Adult Child Living with Parents Long Term - IHT Concerns
Discussion
My father passed away suddenly last year. I've lived with my parents for many years, due to poor health. I would like to remain living in the house, assuming I outlive my mother. The total estate value is significantly below the current £1m IHT threshold for married couples.
However, it has been suggested that it could be beneficial to vary my father's will so that I inherit his half share of the house now and become joint tenants of the house with my mother. This could potentially give me some security should IHT thresholds be lowered significantly in the future - this way, I'd effectively own half the house at the current IHT rate.
I understand that should my mother need a care home (very unlikely for the foreseeable future), the issue of "deprivation of assets" could arise and the will change could be seen as a deprivation of assets but as I say, this is not the reason for considering varying my late father's will - it is simply to attempt to give me some more security in case IHT thresholds are lowered in the future.
Quite a few potential issues have come up such as whether it will be possible to sever my parents' joint tenancy on the property - one solicitor is sure a joint tenancy can be severed after death for the purposes of IHT and CGT using IHTA 1984 s142 and another is adamant that a joint tenancy can never be severed after death and that the half share of the house would have to be a gift from my mother rather than inheritance from my father. This would change things completely as my mother would have to live another 7 years from now which is far from guaranteed given she is already almost 80.
Some solicitors think that my mother and I would have to pay household bills 50/50 if we live together as joint tenants whereas others think that this will be of no concern to HMRC.
It is possible that I may renovate and sell the house if I outlive my mother - if I was a joint tenant with my mother, there would be no CGT on the difference in probate value and renovated value as I presumably wouldn't have to go through probate. Even if the will isn't changed though, am I right in thinking that I could renovate the house and sell it for more than the probate value as I'd be exempt from CGT as it has always been my sole and main residence?
I have carried out a lot of research on whether it is worth varying my father's will and many think I'm overthinking things and that varying the will is likely to make things unnecessarily complicated. I'm aware that inheriting half the house will reduce the remaining IHT RNRB balance to £800k (assuming half the house is worth £200k) but this does not make a tangible difference as if the will wasn't varied, the whole house rather than just half would form part of the estate. I appreciate that if the house doubles in value in my mother's lifetime, that half share would be worth £400k but then I'd still have £800k RNRB remaining! So I can't really see the issue in varying the will damaging the RNRB balance remaining in real terms but of course stand to be corrected!
I'd greatly appreciate any advice about varying the will and me becoming a joint tenant with my mother, particularly from anyone who has adult children living with them and is concerned about IHT.
I appreciate that it is quite rare for an adult to live with their parents long-term so it is potentially quite different from most other IHT cases. Also, it's more an issue of giving me some more security to stay in the family house should IHT rules be changed, rather than trying to reduce IHT due or avoiding care home fees.
I'd imagine that there would be a lot of resistance from the public if IHT thresholds are substantially reduced but anything is possible! If I was in better health and had my own property, I would be far less concerned.
Much appreciate any feedback.
However, it has been suggested that it could be beneficial to vary my father's will so that I inherit his half share of the house now and become joint tenants of the house with my mother. This could potentially give me some security should IHT thresholds be lowered significantly in the future - this way, I'd effectively own half the house at the current IHT rate.
I understand that should my mother need a care home (very unlikely for the foreseeable future), the issue of "deprivation of assets" could arise and the will change could be seen as a deprivation of assets but as I say, this is not the reason for considering varying my late father's will - it is simply to attempt to give me some more security in case IHT thresholds are lowered in the future.
Quite a few potential issues have come up such as whether it will be possible to sever my parents' joint tenancy on the property - one solicitor is sure a joint tenancy can be severed after death for the purposes of IHT and CGT using IHTA 1984 s142 and another is adamant that a joint tenancy can never be severed after death and that the half share of the house would have to be a gift from my mother rather than inheritance from my father. This would change things completely as my mother would have to live another 7 years from now which is far from guaranteed given she is already almost 80.
Some solicitors think that my mother and I would have to pay household bills 50/50 if we live together as joint tenants whereas others think that this will be of no concern to HMRC.
It is possible that I may renovate and sell the house if I outlive my mother - if I was a joint tenant with my mother, there would be no CGT on the difference in probate value and renovated value as I presumably wouldn't have to go through probate. Even if the will isn't changed though, am I right in thinking that I could renovate the house and sell it for more than the probate value as I'd be exempt from CGT as it has always been my sole and main residence?
