DoV to Give Security to Adult Son Living with Mother

[JG45]

My father passed away suddenly last year. I've lived with my parents for many years, due to poor health. I would like to remain living in the house, assuming I outlive my mother. The total estate value is significantly below the current £1m IHT threshold for married couples.

However, it has been suggested that it could be beneficial to vary my father's will using a deed of variation so that I inherit his half share of the house now and become joint tenants of the house with my mother. This could potentially give me some security should IHT thresholds be lowered significantly in the future - this way, I'd effectively own half the house at the current IHT rate, by my mother reducing her share of the house to 50%.

Although my parents were joint tenants, I understand that this joint tenancy can be severed after death using IHTA s142(1)(a) specifically mentioning the "or otherwise" part which states that "any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied." (October 1995).

I understand that should my mother need a care home (very unlikely for the foreseeable future), the issue of "deprivation of assets" could arise and the DoV could be seen as a deprivation of assets but as I say, this is not the reason for considering varying my late father's will - it is simply to attempt to give me some more security in case IHT thresholds are lowered in the future. Besides, using IHTA s142(1)(a) as mentioned above should ensure that my half share of the house has already been inherited from my father so it should not be seen as a deprivation of assets.

Quite a few potential issues have come up such as whether it will be possible to severe my parents' joint tenancy on the property - one solicitor is sure a joint tenancy can be severed after death for the purposes of IHT and CGT using IHTA 1984 s142(1)(a) and another is adamant that a joint tenancy can never be severed after death and that the half share of the house would have to be a gift from my mother rather than inheritance from my father. This would change things completely as my mother would have to live another 7 years from now which is far from guaranteed given she is already almost 80. If the half share is seen as coming as a gift from my mother this could also potentially create a Gift with Reservation of Benefit situation.

Am I correct in thinking that if my father's will is varied to include his half share of the house this will not adversely effect my parents' total RNRB of £1m, besides lowering this RNRB by the value of the house? Given that my mother will only own half of the house on her passing, am I correct in thinking this won't adversely effect the total original £1m RNRB as the varying of my father's will has passed to a direct descendent. Am I also correct in thinking that varying my father's will to include his savings of approx. £25k won't adversely effect the £1m RNRB beyond the £25k value of the savings?

Given that the amount inherited from my father from varying the will is likely to be approx £200k (half of house worth £175k + £25k savings), I understand that HMRC do not need to be notified of the varying of the will as the £200k inherited is well below the IHT threshold. If this is correct, how will HMRC know how much to deduct from the total £1m threshold should I outlive my mother? Would it be wise to keep a record of similar house prices to prove the value of the house at the time the will is varied? Naturally, it will be very straightforward to prove the value of my father's savings through bank statements.

Am I correct in assuming that any savings my father held with my mother in a joint account would not be able to be included in the DoV as those funds would automatically go to my mother or would it be possible for me to inherit the funds from my parents' joint account due to the DoV. The majority of my parents' savings are held in my mother's name so as far as I am aware, any savings held in my mother's name would be subject to the 7 year rule if any were gifted to me, besides £3k a year.

In a nutshell, would carrying out the DoV in this case leave an RNRB remaining of £500k for my mother and £300k from my father?

Some solicitors think that my mother and I would have to pay household bills 50/50 if we live together as joint tenants whereas others think that this will be of no concern to HMRC. Even if my mother paid all the household bills and this amount was effectively considered as a gift, naturally the total amount of household bills paid would not increase the total estate to anywhere near £1m. I've lived with my parents for the last 25 years and am on the electoral roll and have never purchased my own property. I'd greatly appreciate clarification of whether my mother and I would need to pay household bills 50/50 or whether this makes no difference in this case if my mother pays all the bills.

It is possible that I may renovate and sell the house if I outlive my mother - if I was a joint tenant with my mother, there would be no CGT on the difference in probate value and renovated value as I presumably wouldn't have to go through probate. Even if the will isn't changed though, am I right in thinking that I could renovate the house and sell it for more than the probate value as I'd be exempt from CGT as it has always been my sole and main residence?

If my mother and I were to move house together during my mother's lifetime, would the DoV create any complications? Would my mother and I need to open a joint bank account to receive the sale funds of the current house and purchase the new house from this joint account?

Given I've always lived with my parents, I assume that the DoV would not attract any additional taxes such as CGT or stamp duty?

