Passing on a home - Inheritance Tax implication

[Big_Dan]

Who would be best to advise on this scenaro?

Married couple, tenants in common agreement

Property value c£700k

Husband leaving property to his daughter from 1st marriage

Wife's daughters not to inherit anything from his estate, only hers (a different property)

If he passes first, agreement is the wife to remain in the property rent free until passing, or nursing home etc

Concern is a large tax bill for his daughter which will mean property needs to be sold and wife made homeless

Seems the simple solution of property passing from husband to wife and then to his daughter is based on trust and may be too simple?

[LeoSayer]

I'm not an expert but I think the house will need to be fully in the husband's name for this to work.

The will needs to put the house into a life interest trust for the benefit of his wife to live in until dead (free of payment?) and then to his daughter. The trust should also include some assets to cover IHT.

Other considerations:
- What happens if the wife wants to move house eg. if it is no longer suitable for her?
- What happens if the wife goes into care ?
- Who pays for maintenance and insurance for the house and what happens if the house isn't maintained properly?

Edited to add that this is pretty standard stuff for a will-writing solicitor but you could look for a STEP practitioner depending on the complexity of the estate.

Edited by LeoSayer on Wednesday 10th July 10:15

[dalenorth]

You could potentially buy a whole of life policy in trust to his daughter to cover the bill. We have done it a few times for clients in the past, but I’d check with a good solicitor first.

[leef44]

If the husband and wife are tenants in common then presumably they own half share each of the "husband's" house.

The husband would only be able to give half the house to his daughter so the title is then shared with step mother.

With IHT allowance at £325k plus portion of passing of home allowance which could max out at £500k then there may not be any IHT payable.

[Mr-B]

Sounds like a standard Will with a life interest property trust is the solution. A married couple will have a combined NRB of £1m and the house will be treated as part of the wife's estate on second death so there will be no IHT on first death, maybe on second death if over the £1m value. Any estate planner or solicitor should be able to do it.

[markh1973]

leef44 said:

If the husband and wife are tenants in common then presumably they own half share each of the "husband's" house.

The husband would only be able to give half the house to his daughter so the title is then shared with step mother.

With IHT allowance at £325k plus portion of passing of home allowance which could max out at £500k then there may not be any IHT payable.

This - it is up to the wife what she does with her half of the house. Husband can't choose what to do with it.

[Bobtherallyfan]

I’m pretty certain you can’t gift a property to a child and then remain living in it without having to pay market rental value. It’s called something like a gift with reservation of benefit. As others have said, seek proper legal advise.

[leef44]

Bobtherallyfan said:

I’m pretty certain you can’t gift a property to a child and then remain living in it without having to pay market rental value. It’s called something like a gift with reservation of benefit. As others have said, seek proper legal advise.

AIUI, gift with reservation refers to the seven year rule for IHT purposes i.e. even if you had gifted it seven years earlier it falls foul on the rule and you would still be fully chargeable to IHT.

In this case the gift would be after bereavement so it is not relevant but never the less would be 100% chargeable to IHT. It's just that potentially there is sufficient allowance to cover this so no tax would be payable if that's the case.