Inheritance tax - advice please

[JamesW11]

Hi all,

My siblings and I are trying to set up our mum's estate in the most practical and sensible way, moving forward.
She's about to sell the house she lives in, and downsize to a more practical flat (she's 76).

One of the things we're considering is the way to structure this, and a question has popped up which I would love to know the definitive answer to.

One possibility is that our Mum buys a £600k flat in South London, and the flat is in her name (Deeds and Land Registry).

Our father is still alive - they are seperated, but not divorced (and have no plan to). He's 80.
They do not live together (he lives in council sponsored housing nearby).
He will not appear on the deeds or land reg at all for her new flat and will never live there.
Also, and perhaps most importantly - he will not be a beneficiary in our Mum's will. Zero, nada.
If she predeceases him, he will not move into her flat, nor enjoy any of the use of it or benefit from the proceeds of its sale.

Thus I would love to know the answer to these questions: (!)

1) In the event that he predeceases her, does she benefit from his additional £500k IT exemption, making her IT exemption (on her later passing) £1m ?
(£325k standard Inheritance Tax exemption + property adding £175K = £500k x 2 = £1m)
He will never have lived there nor been on the deeds.

2) In the event that she predeceases him, and he does not live/has never lived in her flat and will not be allowed to move there, and the flat is sold and the proceeds divided between her beneficiaries, am I correct in assuming that his IT exemption is in no way applicable to the flat or its sale proceeds? (Since he doesn't live there and will never enjoy its use).
Thus her estate will be non-exempt for In Tax purposes (being above the £500k threshold), and InTax will be levied at 40% ?

Any thoughts surrounding the above very gratefully received!
James

[DrFfybes]

1) AIUI, yes. PROVIDING he leaves everything to her.
If not, then anything he leaves to anyone else reduces the transferrable allowance.
It seems that if they are married and he dies first and the other criteria are met then the transfer is valid, in the same way as if he'd moved into a Care Home rather than just moved out.

https://www.gov.uk/guidance/inheritance ... -threshold

The home that the surviving spouse or civil partner leaves to their direct descendants does not have to be the same home that they lived in with their partner to either qualify for the residence nil rate band or to transfer it.

They do not have to have previously owned the home with their late partner, or inherited it from them. It can be any home as long as both these conditions are met:

2) He will have his own allowances. However as he is still alive you cannot claim his exemptions against your mother's estate. Also as he never lived in the flat then his allowance cannot be used against it.

Thus her estate will be non-exempt for In Tax purposes (being above the £500k threshold), and InTax will be levied at 40% ?

Only the amount above the threshold is taxed.

Something to consider... my Dad died when mum was 80, mum downsized and gifted the surplus to me and my sister. She lived 10 more years which made this gift IHT exempt. When mum died her RNRB covered her flat, plus she had her own IHT exemption and Dad's transferred allowance. Your mum is only 76, so gifting the surplus from the downsizing would be advantageous if she didn't need it.

Another thought is whether your father could/would make a claim for financial provision under the Inheritance (Provision for Family and Dependants) Act. That's a whole other can of worms.

Paul

[JamesW11]

Thanks very much, Paul!
Appreciate the advice!
James