I have carried out a lot of research on whether it is worth varying my father's will and many think I'm overthinking things and that varying the will is likely to make things unnecessarily complicated. I'm aware that inheriting half the house will reduce the remaining IHT RNRB balance to £800k (assuming half the house is worth £200k) but this does not make a tangible difference as if the will wasn't varied, the whole house rather than just half would form part of the estate. I appreciate that if the house doubles in value in my mother's lifetime, that half share would be worth £400k but then I'd still have £800k RNRB remaining! So I can't really see the issue in varying the will damaging the RNRB balance remaining in real terms but of course stand to be corrected!
I'd greatly appreciate any advice about varying the will and me becoming a joint tenant with my mother, particularly from anyone who has adult children living with them and is concerned about IHT.
I appreciate that it is quite rare for an adult to live with their parents long-term so it is potentially quite different from most other IHT cases. Also, it's more an issue of giving me some more security to stay in the family house should IHT rules be changed, rather than trying to reduce IHT due or avoiding care home fees.
I'd imagine that there would be a lot of resistance from the public if IHT thresholds are substantially reduced but anything is possible! If I was in better health and had my own property, I would be far less concerned.
Much appreciate any feedback.
Edited by hal3210 on Thursday 9th October 01:12
Many thanks for your reply. I was initially told by a solicitor that the best approach would be for my mother to transfer the entire house to me - this was frankly pretty poor advice as I'm sure if this was carried out, my mother would have to pay rent to live in the property and then I'd be subject to income tax on this rent.
Given this poor advice, I've then approached other solicitors but there has been so much conflicting information - whether it is possible to sever my parents' joint tenancy is the main example of this. Some say it is possible and others not and if the half share of the house comes from my mother as a gift rather than my father as inheritance, the 7 year rule applies so if my mother does not live another 7 years it negates the whole process.
The other issue I'm having is that any solicitor I approach seems very keen to change the will as it generates work for them. One even suggested putting the property in a trust which seems ridiculous given it's well below IHT threshold value. So if I approach the most qualified solicitor or tax advisor they are almost bound to recommend changing the will as it gives them more work. It's a bit like a certain fast fit chain recommending changing tyres before they are needed!
I just thought it might be less biased to ask for advice on the forum but I appreciate that an adult living with parents long term is pretty rare so there doesn't seem to be much advice from experience available.
Given this poor advice, I've then approached other solicitors but there has been so much conflicting information - whether it is possible to sever my parents' joint tenancy is the main example of this. Some say it is possible and others not and if the half share of the house comes from my mother as a gift rather than my father as inheritance, the 7 year rule applies so if my mother does not live another 7 years it negates the whole process.
The other issue I'm having is that any solicitor I approach seems very keen to change the will as it generates work for them. One even suggested putting the property in a trust which seems ridiculous given it's well below IHT threshold value. So if I approach the most qualified solicitor or tax advisor they are almost bound to recommend changing the will as it gives them more work. It's a bit like a certain fast fit chain recommending changing tyres before they are needed!
I just thought it might be less biased to ask for advice on the forum but I appreciate that an adult living with parents long term is pretty rare so there doesn't seem to be much advice from experience available.
A deed of variation can alter your father's will to gift you his share of the house, it will include a retrospective severance if the house wasn't already owned as tenants in common. There is a fixed 2 year window from death to get it completed. The DoV will not be classed self deprivation as it is treated as though the your father had constructed the will that way prior to death.
Many thanks for your reply. My parents were joint tenants, it's good to hear that the DoV will retrospectively sever this as some solicitors have said it is not possible to sever a joint tenancy after death.
That is also good to hear that the DoV won't be classed as deprivation as in the fairly unlikely event my mother needs care, only her half of the house could be considered. In fact, my solicitor thought it is unlikely the council would come after this half if I was a joint owner.
Do you know if my mother and I are expected to pay household bills 50/50 if joint tenants and whether HMRC have to be notified of the DoV, given that no IHT would be due on the effect of the DoV?
Many thanks again - I'm finding it difficult to decide whether to carry out the DoV as the estate value is significantly below the current IHT threshold but in saying that, I can't really think of any tangible disadvantages of carrying out the DoV from an IHT of CGT point of view. Given that the house is my main residence, I would be exempt from any CGT.
