Inheritance and family home

[AICM]

Hello!

Hope you can help.

I am 1 of 3 children. My dad passed away last year and everything went to mum.

Her will states a 3 way equal split between the 3 children. The house is worth about £450,000 and is mortgage free and mum has cash and investments of about £800,000 so inheritance tax will be an issue.

If the house is passed on to the child then I understand there is less inheritance tax to pay.

Here are my questions:

The house is not mentioned in the will. There is a family understanding that my sister will have it. I am happy with this and so is my brother but will it still reduce inheritance tax if the house goes to just one child?

Can the house be passed on in this way if it is not mentioned in the will?

Hope somebody cam help!

Thanks!

Just to point out we all get along well. There is no tension.

Famous last words when it comes to inheritance.

Also the situation could change - ill health of a sibling, sister marries, etc
Get a proper will drawn up.

Thanks again for all your replies.

My brother and myself are happy to effectively sell her our share in the house. We have no issue with her getting even though it will appreciate in value more than cash.

The real question is how this happens and will only one child getting the house impact on inheritance tax.

If my sister does et the house, she may have to sell hers on order for myself and brother to get an equal share. Should we ask her to hand over this money before she gets sole ownership of the house?

I so agree Mamsell!

That's why I won't to.understand what's fair and legal.

The most likely scenario here, as others have said, is that your mother may need to go into care at some point. Don’t under estimate how much money that costs. A good friend’s MIL has now been in her care home for over five years now, which has to date cost the best part of £300k.
If you find yourselves in this situation, will your sister be able to afford to keep the house and equal up the share of money owed to you and your brother? It might prove to be easier in the end just to sell the house and evenly split everything.

Why do you think your sister will get the house, when your mother passes her Will states that it's all split 3 ways. The Executor will have the house valued, that will be added to her assets, tax will be paid and any expenses and then you are all left with the remaining cash and a house. Either you sell the house and split the proceeds or your sister takes the house instead of her share, there may be capital gains tax to pay depending on the valuation and eventual sale if you all decide it's a lot easier just to sell the house, does your sister want to sell her existing house to move, that will cost her money,

The house hasn't been willed to your sister so it will be included in the total value of the estate. Who is the executor as they will be responsible for administering the estate.

To my understanding if it’s not in the will that your sister gets the house, the house will be divided 3 ways, if your sister wants the house she will then have to buy you and your brother out. Whether that’s selling the house she has to have the funds or uses the money she may get in cash to buy you out.

Does your mum still live in the house, you say she is not of sound mind so does she have someone looking after her. If she needs care then she will see a large chunk of her money go on a carehome and she can no longer give any money away or change her Will.

@AICM

Thanks again for all your replies.

My brother and myself are happy to effectively sell her our share in the house. We have no issue with her getting even though it will appreciate in value more than cash.

The real question is how this happens and will only one child getting the house impact on inheritance tax.

If my sister does et the house, she may have to sell hers on order for myself and brother to get an equal share. Should we ask her to hand over this money before she gets sole ownership of the house?

One child isn't getting the house though. You all are. Her buying yours and your brothers shares will possibly be a seperate transaction once your mother's estate has been distributed and the house transferred into your 3 names. If the house increases in value you and your brother will still benefit as surely your sister will be buying your shares at market value, unless you all agree otherwise.

I assume you can give your sister the house and you and brother take the cash

As long as that works out 1/3 each.

But you can do a deed of variation to give her more if you and brother agree.

No cgt as she gets the house at private value.

Whether it's sensible to give get more is a different question but you don't have to liquidate all assets then divide it, unless the will makes clear that must be done.

Are you sure your sister is aware it's an even split including the house & she won't get a house and then a third of assets as well?

It's irrelevant if her share of assets being the house increases more in value as you could use your cash to purchase property

Does your mother know that the vultures are circling even before she is dead? As a pp mentioned if she needs long term care you will be watching your inheritance disappearing before your eyes.

The will doesn't have to mention the house specifically for the estate to qualify for the RNRB or TRNRB. If your mum wants your sister to get the house, though, it would be sensible for the Will to spell this out, to save confusion after she's died.

Maybe the most important thing at the moment is to make sure mum is as comfortable and safe as possible and with all that money she is getting the best care possible.

And yes, definitely see a solicitor.

CampagVelocet, op mum does not have capacity to change or update her Will. A basic carehome will charge upwards of £60k a year.

@viques I don't think that's very fair at all, and it's very boring when people instantly call a discussion about inheritance "the vultures circling". Financial planning is a fact of life, as is death, and we'd all be better to prepare as much as possible.

My grandmother spent the last year of her cancer ridden life getting her financial affairs in order for her children and grandchildren. She knew how easily a family can disintegrate at the first whiff of unfairness. Sensible people have the conversation early, while their wits are still about them, rather than leave it until everyone is already emotionally charged by grief, and then drop a few bombs. Siblings can be torn apart by inheritance, and most parents would want that avoided if everyone can have a calm rational conversation early on.

Thank you again for your replies.

