Inheritance where not married couple

[PoppingCandles]

Inheritance if unmarried

If person A dies
So if limit is £325k but house were say £400k.

Will the house be split so the other £200k (which is held in manner goes to other owner) is inheritance taxable?

So leaving £125k of iht allowance? But if not used allowance is gone.

But once that inheritance goes to person B
The £400k house inherits to the children using person B's £325k +£175k house allowance so £500k allowance.

Im saying either single or couple unmarried the children will pay tax once assets go over £500k. Vs a married couple where i think the iht person A to B would be 0. Then to children they get 2x£325k and 2x £175k so 1m

Obviously dont have 1m.

But house prices rising.

Actually i guess where parents are separated one dying may leave anything direct to kids.

Also if the property continues to go up to say £700k years from now. There will be iht liable just to keep my other half! (Though looking it maybe a discount applied as ots hard to sell something with someone living there but still.)

Is the house owned as tenants in common or joint tenants?

It was common tax planning before the ‘transferable nil rate band’ was introduced to include a ‘nil rate band discretionary trust’ in wills on first death to ‘use’ the NRB of the first to die to avoid this exact issue of the estate all ending up with the survivor and the allowances being lost. The house could have a charge on it to secure a loan to the trust and loan over other assets too if appropriate so the survivor can use the assets but the debt owed to the trust is deducted from the assets of the survivor on second death. This plan is less used since the TNRB for married couples. But still useful for unmarried couples. See a STEP qualified solicitor to discuss.

For a not married couple it would be better (for the purposes of avoiding IHT) to each leave their half of the house direct to their children, not to the surviving owner. This requires the house to be owned as tenants in common, not joint tenants.

You can change the way a house is owned with the assistance of a solicitor. (I imagine both parties need to agree)

By leaving the house and assets to the surviving partner you reduce the nil band available from £1m to £500k if the house is then left to direct descendants (the kids).

You also run the risk that the surviving partner subsequently marries and leaves the whole lot to a new wife or husband. Who won't be eligible for the £175k residence nil-rate if leaving it to their DH's kids, and might in any case keep the house and all monies for themselves and own relatives if they outlive the original surviving partner. .

And you can leave in your will a 'life interest' for the surviving partner - stipulating, for example, that they can live in the house until the youngest chid is 21, or they re-marry, or for a certain number of years.