I'm aware that inheriting half the house will reduce the remaining IHT RNRB balance to £800k (assuming half the house & savings are worth £200k) but this does not make a tangible difference to the RNRB as if the will wasn't varied, the whole house rather than just half would form part of the estate. I appreciate that if the house doubles in value in my mother's lifetime, that half share would be worth £350k but then I'd still have £800k RNRB remaining! So I can't really see the issue in varying the will damaging the RNRB balance remaining in real terms but of course stand to be corrected! It certainly appears as though IHT RNRBs will be frozen, or even reduced, rather than raised in the forseeable future.

I appreciate that it is quite rare for an adult to live with their parents long-term so it is potentially quite different from most other IHT cases. Also, it's more an issue of giving me some more security to stay in the family house should IHT rules be changed, rather than trying to reduce IHT due or avoiding care home fees. If my father's will isn't varied and IHT thresholds are drastically changed in the coming years, I have absolutely no claim to the house so I can see the advantage of carrying out the DoV. I intend to live with my mother permanently and don't intend to get married so there is no downside to inheriting my father's half share of the house in that sense, my mother and I are purely concerned about whether the DoV is the best action to take from a tax point of view. Looking at things from a "worst case scenario" though, I feel that the DoV is a wise idea as I can't see any real downside of carrying out the DoV whereas if IHT thresholds are drastically changed, I could literally be left homeless.

Much appreciate any advice, many thanks in advance for your help.

[AGoodman]

- yes, you can do this
- yes, your mother can retrospectively sever the joint tenancy. It is common. Strictly speaking, in law, she is giving you a half share but the tax "fiction" under s.142/62 is that you received it from your father for IHT/CGT purposes.
- it would absorb your father's RNRB first and then part of his NRB.
- the only real downside is if that the RNRB/NRB could increase in the future. However this is only a disadvantage if it grew faster than the value of the property.
- no, there is no need to share outgoings following the DoV. There would only be a problem if you had an agreement with your mother that you would cover more than the half the outgoings following the DoV (as that could be considered consideration for her giving up her share, resulting in the s.142 election being invalid). One adviser might be confused with a lifetime gift under s.102B FA 1986 where this is is important.
- your father's RNRB would be exhausted if the half share was exactly £175,000. His transferable NRB would be reduced by 7.7% for the £25,000. This means that the total nil rate sum your parents could pass would still be £1m if the thresholds didn't change. If the NRB increased during your mother's lifetime then your mother's estate would be able to use 92.3% of the increased value.
- deprivation of assets could still theoretically apply as the tax "fiction" under s.142 does not apply to these rules so for deprivation rules, it is treated as a gift by your mother to you.

I'm concerned that you're getting advice from two quarters. Make sure you take proper, paid, advice from a private client solicitor to get it done properly and the property registered in your joint names as tenants in common. This will also avoid any need to register the arrangement under the Trust Registration Service (as would be the case if your mother remained sole legal owner for the two of you).

[JG45]

That's brilliant, many thanks for your reply - that's by far the most succinct advice I've had. I've been going around in circles for literally months with this issue.

My only remaining questions are:

- How will HMRC know how much to deduct from my mother's total RNRB and NRB of £1m if I outlive my mother? My solicitor tells me that there is no need to make a declaration to HMRC at the point of the DoV as the total value inherited from my father is well below the IHT threshold so after my mother's lifetime, there will be no paper trail to prove the value of half the house was £175k when the DoV was carried out. Should I keep records of similar properties advertised for sale at this time? There was no declaration to HMRC or probate when my father passed as the house was simply transferred to my mother, along with my father's savings which were below probate in value. My father's original will left everything to my mother.

- Also, are there any implications with the DoV if my mother and I decide to move house within my mother's lifetime?

- I've previously been advised to become a 50/50 joint tenant with my mother (where my mother effectively reduces her share to 50% by carrying out a deed of transfer) - I'm told the advantage of being a joint tenant with my mother is that I won't have to go through probate when the time comes. I note you advise us to become tenants in common - is there an advantage of becoming tenants in common rather than joint tenants with my mother?

- Finally, am I right in thinking that while the DoV must be carried out within 2 years of the passing of my father, it is not essential that the Land Registry is updated with my mother and I's joint ownership within 2 years as I understand it can sometimes take several months for them to update their records.

