Inheritance Tax and House Deeds/Ownership question

[Homer67]

Hi Guys,

 

I'm posting in here as I'm not sure if there is a specific place for this question - Admin feel free to move this if you need to.

 

The situation is this:

 

Currently my home, which I purchased wholly with my own funds, is owned by me and only my name is on the deed/registry documentation that I got when I bought it.

 

My partner and I didn't live together before I bought this house, although she spent a lot of time at my previous house, but maintained her own rented accommodation until we moved into my current house.

 

My partner and her son (adult, away at Uni) live with me and both are on the electoral roll, Council Tax, they have bank accounts, credit cards, mobile phone accounts registered here.

 

All the house utility bills are in my name.

 

We both want to make our financial arrangements in case anything happens to either one of us.

 

Neither of us is inclined to get married, I have no children.

 

My partner only has cash investments to leave plus some jewellery and her car as anything of value, so I presume a Will should be able to deal with that, as apart from some low value sentimental items for me, she will leave everything else to her 3 children (2 adult girls who live in their own rented accommodation and her son who lives with us but is at Uni at the moment).

 

I have less cash investments than my partner (at the moment) to leave and again I presume a Will should deal with that and my other items of value (vehicles and jewellery) but obviously I have the house to leave and I don't want my partner to be liable for IHT if I leave the property to her.

 

I have one condition for my Will which is that a sum of money is paid to my nephews when the house is sold, either as a result of my partner downsizing or in case of her death. I presume my partner will have to write this condition into her Will as well.

 

What I want to avoid is my partner getting hit with inheritance tax if I die before her and leave her the house in my Will.

 

Does anyone know the options?

[BazzaS]

Will the estate exceed the IHT threshold?

 

If so, you can create a trust, though that will attract 20% IHT on creation. Provided you then survive 7 years, no additional IHT will be payable.

 

You can't easily create a FUTURE obligation on a beneficiary of a simple will. It is a bequest : given to them, and they can deal with it as they choose.

 

So, another option : arrange all the bequests as you wish, and buy life assurance to cover the IHT sum. Just ensure the beneficiary of that policy is your partner and not your estate, else that too may fall liable to IHT.

 

Another option (that doesn't fit with your stated desires but you should still have it in the back of your mind if none of the other options suit).

Marriage. It may not be what you both want but deals with the IHT.

[BazzaS]

You can't easily create a FUTURE obligation on a beneficiary of a simple will. It is a bequest : given to them, and they can deal with it as they choose.

 

So, another option : arrange all the bequests as you wish, and buy life assurance to cover the IHT sum. Just ensure the beneficiary of that policy is your partner and not your estate, else that too may fall liable to IHT.

 

Just to clarify : you can create the trust as part of your will allowing your partner to stay in a property that is willed to a third party / trust.

It won't solve the "don't want her to be liable for IHT" issue, though.

[Homer67]

Thanks Bazza, that's explained it much clearer than anyone else I've asked.

 

So yes the estate will be more than the £325k threshold, by a fair bit due to the value of the property, so that's where the IHT problem is.

 

With regards to marriage, would being married get rid of any IHT liability and if so, do you know how long we would have had to be married for?

[BazzaS]

Provided the gift / bequest to the non-spouse at time of death (& "potentially exempt transfers / 'lifetime gifts' in the 7 years preceding death) are below the IHT threshold, there will be no IHT liability, no matter what amount goes to the spouse.

 

I'm not aware of any requirement to prove the marriage existed for any length of time (nor that it wasn't just for IHT purposes) provided it is a recognised marriage.

 

This presumes there are no other complicating factors (no one is going to say "it's a sham marriage for immigration"?) that might give rise to other questions as to validity of the marriage. (That would be a whole new can of worms!)

[Mr.P]

I have less cash investments than my partner (at the moment) to leave and again I presume a Will should deal with that and my other items of value (vehicles and jewellery) but obviously I have the house to leave and I don't want my partner to be liable for IHT if I leave the property to her.

 

I have one condition for my Will which is that a sum of money is paid to my nephews when the house is sold, either as a result of my partner downsizing or in case of her death. I presume my partner will have to write this condition into her Will as well.

 

What I want to avoid is my partner getting hit with inheritance tax if I die before her and leave her the house in my Will.

 

One point to deal with first: Your partner would not be liable for any inheritance tax on your assets. The tax is payable from the estate, and is something that is handled by the executors. If your partner is the sole executor and beneficiary, then she would be responsible for paying any inheritance tax due.

 

If you are wanting your nephews to receive a sum of money when the property is sold at some unspecified point in the future, then I'd suggest leaving the house "in trust" and granting your partner a lifetime interest in it. This would give her the right to continue living there, and depending on how the trust is set up, provide an option to downsize.

 

You should (must) consult a solicitor who is experienced in wills & trusts and explore the various options available. Spending a couple of hundred pounds now will save no end of expense and problems after your funeral. Just don't use one of these unregulated will writing outfits or attempt a DIY will.