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Where Taxpayers and Advisers Meet

Will my partner have to pay IHT on our sole residence if I die?

Russboy
Posts:5
Joined:Wed Apr 25, 2018 3:54 pm
Will my partner have to pay IHT on our sole residence if I die?

Postby Russboy » Wed Apr 25, 2018 4:07 pm

Hi,

First time of posting so please be gentle!

To set the scene myself and my partner have been together for just short of 13yrs and have lived in our current residence together since Feb 2010. We're lucky in that it was a self build and there is no mortgage on it. We have a 6yr old son & 3yr old daughter of which we are both the biological parents.

Land registry has the land the house is on registered in my name for 10yrs+ as this was given to me by my Mum & Dad. Our presumption (could be a bad move!!) is that the house on that land must therefore belong to me. No other 'person' would challenge that. The house at this time probably has a market value of £650,000+.

We don't currently have wills but we are about to address that, but if I leave the house to her in my will would she have to pay any tax at all? It is her sole residence and has been for over 8yrs, she's registered to vote there etc.

Why ask the question now? Well my Mum has cancer and has taken a dramatic turn for the worse with very limited time left, days in fact. Our whole family need to get our financial matters in order as my parents have property of around £2m mortgage free and we're looking to get everything tied down to limit the amount we would have to hand over in tax, but perhaps i'll address that in another post as that's a different subject.

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

Re: Will my partner have to pay IHT on our sole residence if I die?

Postby maths » Wed Apr 25, 2018 9:23 pm

Assuming the house/land both legally and beneficially belongs to you on your death if it is left to your co-habitee (and/or the children) an inheritance tax charge arises on your estate i.e. if house left to co-habitee IHT would need to be paid by your executors before the co-habitee gets the house.

If house worth 650k then IHT on death would be 40% of [650K - 325K] i.e. 130K. This may mean the house would need to be sold to pay the 130k.

If your were married then no IHT arises on your death effectively being deferred until co-haboitee dies.

Whether married or not when the co-habitee dies (assuming house didn't need to be sold) IHT would arise; co-habitee would offset her own nil rate band (325K) plus a further 125k (minimum) as co-habitee's estate would also be entitled to the newly introduced residence nil rate band (assuming she left house to kids). IHT would then be 40% of [650K - 450k] i.e. 80K (assuming house worth 650k).

You could leave leave 70% to co-habitee and 30% to children. Then co-habitee leaves her 70% to kids.
IHT then on your death: 650k -325k -125k] x 40% = 80k.
IHT on co-habitees death: 40% of [455k - 325K - 125K] = 2k.

OR
Give co-habitee 30% in lifetime and 70% on death to kids. On co-habitee death she leaves her 30% to kids.
IHT then on your death: [455k -325k -125k] x 40% = 2k.
IHT on co-habitees death: 40% of [195k - 325K - 125K] = nil.

The above ignores non-tax issues (e.g. co-habitee after your death does a runner with the house etc).
Wait for someone to check my figures !!

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

Re: Will my partner have to pay IHT on our sole residence if I die?

Postby AGoodman » Thu Apr 26, 2018 11:47 am

The only slight silver lining is that IHT on property can be paid (with interest) over 10 years.

Still better (from a tax perspective) to either get married or give half the property to your partner. That would mean that if one of you died (assuming no other assets of note) only half the house would be at risk of IHT, considerably reducing the tax payable.

If you have other substantial assets, you would really need the spouse exemption to avoid IHT on the first death.

Russboy
Posts:5
Joined:Wed Apr 25, 2018 3:54 pm

Re: Will my partner have to pay IHT on our sole residence if I die?

Postby Russboy » Thu Apr 26, 2018 12:04 pm

So marriage or if I put her as joint owner of the house ( no idea how!) presuming I live another 7yrs, i'm 42 so i'm certainly planning to! would that mean no IHT to pay?

Russboy
Posts:5
Joined:Wed Apr 25, 2018 3:54 pm

Re: Will my partner have to pay IHT on our sole residence if I die?

Postby Russboy » Thu Apr 26, 2018 12:04 pm

Also thanks for the replies :-)

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

Re: Will my partner have to pay IHT on our sole residence if I die?

Postby AGoodman » Thu Apr 26, 2018 3:13 pm

Spouse exemption would mean no IHT. Joint ownership of the house would mean you only had (after 7 years) £325,000 in your estate rather than £650,000. That happens to be the nil rate band so could be left to your partner tax free. If you have anything more than that (say savings, other property, investments, a Van Gogh on the wall) you would either have to pay 40% tax on it or do something clever. i.e. you could leave £150/175,000 of the property to the children tax free using the residence nil rate band, freeing up the main nil rate band to leave a further £150/175,000 to your partner. That's going to need a proper will.

The other possibility is to take out life insurance to cover the IHT as well as a useful lump sum for partner + kids should you die. It should be pretty cheap

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

Re: Will my partner have to pay IHT on our sole residence if I die?

Postby maths » Thu Apr 26, 2018 4:02 pm

AG

Following lifetime gift of 50% of property to other co-habitee means each owns 325k.

For first co-habitee to die and utilise his full RNRB (say 125k) means he leaves 125/325 to the kids.

This leaves 200k to leave to surviving co-habitee utilising 200k of his 325 nil rate band.

This leaves him with up to 125k of other possessions and overall giving rise to no IHT on death.


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