Inheritance tax and adding DP to home deeds

[WobblyLondoner]

My husband is not named on our home deeds - I am the sole owner, now with no mortgage. In our wills we leave everything to one another. We are in our 60s and he has an illness which is not yet debilitating but will become so.

Before his diagnosis, a lawyer had suggested that we get his name added to the house deeds (as joint tenants), on the grounds that if I died first it would make his life easier (as he would not need to wait until after probate to sell our house should he wish to do that).

But we’d like to be clear about any downsides too, and one I’d wondered about relates to inheritance tax. Put simply, if he dies first are there any pros and cons of him being a joint owner of our home in terms of inheritance tax? We have one child who is at university. My husband has few assets while I have a lot as a result of a recent inheritance.

My basic understanding is that his unused IHT allowances would pass to me in his death - but I’m struggling to understand whether his being joint owner of our home makes a material difference to this. Would him not being on the deeds mean he would not qualify for the “residential nil rate band (£175000) - so upon my death this couldn’t be passed on to our DS. That is the case then it’s very clear what we should do!

Many thanks.

I’d want to know what would happen to the house if you died and he needed a care home, would be gov be entitled to half the house for his care if he was in the deeds?

Inheritance tax would not kicks in after £325000 is your house worth more than that?

@SamDeanCas Thanks - good points.

On your care home question as the house would be his in that scenario (ie I’m dead and it would pass to him, whether he was on the deeds or not) then presumably he’d be in the same boat as anyone with a home and care needs.

The house is worth around £900k (we live in London …).

The inheritance thing comes in when your married not just coz he owns a house.

Aren’t you leaving anything to your child? My half of the house goes in trust to our son on my death so it can’t be swallowed up by care fees, bankruptcy or a new step mommy

Would him not being on the deeds mean he would not qualify for the “residential nil rate band (£175000) - so upon my death this couldn’t be passed on to our DS. That is the case then it’s very clear what we should do!

Yes, that is correct. If he is not a part owner of the house, he will not have any residence nil rate band to pass on to you. That means your estate would pay IHT on anything over £825k, whereas if he is part owner of the house IHT would only be payable on anything over £1M.

If you go down this route, I recommend owning the house as tenants in common and changing your wills so that, rather than everything going direct to the surviving spouse, the surviving spouse gets a life interest in the house with it passing to your son when the second spouse dies. That guarantees your son will inherit at least half the house regardless of what the surviving spouse does. There are far too many cases where the surviving spouse remarries and fails to make a new will, with the result that their children are disinherited.

If OP does nothing, the house will belong to her husband when she dies so it would all be taken into account if he needed to go into a care home.

I think that an important thing to consider is, how likely is it that your DH will need care after you have died (assuming that you die before him)?

If your DH were to go into care while you're still alive (and living in your home) then the family home is disregarded for the purposes of care fees.

If your DH outlives you and goes into care (and you leave the entire house to him) then almost the whole value of the house can then be taken for care fees.

Likewise if he were to die first and you then later went into care.

In contrast, if you were to own the home as "tenants in common" where you each own a separate 50% of the house then this would protect your 50% of the house from being taken for care home fees in that situation.

I did a long post on that and how it works here:

https://www.mumsnet.com/talk/legal_matters/5335496-putting-a-house-in-trust?reply=144347052

In reality, relatively few women go into care and even fewer men. But, from what you say, there may be a greater likelihood than normal that your DH may need care in the future.
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"My basic understanding is that his unused IHT allowances would pass to me in his death - but I’m struggling to understand whether his being joint owner of our home makes a material difference to this."

As far as I understand it, to qualify for the RNRB you have to actually own a home or a share of a home.
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"Would him not being on the deeds mean he would not qualify for the “residential nil rate band (£175000) - so upon my death this couldn’t be passed on to our DS. That is the case then it’s very clear what we should do!"

That is my understanding, but it would be best to check this with a solicitor experienced in this area.

