated trust this is not something to tackle DIY without expert guidance.
  • getmore4less
    getmore4less Posts: 46,882
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    in case you did not spot it

    http://manuals.voa.gov.uk/corporate/publications/manuals/inheritancetaxmanual/pnotes/h-iht-man-pn2.html

    That and the previous link will help as it gives the context for the contradicting advice you have had so far.
  • Yorkshireman99
    Yorkshireman99 Posts: 5,470 Forumite
    in case you did not spot it

    http://manuals.voa.gov.uk/corporate/publications/manuals/inheritancetaxmanual/pnotes/h-iht-man-pn2.html

    That and the previous link will help as it gives the context for the contradicting advice you have had so far.
    Which is a hideously complecated case. This just confirms the crucial need for professional advice rather than relying on this forum. To even imply that someone try to DIY it is simply bad advice.
  • Thanks to everyone - I completed all the paperwork myself but paid £1200 for a solicitor to advise me, to check the forms and to make the submission. We claimed 10% discount for the joint ownership.

    HMRC have just confirmed that "based on what I have told them" they are ok with this and the IHT has been concluded. It all took about 2 years start to finish, which is less time than the solicitor took to sort out my Dad's will (which created a trust and left everything to my Mum).

    My brother has a new flat and my sister has been able to move house to get the school she wants. My grandfather (a self-made man) bought the house for my parents for £3,000 in 1960 and it sold for £900,000 in 2017 -- his gift will help even his great grandchildren significantly. An amazing thing to achieve. I wish he could know how much his gift has benefited all of us, 60 years on!
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