What happens about inheritance tax if a house is left with a family member as a tenant?

[JuliansFinger]

I have been told that a will has been written where my sister and I will inherit a house that belongs to my aunt. She doesn’t have any children and our mum lives with her as she doesn’t have a house of her own.
The Will states that our mum will be able to live there until she moves out or dies. That’s all good as it is her home too.
I am aware that tax differs if you aren’t offspring or spouses.
How would it work if our aunt dies and there is a tax bill to pay on the house? The house is worth about 500,000.
I am thinking ahead a little and it’s hard to try and talk about things with either of them. Very closed books with regards to certain conversations.

How much will the total estate be? Was your aunt a widow?

Not sure about the total estate. My sister has gathered that she doesn’t have as much money as she used to in the bank. Maybe about £50,000?

Never married.

To clarify- she's still alive though?

If it's left in trust for your mum, does that mean IT is deferred until her death?

I'd ask MNHQ to move this to legal.

Sorry, I'm an idiot.
It's just you're getting aibu replies.

My siblings and I were in a similar situation when our sister died a few years ago, though there was no life interest trust in place as there is for your mum.

Our sister’s estate was a similar value and most of it tied up in her property. We had to sell it before we could pay the tax bill, though we had to have probate granted first (you can put a property up for sale before probate is granted, though, which is what we did). IIRC, HMRC give you six months after the date of death to pay the tax (or pay the first instalment) and after that they charge interest on any unpaid balance. Alternatively, if you had enough money from the inheritance and your own savings, you could pay the tax bill without selling.

If you do sell, one other thing to watch out for is CGT. You need to have the house valued when you apply for probate. If the value of the property increases between then (when you inherited it) and when you sell it, you may have to pay CGT.

If the house is worth £500,000, for a single person the IHT threshold is currently £325.000 so the executors would pay 40% of £175000 for the property plus any savings and other investments. You can deduct funeral costs and lawyers fees from this amount. You would need to have the property professionally valued for probate.
Although your mum could stay living in the property, would she wish to or be able to live on her own? You don't say how large the property is etc.
A lot could change between now and then though as your aunt or mum could have care needs for example.

There would be IHT to pay. The house would be included in the estate. So the savings would have to be used to pay the tax.

You and your DSis would then also be responsible for the upkeep. This is never a great solution if the new owners cannot afford it. Does your mum actually pay rent?

Thanks for the replies.
I’m not sure about the wording regarding our mum getting to stay there. I think this will has actually been done by a solicitor this time as they’ve both done them at home before.
There is no formal arrangement regarding money or rent. They seem to sort themselves out well enough with regards to bills and shopping. Our mum has savings as she sold her house a while ago.
I think I’m worried that my aunt won’t have enough money to pay the tax and my sister and I don’t have savings of that kind either, so we will be left with a bill we can’t pay. I’d like to think that they have received some proper advice about this. We might have to think of a way to begin a conversation about this with them.

I agree that you and your family need IHT advice and who is paying house maintenance whilst your mum lives there. She doesn’t own the house! It’s kind of your aunt but the solicitor might not have got to the bottom of the financial issues. You could, of course, take your own advice. I would. You need to know where you stand and what your outgoings could be. When and if you sell, there’s CGT too if it’s a second house.

@prh47bridge might be able to advise.

I wouldn't want to hazard an answer on the information here. OP needs to get a copy of the will and take it to a solicitor for advice.

Ok @prh47bridge That’s what I thought. And tax advice!

Reading with intrigue

Surely you could just sell it, pay the tax and buy a smaller house/flat for your mum and split the remaining money left over with your sister?

Yes. If mum wants to move. If she’s elderly when all this happens, it’s not easy!

If DM pays you rent then you'd be responsible for repairs etc.
If DM has money in the bank perhaps she'd pay towards the inheritance tax if she wants to remain there.

The estate pays the inheritance tax. No one else should. The lady in question needs to understand what she is doing and how it affects others.