I would say though, that owning as "tenants in common" would likely be preferable to owning as "joint tenants"

A family member put their second husband on the deeds to her house (inherited from her first husband) for inheritance tax/care home fee purposes. Once he was in the deeds he went back on their agreement and left his share to his first family, leaving her homeless and leaving nothing for her children from her first husband. Only add him to the deeds if you are completely happy that he can then do anything he wants with the house.

Thank you all, and especially for @Another2Cats for the informative link.

If we went down the tenants in common route, and left 50% to our son, what would happen if the surviving spouse wished to sell and downsize (noting it would be unlikely this released 50% of the value of the family home as the remaining person may well wish to stay in London). This seems a realistic prospect when one of us dies - how would it work if we had left 50% of the family home to DS? I don’t want to do anything that makes that persons life any more complex than it needs to be.

If you go down the tenants in common route, you should leave your husband a life interest with it then passing to your son when he dies. Your husband will be able to downsize or move elsewhere after you die if he wishes.

As the pp said, if you leave the property in trust with the surviving spouse having a life interest then they are protected from ever being turned out from their home (or any other home that they subsequently purchase).

"If we went down the tenants in common route, and left 50% to our son, what would happen if the surviving spouse wished to sell and downsize"

That is down to the trustees. As I mentioned on that link, you and your DH would need to leave the 50% in trust - otherwise your son could apply for a court order to turn you out of your own home.

It depends on exactly how the will is written. Usually the will is written for the trust to allow it to use the money towards purchasing a new home. Here is an example:

"The Property Trustees may at any time during the Trust Period as to the whole or any part of the Trust Fund in which the Life Tenant has for the time being an interest in possession pay out of any proceeds of sale of this property or any substituted property to purchase a freehold or leasehold property which will be held for the benefit of the Life Tenant on the same trusts to which this clause refers."

In this case, the trustees of the trust have a choice to use any or all of the 50% towards buying a new home for the surviving spouse.

However, if they don't use all of the 50% (which may be the case if you are downsizing) then your son doesn't get the money. The money needs to be kept and invested by the trust.

The surviving spouse gets any interest or dividends etc from this but cannot touch the capital. Your son cannot touch the capital until the surviving parent passes away.

This, and it means at least half would be protected from care home fees if one of you had to go into a care home. This means your DC would get at least half of value of house after both parents died

Coming back to this thread as we are meeting a solicitor on Tuesday to discuss it.

I’m not worried about one of the scenarios that has been mentioned - of remarriage and cutting our son out of the will. DP is 60, has cancer and dotes upon DS - it just isn’t going to happen. Obviously hypothetically one of us could be taken in by some dodgy new ‘friend’ once we are more vulnerable and encouraged to change our will, but I just can’t see it happening so it doesn’t seem enough of a risk to plan a will around. I will however look at financial LPAs for both of us as we only have a health one atm for DH.

So that leaves care costs as the other factor. From doing some reading into this (particularly informed by the wonderful Meaningful Money podcast) the chance of needing residential care at 85 is 15%. So it’s a significant but small number. Even then, the odds of that care going on for so long that it runs through the entire value of our home is slim.

However, the thing I’m grappling with is this. Let’s imagine that DP dies and that I then need care for so long that it is eating into the value of my home. If half of that is in trust to DS and can’t be drawn upon, what actually hastens when I have used up my half of the house for my care costs? I know that then makes my LA responsible for meeting the costs - but what would that mean in practice? Might I need to leave my care home, unless DS would meet the additional costs of topping up what the LA would fund? Obviously I’d very much hope and expect him to do this, but it does mean my security is now out of my own hands and in his.

Sorry - that was long! I’m just trying to weigh up whether it is worth putting restrictions like the ones being advocated here on what the surviving spouse can do once one of us has gone - and making sure the difficulties that introduces are really worth it in our situation. Any thoughts welcome.

"know that then makes my LA responsible for meeting the costs - but what would that mean in practice? Might I need to leave my care home, unless DS would meet the additional costs of topping up what the LA would fund?"

