Writing a will with lifetime interest

[ScruffGin]

I live with my partner and our 5 year old DD, we aren't married, however may get married in the next few years (not gotten round to it).

We own a house together and it's written in the paperwork that the first x amount of any sale is mine (I paid the full deposit), then after that it's 50/50.

I want to make a will. However I'm aware of cases where the parent dies, the living parent remarries and then the first child ends up disinherited. I wouldn't want this to happen to DD. From what I gather, I can make a will where my part of the house goes to DD, but with a lifetime interest to my partner. My concern is inheritance tax.
a) If we're not married by then he'll get a bill on his percentage anyway, but who pays the inheritance tax on the part left to my DD?
b) if we're married (one reason to get married is to avoid inheritance tax between us), would there then be a bill on the percentage that goes to my DD?

i don't want to do this, then if the worst happens, there's a huge inheritance tax bill and their home has to be sold anyway.

I've tried lots of googling, but can't seem to get a straight answer as to who pays the inheritance tax bill if we're married or not married, does anyone know that's involved in this sort of thing, or who has done it themselves?

IHT is always paid by the estate, not by the beneficiaries. There is no IHT to pay unless your estate exceeds £325k.

Neither your partner nor anyone else will have to pay IHT on his percentage of the house when you die. Assuming you are tenants in common, his percentage of the house does not form part of your estate and therefore will not be included in any IHT calculation.

Hi, sorry I think I've confused even myself on that post!

The estate will need to pay inheritance tax, and a substantial amount. I suppose my main question is, my partner will have a lifetime interest in the property, but it would end up needing to be sold to pay the inheritance tax bill I'm sure, but is there any way around this? As it seems pointless to do all this for the property to be sold anyway.

Take proper advice. However, if you are married and leave the house to your children, there will be no IHT to pay unless your joint estate is worth more than £1M. This applies even if the first spouse to die gives their partner a life interest in the house, provided the house passes to the children when the second spouse dies.

Are you sure your estate will be over £325k? Remember that your partner's portion of the house will not count as part of your estate. Any outstanding mortgage will also reduce the value of your estate.

I think this is trust law. It may be that tax only crystallises when the property portion reverts to your DD, or her 21st, whichever is later. Have a Google around, and contact a specialist solicitor.

@prh47bridge yes, the joint estate will be worth more than £1 million (house prices have gone stratospheric since we bought 😱)

@Bonheurdupasse yes that's what I was hoping.

Think I'll need to contact an expert, just thought with how often doing this is mentioned on Mumsnet, someone may have known the answer!

@ScruffGin don't be afraid to Google it first, it's not that hard to get into..I'm far from a solicitor but happened upon something in random reading hence my bit of vague knowledge. Of course go to a solicitor then but having read around should give you the confidence

This is why it's worth taking out life insurance as part of your inheritance planning - take out enough to cover inheritance tax

Slightly off topic, but I noticed you had a clause stipulating that if the house was sold, x amount will be assigned to you as you had paid the full deposit.

If that was me, I would want it amended to reflect the reimbursement as a percentage of the house sale equal to the percentage that your deposit was to the original house price.

In other words, had you paid a deposit of £50k on a £500k property, you would have paid 10% of the value.

If that property was later sold at £1.5m, 10% would then be £150k, whereas the original £50k deposit would be less than 3.5% of the value. I would expect my original £50k to be returned with interest to match the proportional percentage of the value of the house at the time of sale to the time of purchase.

I did this when buying in the mid 1980s then when the house was sold in 2005, the percentage of my deposit of the house purchase price was matched as a percentage of the sold price and this was reimbursed to me before the remaining equity was divided between joint owners.

Of course I realise this may not be relevant to your circumstances or even do-able now at this stage, but perhaps food for thought?

@Debbiedoodah I've got a pretty hefty policy, but it's to cover the rest of the mortgage, plus school fees etc. Maybe the simplist thing would be to increase the policy to cover the inheritance tax as well, I hadn't thought of that, thanks!

@MyfavouriteisA he's done a lot of the renovation work and planning, I don't begrudge the split, but I see what you mean!

@Bonheurdupasse I have been, but can't seem to find a definite answer as to when the inheritance tax has to be paid...

You need to get proper advice. However, if you are married there is no IHT to pay on the property when you die if you leave your partner a life interest in the house. It is treated as a gift to him. The house would then form part of his estate for IHT purposes, even though some of it would be dealt with according to your will.

If you are not married, there may be IHT to pay when you di.