That is also good to hear that the DoV won't be classed as deprivation as in the fairly unlikely event my mother needs care, only her half of the house could be considered. In fact, my solicitor thought it is unlikely the council would come after this half if I was a joint owner.
Do you know if my mother and I are expected to pay household bills 50/50 if joint tenants and whether HMRC have to be notified of the DoV, given that no IHT would be due on the effect of the DoV?
Many thanks again - I'm finding it difficult to decide whether to carry out the DoV as the estate value is significantly below the current IHT threshold but in saying that, I can't really think of any tangible disadvantages of carrying out the DoV from an IHT of CGT point of view. Given that the house is my main residence, I would be exempt from any CGT.
I'm no expert. But having recently gone through the care funding and IHT process for my father, I'd say generally it comes down to common sense. Have you contacted HMRC yourself for advice? They should be able to tell you if you need to notify them. There may even be guidance online. I suspect they wouldn't need to be notified if it's under the nil rate band.
Pay some bills so that you can show a record of living there over time. You are genuinely living there. Deprivation of assets is used for people who gift their house before death and then don't pay back market rent for continuing to live there. A clear attempt at a dodge among other methods.
I think it also depends how far under the IHT threshold the house is. With the RNRB and allowance carried over from your father, you will have £1mil total allowance. Even if this government change the thresholds or say remove the RNRB, how much will it likely affect you?
Pay some bills so that you can show a record of living there over time. You are genuinely living there. Deprivation of assets is used for people who gift their house before death and then don't pay back market rent for continuing to live there. A clear attempt at a dodge among other methods.
I think it also depends how far under the IHT threshold the house is. With the RNRB and allowance carried over from your father, you will have £1mil total allowance. Even if this government change the thresholds or say remove the RNRB, how much will it likely affect you?
loskie said:
could the rent you charge your mother be the max but no more than permitted under the tax free "rent a room scheme" so tax was not an issue to you.
I'm pretty sure that if I was a joint tenant with my mother (having inherited half the property from my father under a deed of variation), there would be no Gift with Reservation of Benefit as we would be living in the same property so I don't think my mother would need to pay any rent. The only time my mother would have to pay rent is if she gifted the entire house to me which I don't think is a very good idea. Not least because in the unlikely event I passed before my mother, my IHT threshold would only be £325k.
Sanderling said:
I'm no expert. But having recently gone through the care funding and IHT process for my father, I'd say generally it comes down to common sense. Have you contacted HMRC yourself for advice? They should be able to tell you if you need to notify them. There may even be guidance online. I suspect they wouldn't need to be notified if it's under the nil rate band.
Pay some bills so that you can show a record of living there over time. You are genuinely living there. Deprivation of assets is used for people who gift their house before death and then don't pay back market rent for continuing to live there. A clear attempt at a dodge among other methods.
I think it also depends how far under the IHT threshold the house is. With the RNRB and allowance carried over from your father, you will have £1mil total allowance. Even if this government change the thresholds or say remove the RNRB, how much will it likely affect you?
Sorry to hear you have recently gone through the care funding and IHT process for your father. Pay some bills so that you can show a record of living there over time. You are genuinely living there. Deprivation of assets is used for people who gift their house before death and then don't pay back market rent for continuing to live there. A clear attempt at a dodge among other methods.
I think it also depends how far under the IHT threshold the house is. With the RNRB and allowance carried over from your father, you will have £1mil total allowance. Even if this government change the thresholds or say remove the RNRB, how much will it likely affect you?
I haven't actually contacted HMRC, it's something I'm considering but HMRC's forum seems to have offered conflicting advice to those who have asked a similar enquiry.
One solicitor has said HMRC would need to be notified of the deed of variation and another has said it is not necessary. From what I've read online, it sounds as though HMRC don't need to be notified unless it creates an IHT liability which it doesn't.
Naturally, I have contributed a fair bit to the upkeep of the house over the years, paying for some builders' work, paying the phone/internet bills but I can't say that I've paid 50% of the household bills precisely. Again, our solicitor doesn't think who pays the bills will be of concern to HMRC - besides, it's safe to say that even if my mother pays all the bills and lives to 100, the total amount paid would definitely not exceed the £1m RNRB and it could even be argued that her paying the bills could come under the gifting from excess income. So as daft as it sounds, if I paid my mother half the household bills, I could be gifted it back as me paying half the bills would allow my mother to gift it back from excess income.
