Intestacy and other inheritance issues

[windrush]

I am trying to help my elderly neighbour sort out her affairs and would be grateful if someone could advise in relation to the following points please:

1. In 2005 this lady's husband died intestate. The only asset in his estate was joint ownership of the house he owned with his wife who has continued to live in there. Her understanding is that she would have been entitled to a fixed amount from his estate (possibly the first £125k)? His two surviving daughters would have been entitled to the residue of his estate. As this lady has continue to live in the family home since his death, the two girls have not received anything from his estate. How then would any inheritance owing from their father's estate at the time of his death now be caculated and at the time of this lady's death? Would interest accrue on the amount they are owed or do they just inherit in equal amounts according to what 50% of the value of the house is worth at the time of this lady's death?

2. If this lady has sufficient assets to meet any inheritance that was owed to the two girls, can she now crystallise and pay this to them now or will it only crystallise when the house is sold?

3. Would any unused IHT allowance from her husband's estate still be available even though he died intestate 5 years ago?

4. This lady was left a small house many years ago (early 1960s) by her parents that she has never occupied as her PPR but has rented to the same tenant throughout this period. The property is in a very poor state of condition and it needs a great deal of work done to it. She wants to transfer title to this property to one of her daughters now so that if she survivies for another 7 years this will fall outside her estate but what tax consequences would there be if she were to do so? Would she have a Capital Gains Tax liability for instance and how would this be calculated?

Any advice would be most appreciated.

Thanks.

[Lee Young]

The intestacy rules only apply to those assets held in the sole name of the deceased and/or to those joint assets held as tenants in common. If they owned their property as joint tenants then the intestacy rules do not aplpy to the property - the wife inherited it automatically by right of survivorship. The first thing to do therefore is to see how they owned the property jointly. From the sound of things there was nothing else in the estate and therefore if the house was held as joint tenants there is nothing that will pass to his daughters.

As regards the proposed gift there might be CGT to pay on the gift if the property has risen in value (I would hope it has!) since she acquired it. Payable on the difference in today's value compared to the rebased base cost (value in March 1982) at 18% and or 28%

[Anthony Nixon]

I wonder if your neighbour is worrying unnecessarily.

Most married couples tend to own jointly owned houses as “joint tenants” which means that, on the death of the first to die, the whole property automatically belongs to the survivor.

It is only if they were “tenants in common” that the lady needs to worry about the impact of the intestacy rules. It is hard to answer your questions about this without knowing the value of the property.

As regards question 4, there will probably be a CGT problem with a gift to the daughter, as you suggest. Sometimes this can be dealt with by routing the gift through a trust, allowing gains to be "held over" (deferred to an actual sale). I will happily let you have more details if you want these.

Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP, Southampton and Chichester
anthony.nixon@thomaseggar.com
023 8083 1224

[windrush]

Anthony ad Lee,

Many thanks for your swift responses. I understand the first property was owned as Joint Tenants and that it was recently valued between £425k and £450k. The second property has not been valued but she estimates it to be worth somewhere in the region of £200k but it has a sitting tenant and requires extensive structural work. It sounds as if the property was not valued back in the early 60s when it passed to this lady. Would there be any reliefs or allowances still available given the length of time she has owned it for or should she have the structural work carried out before she passes title or leaves this for her daughter to do if this capital expenditure could be taken into account when calculating any CGT liability?

[Lee Young]

If you do the work now although the cost of it wouold be deductible it would also increase the value of the property - possibly by greater than the cost of the work in which case this would increase the tax bill, not decrease it.

What is needed is a March 1982 value of the property, as it then was, and an up to date value of the property. The capital gains tax is payable on the difference. As Anthony suggests the best way to "reduce" the tax bill may be to route the gift through the trust and defer the tax bill until a later date!

[windrush]

Thanks Lee,

Anthony, I would appreciate some more details on the trust route please (although I am no expert but I could at least guide this lady through the principles of setting up a trust arrangement should she need to take further advice on this).

I am still trying to get to the bottom of how the marital home was held at the time of her husband's death. This lady is quite elderly and somewhat confused and when I tried to query this with her all she would say is that when her husband died, she was advised that any share that the children were entitled to would continue to accrue on the property (with interest) until such time as she either sold it or it was sold following her death and that she could not pay the children their inheritance at the time from separate funds she held. Consequently, she has not been able to crystallise their inheritance following their father's death in 2005. I think this suggests that the property was therefore held by her and her husband as Tenants in Common?

Thanks very much for all your help.

[windrush]

Hi again,

It would seem that when the husband died a deed of variation was entered into in respect of the husband's share in the marital home. Pursuant to this, a discretionary trust arrangement was set up (presumably with the two daughters and any grandchildren being the beneficiaries) and a loan of £180k was made to the mother by the two daughters (which presumably was equal to their share of the marital home that they inherited on their father's death back in 2005). I haven't seen the Trust Deed but expect that interest accrues on the principal loan amount? I am assuming that if the principal amount of the loan plus interest exceeds the relevant proportion of the property that the girl's inherited from their father that this starts to eat into the value of their mother's share in the property? This lady tells me that she cannot repay the loan until the property is subsequently sold and that she cannot repay what is owed to the girls now in order to crystallise theis debt - does anyone have any experience of this? Could she sell the marital home to one of the girl's as her PPR and repay the other girl from the proceeds or must this be an arm's length sale to an unconnected third party? The issue is that if she doesn't want to leave the residue of her assets to both girls equally then having this loan may (with accrued interest) eventually mean that both girls would have to inherit the residue of her estate in equal proportions based in order to repay the debt. Also, is it the case that the two girls would also have a tax liability in respect of interest charged on the loan?

Sorry but this is all very complicated and I am doing my best to give this lady some practical advice.

Thanks