There was a thread about just this thing here:

https://www.mumsnet.com/talk/elderly_parents/4913263-local-authority-vs-private-care-homes

It appears that self funding patients may get better rooms (eg larger) but that is about the only difference between self funded and council funded.

Although a few care homes do not accept LA funded patients (apparently) so if it were one of those then I guess that it would be necessary to leave. But otherwise, likely not.

You will be eligible for support from the LA before your savings run out. In England, your LA generally has to help if your savings are less than £23,250. You will still be expected to contribute until your savings fall below £14,250. The thresholds are higher in Scotland and Wales.

Your LA will set a budget for your care. If this is less than your care home fees, your options are to move to a cheaper care home or for someone to top up the LA funding - you are not allowed to top it up yourself. Some care homes help with this by reducing their fees for long term residents so that they come within the LA's budget, although this may some reduction in services such as a smaller room.

Returning to this thread after doing more reading about this. The key thing I’ve established is that a spouse does NOT need to have owned the relevant home for their nil-rare residence band to pass on death to the surviving spouse:

“If the first spouse dies after 5 April 2017, any unused RNRB is transferable unless the estate is large enough for the taper to apply. Again, there's no requirement for the first spouse to have owned a share in a qualifying property or to have passed it to a direct descendant.” https://techzone.aberdeenadviser.com/public/iht-est-plan/residence-nil-rate-band-guide#anchor_8

This is a common misperception so just sharing it here. It’s about being married not being co-owners.

OP, are you married?

When my relative went into a home they said that so long as you self fund for at least three years you could stay on at LA rates if money ran out. He’d of had to give up the sea view. Average stay is under 2 years so not that many people stay 3 years plus and burn through all their money. I don’t think it’s uncommon so it’s certainly worth asking what happens if money were your run out.

That isn’t true
we found a gulf between the private and LA care homes
once in a private home the LA will fund if the money runs out but you needed to have 3 years proof of funds as a minimum to get into a private home- some were 5

My DH remarked that he wouldn’t leave our dog in the nearest LA care home to us that he visited

plus in the private everything except clothing is included. in the LA you had to provide toiletries, hairdressers, chiropody etc yourself

In reality if you have a decent pension income and will get a stste pension, your own occupational penion and a widows occupational pension and attendance allowance plus money from house equity investments the amount of the shortfall for a care home is quite small and it would take many many years to get through savings

People jump on a care home panic bandwagon without working it out

My parents have friends children now paying iht who wouldn’t have as they transferred the house to try and avoid care home fees and another who cant downsize due to the ridiculous trust her husband left trying to be clever and avoid tax (which it didn’t as rules change over time)

Yes.

I agree - this is my thinking too. And if the worse happened I want to know that my assets can be used to pay for my care without complications.

After all the research we’ve decided to leave things as they are - mirror wills and DP not on the deeds. We may well sell at some point and can add him then.

The issue about putting half the value of our home in trust for our son with a life interest for the surviving spouse - I can see that being useful in some cases, but have to weigh up the complications that result from it with the tiny possibility that one of remarries on the others death and either does not make a will or makes one that materially disadvantages our much loved and only DS.

I can vouch for willing your half to your DS. My MIL willed her half to DH & SIL. They varied the will to give all to FIL because he was very unwell & frail 'needed it to live'. Well, FIL remarried within the year (no idea how he managed it). Sold the house, gave a chunk to new wife & is willing her equal 1/3rds of what's left with DH & SIL. They will get very little. New wife's kids will get most of it as she'll definitely outlive FIL.

I didn't get along with MIL at all, but on this I have to concede she knew FIL better than anyone. I feel sad her legacy she deliberately sacrificed for, so DH & SIL would inherit, will go to someone else's DC.

Ive done this too

"we found a gulf between the private and LA care homes"

You actually have LA owned care homes in your area?

There are none at all where I live and also in the neighbouring area there are none for elderly people either. Although there are 3 for young adults with autism/learning disabilities etc needing care that are LA owned (they provide a grand total of 20 rooms between them).