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Where Taxpayers and Advisers Meet

Confused about how grandfathers property will be treated

mgthomas
Posts:2
Joined:Wed Nov 21, 2018 7:38 pm
Confused about how grandfathers property will be treated

Postby mgthomas » Wed Nov 21, 2018 9:08 pm

Hello

14 years ago my grandfather passed away leaving the property for the use of his wife until she passes away and upon her death the property is to be sold and the estate distributed.

I can't remember the exact wording but the will isn't leaving the property to his widow but she has use of it until she passes. She has decided to relinquish her need for the property and has instructed it to be sold so my grandfathers estate can be distributed.

How would this be treated for IHT, she has not passed away but would the property automatically be assumed as passing to her for IHT reasons?

Clearly it could make a significant difference to the amount of IHT that is payable if especially of their combined estate is worth less that 700k at her death.

My mother has received varying "advice" and she is the main beneficiary and is confused by the whole thing.

She is quite desperate for the money and doesn't want to ask questions of the executor before the sale has proceeded.

Thanks in advance

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Confused about how grandfathers property will be treated

Postby maths » Wed Nov 21, 2018 10:38 pm

It seems that grandfather left his home on trust for his wife for her life and on her death the house is sold and the proceeds distributed amongst the beneficiaries of the trust (possibly, his children, grandchildren) who would normally take absolutely. His wife would not be one of these beneficiaries and thus would not take any of the sale proceeds (unless she only agrees to surrender her interest if those beneficiaries who will take agree to pay her some cash).

If the wife surrenders her interest in the trust (a so-called immediate interest in possession) she makes a potentially exempt transfer and the trustees are treated as disposing of the property at market value; however, any capital gain should fall to be exempt from CGT.

On your grandfather's death if the bulk of his estate was his home (which for IHT is treated as having been left to his wife) his nil rate band (NRB) would basically not have been used. On his wife's death she would be entitled to her own NRB plus her husband's. However, her NRB would be reduced if she dies within 7 years of the date of surrendering her interest under the trust.

Another option would be to partition the trust.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Confused about how grandfathers property will be treated

Postby AGoodman » Thu Nov 22, 2018 11:40 am

Is she receiving some money from the transaction? It is possible that some form of partition is actually the plan but she does not understand.

mgthomas
Posts:2
Joined:Wed Nov 21, 2018 7:38 pm

Re: Confused about how grandfathers property will be treated

Postby mgthomas » Thu Nov 22, 2018 12:09 pm

Thanks for the replies, the word "trust" was used in his will (it was a simple will that he wrote). I'll have to dig out a copy.

As far as I'm aware she may have initially received some monies on his death but the main estate ie the property and any monies left go 5/8th to my mother, and 1/8 th each to myself, my brother and uncle.

Very grateful for the replies thank you.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Confused about how grandfathers property will be treated

Postby AGoodman » Thu Nov 22, 2018 1:01 pm

In that case, it sounds like they are planning a simple release. She will make a PET of 3/8ths of the value of the home.

It probably won't be possible to claim the additional nil rate band on her death (somebody would need to study the rules) but overall they will share a £650k nil rate band so any IHT should be minimal. Her estate may of course reduce if she is using the cash to fund her living expenses.

As Maths says, if she survives 7 years then the 3/8ths passing to you and others will fall out of her estate for IHT.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Confused about how grandfathers property will be treated

Postby maths » Thu Nov 22, 2018 2:06 pm

By "release" are you referring to a surrender?

Why no transferable nil rate band from husband on death of widow?


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