Double whammy IHT - this can't be right?!?!

[ColTax]

Scenario is:-

Father recently died leaving property valued c£715k to 2 children
His EX wife had remained living in property with him since divorce 20 years ago.
His will requested the EX wife be allowed to remain in the property "where executors (his children) considered it was reasonable to allow her to do so"
In settling IHT the nil band of £325 has been used and also a reduction of 25% applied due to the EX-wife remaining as an Assurred Tennant
Under probate the property will revert to the 2 children --- their Mother (the EX wife) will not have any ownership rights.

I am now advised that when the Mother (EX wife) passes away the WHOLE value of the property, less single person nil rate, will be subject to IHT again. Surely this cannot be right as in effect that is 80% tax on each pound over and above £325k?!?!?!?!

Appreciate that any increment amount over and above the £715k would be liable for CGT should they wish to sell but I cannot fathom how or why IHT would again raise it's head in the passing of the EX-wife / Mother as she would not have the property as an asset in her Estate as she is effectively a rent free tennant.

Can anyone advise on the above?

If this is the case can the will be subject to a Deed of Variation removing the EX-wifes entitlement to remian in the property rent free or can it be mitigated away by any means?

Thanking you in advance.

[Lee Young]

If the Revenue conclude that the ex wife was in fact given a life interest (not entirely clear from your posting) then yes on her death the value of the trust assets will be aggregated with her estate and the entire amount subject to IHT. If she dies within 5 years, then quick succession relief will apply.

"Reasonable to allow her to do so" - sounds as though the trustees have the ability to bring the trust to an end (a deemed pet by the ex wife) in which case after 7 years the property would fall out of account. Might not go down well with mum though!

It does sound however that she might have some equitable interest in the property already which should be explored and ascertained now.

[ColTax]

Mmmmm.

I see what you are saying however it does seem a bizzare situation.

The will says that the ex-wife "may live in the house and use it as her principle place of residence until in the opinion of the trustees she ceases to permanently use it" --- is this a life interest?

Deed of Variation a route to follow?

[Lee Young]

Looks like a life interest trust.

A deed of variation would need the consent of the life tenant of the trust so probably not a runner.