Inheritance tax on the house owned by my wife

[Quovadis]

Our house has always been in my wifes sole name, before and after we married . If I passed away and my wife also , can she leave the house to her sister without incurring inheritance tax ?

[maths]

The newly introduced Residence Nil Rate Band (RNRB) would not apply.

If you die first and leave all your estate to surviving wife this would mean she would have two nil rate bands (£650,000) which might mean no IHT on her estate. She could on her death leave the house on trust with one of your children (if any) having an interest in possession which the trustees could then terminate appointing the house out to her sister.Wife would then be entitled to two new RNRBs.

If your wife dies first she could leave everything to you but she could leave the house on trust with one of your children (if any) having an interest in possession which the trustees could then terminate appointing the house out to her sister. Wife would then be entitled to the new RNRB.

[Quovadis]

Thank you for the information . we have no children so what would be the best way forward in this respect . Could we make the sister a trustee now ? Also, what is the implication to the sister, would this be viewed as a capital gain ? I am 65 now , so would it make sense to start to offset some of the value of the house now, so that If I survive until I am 75 10 years of percentage value would be hers already ?

[AnthonyR]

As Maths says, if the property is under £650,000 there is no IHT liability on the property if it is paid out first. So nothing to do.

If it's more than £650,000 and you gift a share to the sister HMRC are likely to treat this as a gift with reservation (which is ineffective for IHT purposes) unless you pay full market rent for the share to your sister for a period of at least 7 years (which she would pay income tax on). She could move in with you and occupy 'her' share, which would avoid having to pay rent, but that may not be practical (or desirable).

Unfortunately the family home is an asset that's it's not usually very straightforward to deal with and while the new Residence Nil Rate Band addresses the issue for some families, it's not much help for those without children.

[Quovadis]

Thank you to all that have replied .... Mmm It seems I am stuck to move forward on this one ... My hope was to make provision for the sister in law should I pass away , without burdening her with taxation because of it, this seems to have gone out of the window ... I assume if my wife is survives then in that instance the sister could then move in to the home, without issue ? If this was to be the case or arrangement what would be needed to be done in advance ( if anything ) kind regards