Can you force sale of assets to pay IHT?

[Poisedtartanlurker]

Spouse (not mine) owned house & left it to daughters. Surviving spouse has right to stay there until death and house can’t be sold until they die. In the will it was stated that they receive bank accounts (1 is joint, 1 is in deceased’s name), all (3) vehicles ( they joint own 2 of them), all assets in the house. Although it was stated in the will that spouse receives this, can the executer force the sale of these assets to pay funeral costs + IHT, as I understand that these are paid from the assets. The daughters only benefit from the house which probably won’t be available for another 30 years perhaps, so they have no available money, and I understand that IHT is not a personal tax.

I would be grateful if anyone can give some advice on this. Thank you.

Is there enough money in the accounts to pay the IHT?__

The spouse has a right to live in the house until they die.
So no it can’t be forced just to pay the tax or to pay for anything in fact eg funeral

And I'm guessing the spouse is not the daughters' mother?

All assets left to a spouse are not eligible for IHT, or rather the IHT rolls on until the spouse passes away.

Where is the IHT coming from? Other assets gifted in the will?

Sorry, I misread previously.

That does sound a tricky situation that they should get legal advice on. It’s a very badly written will if these events weren’t explained to them at the time.

If they are due to pay IHT then there must be a lot of cash and / or other assets bar the property that’s left to the daughters.
The tax owing will be calculated and paid out of that.
The sum total of assets left to the spouse won’t be factored in, financially, at this point. That won’t happen until the living spouse dies.

No, not the mother; a very recent marriage.

Why is the executor in the position of having to force the surviving spouse to pay for the funeral from the estate?

If you're the executor you need legal help. I can see several potential issues in what is and isn't being said, and what is unclear (or being misunderstood) from a brief summary of the situation.

The property is over the £500,000 level where IHT is due. The daughters have been left nothing else - evidently the father thought this was a good inheritance. The only other assets are what the will has said is left to the wife. I don’t understand how the IHT is meant to be paid if the assets left to the wife can’t be realised. Would this mean that the daughters are meant to pay it from the proceeds of a house that they can’t sell for decades? It all sounds a real mess!

So perhaps let the daughters know they need to pay IHT etc from what they are currently inheriting.
Not what they will in the future.

inheritance tax does not need to be paid at this point if the spouse is living in the property as they automatically inherit from their deceased spouse.

IHT is only paid if other assets not left to the spouse fall into the IHT amount threshold.

If it’s all left to the living spouse there’s nothing to pay.
It will be paid when she dies.

They’re not inheriting anything apart from the house; that’s the problem they’re facing. They don’t have the money to pay IHT on a property they are not allowed to sell for several decades.

I think this is the problem; the wife has not inherited the house; it’s been specifically left to the daughters but she has the right to live there until she dies.

I don’t think the deceased can put limitations on a house that now belongs to the children.

If they wanted the spouse to have a lifetime interest, it should have been put in trust with those expectations, and it would have avoided IHT.

If it’s simply transferred from parent to child, then a legal person would have a strong argument that the spouses right to remain is void.

Thank you. It would be good for them if that is the case. I think they definitely need to consult a lawyer (but probably not the one that drew up the will!!)

A number of the assets you say are left to the daughters in the will would not normally be part of the deceased's estate but would automatically go to the surviving spouse (joint bank account, for example). This suggests that the will may not have been professionally written.

If the will was drawn up properly, it should have left a life interest in the property to the surviving spouse. If that is the case, it is treated as if it had been left to the surviving spouse, so there will be no IHT to pay unless there are a lot of other assets. The property will be included in the spouse's estate for IHT purposes, although what happens to it will be governed by the deceased's will.

However, the fact the will states that the house cannot be sold until the surviving spouse dies is another red flag suggesting that the will was poorly drafted, probably by someone without the necessary experience and qualifications.

If the house is transferred directly from the deceased to the daughters, the residence nil rate band is available in addition to the normal IHT nil rate band, so there is no IHT to pay unless the deceased's estate is more than £500k.