Unfortunately, my mother and I have been very distraught since my father's unexpected passing, we have spent a lot of time considering starting a medical negligence case. This, along with the conflicting advice re: the DoV from different solicitors has led to many delays but we now think this is definitely the right option to take to provide me with some extra security. As you say, unless increased RNRB/NRBs grow faster than the price of the property, there is no real downside of the DoV and the way things are going, I wouldn't be surprised if RNRB/NRBs are kept frozen or even decreased in the future.

I am in touch with a solicitor that specialises in inheritance tax planning and I will spell everything out to him to ensure everything is carried out correctly - initially he advised for my mother to simply the gift the entire house to me which I thought was poor advice as this would have come under the 7 year rule, potentially cause a GROB situation and more importantly, in the relatively unlikely event my mother outlives me, it would cause severe complications in my mother regaining ownership of the house, not least because the entire house and my savings would exceed my own IHT threshold of £325k. So after this advice, I sought advice from several others which led to conflicting information but the original solicitor is now aware that we'd only become joint owners through me inheriting my father's half via a DoV, rather than any sort of gift from my mother. (I appreciate it would still be seen as a gift from my mother re: care home fees but it would definitely be seen as inherited from my father in IHT/CGT terms)

Once again, I can't thank you enough for your clear and accurate advice. It's interesting to hear that DoVs are common now - literally the only one I can recall was Ed Milliband's many years ago!

[AGoodman]

- yes, keep a record of the value at the time (as best you can estimate) and a copy of the DoV.
- if you sell the house, the proceeds belong to you 50:50. That 50% cash is yours. You can both reinvest together in another property.
- it will be tenants in common automatically as you have been given a 50% share of the property (shares are contrary to a joint tenancy where both parties are considered to own the whole). A conveyancer should be able to convert it into a joint tenancy but that isn't my area
- no, there is no deadline to complete the registration at HMLR. Only to execute the DoV
- DoVs are a little more common, but they've never been rare. The increase is partly because the IHT NRB has been frozen for 16 years so a lot more people are affected by inheritance tax .

[JG45]

Many thanks again for all your help, it is much appreciated. I now feel much more confident about progressing with the DoV as soon as possible.

I didn't previously realise that my mother and I will become tenants in common automatically following the DoV, that makes sense re: the 50% share. From the research I've carried out, I think it is relatively straightforward to change tenants in common to a joint tenancy.

I feel that it would be beneficial to become joint tenants as in this case, the survivor does not have to go through probate. As far I know, there are no disadvantages of becoming joint tenants? Given that I am running out of time re: the DoV though, I think I'm best to arrange the DoV as soon as possible and then to go through the details such as changing to joint tenants afterwards.

My parents held some savings in a joint account - would it be possible for these savings to be left to me via the DoV or would it only possible for me to inherit 50% of them or none at all as those savings would automatically pass to my mother - or would the DoV be able to sever the joint account in the same way as severing the joint tenancy my parents held on the house?

My father held some savings in his own name which my mother wishes me to inherit now - for HMRC purposes, would these need to be transferred to me after the DoV has been carried out or would it be acceptable to HMRC if this amount was deducted from a previous gift my mother has recently made to me? E.g. if my mother gifted me £30k earlier this year and the DoV meant I inherited £25k in savings from my father, would it be acceptable to HMRC if effectively that £30k gift became a £5k gift from my mother and £25k from my father via the DoV, or would a separate transaction of £25k from my mother to myself to reflect the DoV have to made after the date of the DoV to ensure everything was carried out correctly re: HMRC?

Would my mother need to carry out a deed of transfer to reflect the 50/50 ownership with me after the DoV is completed or would the DoV automatically mean that I become 50/50 tenants in common with my mother, we'd then have to notify the Land Registry of this change to tenants in common. Then, after this is completed, we'd have to change the tenants in common to joint tenants?

While my parents were effectively 50/50 joint tenants, as far as I am aware, there was no documentation that stated they held 50/50 shares but is it important me for to have this to prove I inherited 50% of the house from my father?

Finally, if I have to prove the house has always been my main residence to HMRC, would I need anything in addition to being on the electoral roll, my driver's licence and bank statements?

Many thanks again for all your help and kindest regards,

[JG45]

I've contacted my solicitor in connection with the deed of variation and was told it will be possible to carry this out remotely without needing to make an appointment to see the solicitor.

Will this still be a valid DoV as I was expecting to need to get my mother's signature to be witnessed to ensure that the deed of variation is legally binding?

Many thanks in advance.

[AGoodman]

It will need to be signed and witnessed but they could just send the document through the post.

You might be able to use Docusign but that is a whole other question.