Just to say, I don't feel this is vultures circling. That seems harsh. I just have questions about a situation that will inevitably happen. I don't need to told what's important, all of the family are busting a gut to make our mother feel as safe, comfortable and happy as we can. She brought up the subject of my sister getting the house today and it prompted some questions that's all.

What @ Fleas said. Also, If your Mum lacks capacity, does anyone have power of attorney to look after her finances, health and welfare? That's something you might want to sort out for her now through a solicitor.
IMO it's a bit distasteful to be discussing splitting someone else's assets before they're actually dead! But I understand that you want some clarity on your, DS and DB's prospective situations.

Your Mum can't make a new Will if she lacks capacity to do so, so the existing will stands. Regardless of anyone's expectations, it's a simple 3 way split. If your sister wants the house then she'll have to buy you and your brother out, either by adjusting her share of the other assets so you each get your designated 1/3rd of the total estate or, if the house value has increased significantly, by her adding extra funds to even out the shares.
At the moment with a house valued at £450k and other assets worth £800k it doesn't look grossly unfair for the house to go to your sister. She stands to gain £5k more than you and your DB. In fact, after your Mum's death you could, if you all agreed, have a solicitor do a deed of variation to alter the terms of the will so the house goes to your sister and you and your brother share whatever's left in the estate BUT that is likely to create a very significant imbalance between the three of you.The house will probably have increased in value, while the other assets have decreased because of living costs/care fees/medical expenses/tax/ legal fees/funeral costs . Only after your Mum's sadly died, will you know how much the house is worth vs. what's left in the pot. Any one of you could be in very different financial circumstances by then, so making a decision now, based on current as opposed to the future value of the estate, makes no sense. Your sister shouldn't be counting her chickens...
Out of interest, what was your father's position? Did he intend the inheritance to be left equally between his 3 children or did he expect it to be heavily weighted in your sister's favour?

Sorry, AICM. If your Mum's bringing up the subject of your sister getting the house just nod and smile?

My dad was against the idea but wanted to minimise inheritance tax - he hated paying tax.

We do nod a smile to mum.

I am aware that a lot can change. I would just like to informed that's all.

As others have said it’s possible your mother will need residential care. This costs about £1,000 a week where I live. She might live to ten or twelve years in care. Some of my relatives have.
The house will appreciate in value whereas
your mother’s living expenses over her remaining years (with possibly a few years of funding care) could make quite a dent in the £800,000 cash.
Does your sister really want the house?
If not - no problem. It can be sold and all assets split three ways.
If she does want the house what will you do If her 1/3rd of the capital is insufficient to ‘buy out’ your and your brother’s share of the house?

Sorry, was tired so skim read and missed the capacity point.

i don't think the IHT issue is affected by what happens re the house in regard to your sister.
i presume your sister lives in her own home, not with mother ?
i can understand your mother's thinking a bit; but she may have overlooked that your sister owns her own home.
she may be trying to ensure that sister has somewhere to be, that nobody can put her out of.
i had a friend who said the girl must get the house, so that she is not beholden to some man, ie having to link up/stay with some rotter just to have a roof over her head.
because obviously a homeless woman is much more vulnerable than a man would be. so a man can shift for himself, if need be. but that could be disastrous for a woman.
this was the accepted norm of old-time, country folks. it may seem a bit old-fashioned now. but it had a good intention.

You can't preplan for this. Your mother can't remake the will and you have no idea what the size of the estate will be depending on what end-of-life care is needed. You may find that the total value of the estate comes below the inheritance tax threshold anyway once the cost of that care has been paid. If it doesn't then for gods sake don't try to find a loophole to avoid inheritance tax. Only about 5% of estates are big enough to qualify for paying any iht so you and your siblings are already incredibly lucky to be getting that kind of sum anyway. If care home issues don't change the amounts in your OP dramatically then the liability on the estate is circa £100,000 ie less than 10% of the total which is a completely fair amount to be deducted to share a small fraction of this windfall with the general population, 95% of whom get a neglible inheritance - most of the estates among the elderly in my extended family have been no more than a few tens of thousands, with each child of the deceased usually getting around £6-8k, and that's for reasonably affluent families. Taxation to spread unearned wealth around a bit is not a bad thing.

The question in your op about whether it makes a difference to leave the house to a child is a bit confused. Yes the tax free threshold rises if the beneficiaries of the will are the offspring of the deceased. However this is already triggered by the fact that in your case the beneficiaries are you 3 siblings - the estate doesn't need to be left to a single individual in order to qualify for the higher threshold.

The existing will is fine. The whole value of the estate (if nothing changes) will be £1,250,000. The tax free amount will be £1,000,000 due to the combined thresholds of your dad and mum so iht of £100,000 and you are each entitled to a share of £383,000. Fretting about whether there's a way to evade the tax to get the share closer to £400k each seems really crass and greedy to me.

If one sibling wants to take on the house they can take the full amount of their £383,333 share in bricks&mortar and can either buy the remainder from their siblings or can pay rent on the un-owned proposition of the house, at fair market rate. Buying the siblings out would be better if that can be arranged because otherwise you will need a complicated agreement about how to split liabilities for repairs and maintenance.

However any of these numbers could change so it's really best not to dwell on it until the time actually comes.