If the will is as poorly drafted as it sounds, the executor needs to consult a solicitor to get this mess sorted out.

Thank you for this. The will was written by a lawyer, but it doesn’t seem that it was all thought through well. As you say, the executor will have to get legal advice. It’s a right dog’s dinner though!

Thank you to everyone for your thoughts and advice. I think it shows us that we need to take great care in making sure our will do what we want them to do.

So it sounds like the deceased has left the house which was already in his sole name to his kids but with the caveat for his spouse to live there until she dies.
Plus there’s no other assets left directly to the daughters now as everything has gone to the living spouse.

Thats wierd as one would assume there was enough in the pot for the daughters to pay the IHT, but you say OP there is nothing!

I assumed there must have been other assets left.
IHT will need to be paid, no idea how this happens but a word with hmrc is needed. They add interest if it’s not paid straight away.

Plus as the house is now the daughters they will not pay IHT on it ( unless they die ) they will pay capital gains tax as when they sell it will be a property they are not living in ( assuming they aren’t of course ). [ don’t forget 2nd property tax if they ever move ]
It gets worse I’m afraid. If one of the daughters dies before the living spouse the house the living spouse is living in is part of her estate for IHT purposes, so inheritance tax will have to be paid on that if the estate including her one third share of the property exceeds the threshold

Who wrote this will!!!

StandingSideBySide
Ouch! It’s becoming worse and worse! 😱

You asked who wrote the will? The family lawyer 🥺😡

The estate that is to be distributed to the inheritors does not exist until any debts of the deceased, Inheritance Tax, and funeral costs have been paid. Nobody has inherited a thing until this is resolved and THEN the remaining estate is divided according to the Will. It is up to the executor to make sure this happens. If relatives have taken possession of items that belonged to the deceased before these costs have been paid they are very much wrong to do so, it is not their property yet.

Theoretically a Will could state that they leave their £1m home to person X, £2m in cash to person Y and the remainder to person Z but if the home had an £800,000 mortgage on it with no life-insurance policy, and other assets were on £16,000 in a bank account and other debts of £100,000 then the actual estate is only going to be £84,000 and that is all that can be divided between X Y and Z. A Will cannot create assets that aren't available to be bequeathed.

In your scenario OP it will be important to establish whether the deceased owned the property outright and solo or was it as a joint tenancy ot tenancy in common with the spouse? If it was a joint tenancy with the spouse then what is in the Will is irrelevant - the property becomes 100% the sole property of the surviving spouse and it does not form part of the value of the estate so is disregarded for IHT calculations. If it was a tenancy in common or solo owned then it does form part of the estate and if there aren't enough other assets to cover any IHT due and other costs, then it could be forced to be sold yes.

Oh dear.
The lawyer really hasn’t thought this through from the daughters long term perspective at all.
It would have been better for their dad to leave the house to his wife on the caveat she then leaves it to his daughters, although I don’t know if he could insist on that tbh.

The daughters need to watch out if they ever move house so they declare their own house that they’ve moved into as their primary residence each time to avoid a nasty letter from HMRC re 2nd property tax and a fine as well. They need to do this within the first month of purchase I think.

Talking to a knowledgeable lawyer about what they do if they die before their dads spouse is needed too. I can’t see a way out of that one I’m afraid.

It would have been better for their dad to leave the house to his wife on the caveat she then leaves it to his daughters, although I don’t know if he could insist on that tbh.

It isn't possible in that form. What he should have done was left his wife a life interest in the house with it passing to his daughters when she died. That is what I would expect a will written by a lawyer to do, but OP's description of the will doesn't inspire confidence.

Yes agree that would be the way to do it.
Now those daughters are going to be affected by the 2nd property tax if they ever move / buy property of their own.

I wonder if hmrc have anything in the small print that allows for this scenario, somehow I doubt it

What a mess

If the surviving spouse has the right to live in the house then i assume this is set up as a liferent trust? In which case IHT isn't paid until the life tenant dies. It's important to find out who the trustees are of the liferent trust.