I genuinely live in the house, I'm on the electoral register and have never purchased my own property.
I totally appreciate that most people will think I'm overthinking and being very paranoid about IHT thresholds coming down as realistically, the total estate currently wouldn't be worth much more than half the £1m RNRB. So I totally understand why most people would wonder why I'm so concerned! I just feel quite vulnerable at the moment as if the IHT rules are changed, I would literally have no claim on the house whereas if a deed of variation was carried out, I would at least effectively have the security of owning half the house.
It might also make sense for the deed of variation to ensure that I inherit my father's savings so again, I have the security of inheriting them at the current IHT rate. Admittedly, this isn't a massive advantage as most of the parents' savings were held in my mother's name as this was more tax effective re: paying tax on interest as when my father was alive, my mother's pension income was way below the income tax threshold.
The way I tend to look at things now is what is the worst case scenario! If I don't vary the will and IHT thresholds go down massively or house prices go up massively, I could end up with nothing or a tax bill to keep the house. If I vary the will, I can't see it's going to cause any damage but I appreciate that it could cause complications re: paying bills 50/50 and whether my parents' joint tenancy can be severed - I'm pretty sure it can be but this seems a potentially controversial subject!
Many thanks again for your help.
Condolences to you and your Mother.
As regards the DOV it will be your Mother that needs to do this ie by reducing her share from 100% to 50% ( or whatever percentage she wants ) and giving you a share - “ currently 50% as per your thinking.
Whilst you can do this DIY I would strongly suggest not.
Any IHT and potential CGT payable on your Dads estate and indeed probate will have already been paid by the time beneficiaries are paid so absolute no need for either of you at that point to contact HMRC about the change of will dictates.
As regards the DOV it will be your Mother that needs to do this ie by reducing her share from 100% to 50% ( or whatever percentage she wants ) and giving you a share - “ currently 50% as per your thinking.
Whilst you can do this DIY I would strongly suggest not.
Any IHT and potential CGT payable on your Dads estate and indeed probate will have already been paid by the time beneficiaries are paid so absolute no need for either of you at that point to contact HMRC about the change of will dictates.
Thanks Hal3210.
You need to do what is best for you in the end. It doesn't matter what other people on the internet think. If you have no appetite for risk then the right thing to do is secure your position. I was just trying to put your mind at ease. I think what you have experienced already is that there is an amount of interpretation (even within professional circles) when it comes to the rules. I've even heard of the probate office giving wildly different advice to people.
The best thing to do is to get the ball rolling I think, but first educate yourself as best as possible. I managed to get through the IHT and probate forms myself. As an example for the IHT property valuation form, some people get 3 estate agent valuations, some get a RICS valuation and I just submitted 3 examples of similar properties currently for sale from rightmove because my dads estate fell just within the threshold including RNRD. That was accepted by HMRC. I made some mistakes initially when submitting information to the probate office, but they gave me feedback and I made the corrections. They don't exist just to catch you out. I wouldn't be concerned about contacting HMRC and ask for guidance with succinct factual questions.
Re paying the bills 50/50. Many couples wouldn't pay the household bills 50/50. I wouldn't worry about that.
I'd start off yourself and then instruct a solicitor if/when required.
You need to do what is best for you in the end. It doesn't matter what other people on the internet think. If you have no appetite for risk then the right thing to do is secure your position. I was just trying to put your mind at ease. I think what you have experienced already is that there is an amount of interpretation (even within professional circles) when it comes to the rules. I've even heard of the probate office giving wildly different advice to people.
The best thing to do is to get the ball rolling I think, but first educate yourself as best as possible. I managed to get through the IHT and probate forms myself. As an example for the IHT property valuation form, some people get 3 estate agent valuations, some get a RICS valuation and I just submitted 3 examples of similar properties currently for sale from rightmove because my dads estate fell just within the threshold including RNRD. That was accepted by HMRC. I made some mistakes initially when submitting information to the probate office, but they gave me feedback and I made the corrections. They don't exist just to catch you out. I wouldn't be concerned about contacting HMRC and ask for guidance with succinct factual questions.
Re paying the bills 50/50. Many couples wouldn't pay the household bills 50/50. I wouldn't worry about that.
I'd start off yourself and then instruct a solicitor if/when required.
Gassing Station | Finance | Top of Page | What's New | My Stuff