Inheritance tax after lifetime interest in house

[George4567]

Does anyone have any knowledge about the inheritance tax my children will have to pay in the following situation?

I live in my husband’s house. I rent mine out. In his will he has left me a lifetime interest in the house and on my death it goes to his children.
My house is left to my children. His house is worth 1 million. Mine is worth 400,000.
My solicitor mentioned that if he dies first the value of his house will be added to my house and my children will pay inheritance tax on that (meaning they get nothing) and not his children (who will get the house plus a great deal more).
However, his solicitor says mine is wrong and it won’t count at all. Google seems to say various different things!

So far we have both spent money on asking for legal advice on this but no one seems to really know!

Many thanks for your help!

In our wills, we have stipulated exactly where any IHT should be paid from. All of our assets will be split equally between all 5 DCs (my 3, and my 2 dsds). But in the meantime if DH inherits from his parents, that money will be ringfenced and passed to my 2 dsds and any IHT relating to that will be paid solely from that money. Otherwise my DCs would be paying IHT on money they aren’t inheriting.

Would it be possible to do something similar?

@Another2Cats is a pretty good summary of the tax position. Please find a STEP professional to help you through this. I would suggest an accountant rather than a solicitor as they are generally better acquainted with the tax side of it.

@Perfectnightssleep
we are getting there but it has taken a long time to find someone who could truly explain and work out the implications. And when we did - oh my! My children would have lost almost everything I will leave them (the figures I used here were examples - in reality they would lose all the nil rate band) to pay inheritance tax on something that would never be theirs.
It is a crazy system which many people are unaware of.
I hope you get your situation sorted out - the solicitor we saw said if my husband had died and he had seen the will he would have challenged it and tried to get it changed. Husband was so upset as he really thought he was doing the best for everyone.
Since I’ve been looking into it - I have discovered other people in a similar situation- I think it’s because it seems so odd and counterintuitive that people think it can’t possibly be the case - but it is.

@Nevermind17 we are also looking in to this at the moment - thank you!
and thanks to everyone who gave advice

I am not convinced that your house can count as your residence since it is rented to someone else!

And as such will also presumably be subject to CGT.

You have the benefit of living in your DH’s presumably bigger / nicer house but your children seem to be disadvantaged in favour of you potentially continuing to care for his in the event of his death?

Do you keep the income from your rented out house?

ETA: cross posted

Also not everyone qualified for the .£1 million relief. We don’t. Our estate is too big. So check this too if he has serious money.