Immediate Post Death Interest Trust

[neil42]

My wife's will left her half share of our house, (owned as tenants in common), to our daughter and granddaughter but giving me the right to live in the house rent free. All other assets were joint. I understand this may have set up an Immediate Post Death Interest in Possession Trust.

How should a return to HMRC be made for my wife? What is the position when I die? Is the RNRB available to both of us? What happens if I downsize?

[maths]

Yes, sounds like creation of an IPDI by wife.

IHT on wife's estate excludes her 50% interest left on IPDI to you; this 50% gift is treated as an exempt inter-spouse gift.

Her esatte not entitled to RNRB.

When you die your estate will include the 50% interest in the house in which you have an IPDI. If you leave your own 50% to children/g'children your estate will be entitled to your own RNRB plus that of your wife (who did not use it).

[neil42]

Thanks for the reply. Doesn't this then amount to the same situation as would have applied had we owned the house jointly?

[maths]

If you mean had you owned the property beneficially as joint tenants and not tenants in common, then yes.

However, as joint tenants your wife's 50% would pass automatically to you on her death and she would not then have had any direct involvement as to whom her 50% would pass to on your death.

[neil42]

I need to understand if there are any pitfalls in this. A return has to be made to HMRC for my wife (IHT400?). You indicate that HMRC would take the view that she gifted her half of the house to me through the life tenancy which, as a spousal transfer, is free from IT. No IT would be payable on her estate. When I die, my estate would be assessed as the whole house and other assets and I would be allowed both NRBs and both RNRBs, (I will also leave my share of the house to my daughter/granddaughter).

Should I downsize, Probate would be needed to change the deeds and the difference between selling and buying costs would be split between myself and my daughter/granddaughter. Ownership of the new property would also be split. Am I interpreting this correctly? Are there any other potential problems? I was thinking of changing my wife's will to introduce a fair rental for my continued tenancy but in view of what you say, this may be unnecessary.

[AGoodman]

Whether you need to file an IHT return depends on a number of factors, the main one being the value of her estate. An estate which doesn't require a return is called an Excepted Estate, details here:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm06013

You may be okay if her total estate was less than £1m and everything other than the house is passing to you (as joint property or under the will).

There is a simplified form if you don't need to file IHT400 but need to apply probate. You may not.

The legal title to the property will now vest in your sole name, but beneficially you hold one half on the trusts of the will. You may need to appoint a second legal owner in order to sell (particularly if there is a restriction on the title) but this may not require probate. What happens to the proceeds of sale depends on the terms of the will - it may allow you to use some of the proceeds in trust to buy a replacement or it may not.

[neil42]

Thank you for the further comments. My wife's estate is under £450K. As all financial assets were joint, I believe Probate is only needed when the house is sold. Her will grants the same continued tenancy situation for the downsized property. I am aware of Form IHT205 and excepted estates but the HMRC Helpline seemed to advise that IHT400 be used.

What should be a not uncommon situation appears to have created endless problems. My solicitor is also less than clear as to how to proceed and I have requested specialist advice. All this simply makes clear what a shambles IT rules have become.

[AGoodman]

It should be relatively straightforward. Nothing you have said would put you outside of the excepted estates category so there should be no need for an IHT400 or IHT205. If the helpline say otherwise then ask them why. IHT400 is not a fun document (it's actually IHT400 plus numerous supplements)

As mentioned above, I am far from convinced that probate is required in order to sell either. You would just first need to transfer the property into the joint names of you and one other person before selling.

Despite that, yes, IHT is now horribly complicated bearing in mind people have to consider it at a terrible point in their lives - some aspects of the RNRB rules in particular are beyond a lot of practitioners.