Inheritance tax question married couples

[inheritancetaxhelp]

Ive name changed for this thread as I am going behind a relative's back to find this out as I am concerned they have received incorrect legal advice.

The situation is that there was a married couple. Both had mirror wills, leaving the house and any assets first to each other, and then to their adult children. The total of the house/ assets was under £1 million.

We were therefore under the impression that no inheritance tax was due.

When the husband of the couple died, a relative dealt with everything, did all the paperwork related to the will ect. And they believed no inheritance tax was due.

Now the wife has died, the same relative is dealing with it all. They have done most of the paperwork but have found a solicitor who for a very small fee is helping them with the final bits. This is vague because this is how it has been explained to us by other members of the family who don't really understand, and it isn't really my place to ask questions or challenge.

The issue is that this solicitor has told the relative that because of the way the husbands will was written, they will now have to pay inheritance tax as the will stated that when he died, the house would go to his wife who would live in it until death, and then pass on to the adult DC. I have done some digging and found some wording that looks like this: “I bequeath my residence … to my surviving spouse … for as long as they shall live. Upon their death, the residence shall pass to my children…”

From my basic research, the surviving children should still benefit from both parents allowance and so no inheritance tax should still be due.

The solicitor has told the relative that because technically the husband left the house to the children and not the wife, only his share of the inheritance tax allowance stands, which is £500,000 (or possibly only £325,000).

I just wondered if anyone had had any experience of this?

Who owned the house when the husband died? If it was entirely in his name then only he at that time would have a £175k allowance to pass part of the property to his children tax free. If joint ownership then presumably the whole house went to the wife and not as per the will anyway.

When the husband died who was the house / his share of the house transferred to in the deeds?

I think the solicitor could be correct. It sounds like the house was owned as Tenants in common and the person who died first left their share to their children, but with the proviso that the widow could remain until they died. This is very common and is a way to avoid the surviving person having to use up the full value of the property to avoid and possible care home costs.
The threshold for IHT where your home is left to your children is £500k

Thanks for your reply. I don't know who owned the house. I presumed because they were married that they both did, but I actually don't know.

Where has the £175,000 come from? Could you explain that a bit more as I don't understand. Thanks.

@Soontobe60 does this mean they left half of the house to their adult children, and that half of the house was still owned by the surviving spouse? Or does it mean all of it was left to the children?

Both my parents made a form of held in trust wills to ensure they were each under the threshold. it was more complex than a simple Will so I appointed their firm of solicitors to administer the estate on my behalf as executor. I kept on their house as my main residence on the solicitors advice.

Info on current inheritance tax can be found here www.gov.uk/inheritance-tax

TBh it depends on how robust the legal advice was at the time. My PIL ignored their solicitors advice and opted for a simple Will as it was so much cheaper. Neither are stupid but they honestly had not thought through the implications of the legalise they wanted. it did not do what they thought it would. After I had words with them about how hard that was going to make it for their children they went back and organised a more grown up will.

The husband had a solicitor set up to deal with the will when he died, but said relative decided to do it all by to save on solicitor's fees.

I fear that this saved them money in the short term but will have cost them lots in the long term.

I have no personal interest in this money but just want to make sure they are getting the correct advice as the money is life changing to them as a family.

It really depends on how the house was owned.
When 2 people own a house it can be as Joint Tenants (JT) or Tenants in Common (TIC). Of course, theres also the possibility that only one partner owns the house! You can easily find out how the house was owned via the Land Registry - it costs £5 or so to get this information. Here’s the link to the Gov website.
https://www.gov.uk/search-property-information-land-registry
Each person who owns the house can determine who the beneficiaries are through their will. However, if it’s owned as JT then the surviving person automatically inherits the whole house - it cant be given to someone else in a will.
If it’s owned as TIC then the first person to die can gift their share of the house to whomever they wish, but generally they can also leave their share in trust to the surviving partner. So the beneficiaries of the first death will openly receive their share once the second person dies. It will state in the Will of the first person how its to be shared. Again, you can search for the will of the first deceased here https://probatesearch.service.gov.uk and it only costs a few £.
You really need to see both the documents above to know what the legal situation is.

Presumably you lived in their house as your main residence prior to the death of your parents?

But surely, even if the husband who was the first to die left the house to the children and they own half of it now, unless the value of the estate that was the mother's is >£500k there will not be tax to pay?

ignore me - re-read to be sure and see that the whole house was left to the kids at the time of the death
goodness, shows how important it is to get these things right

I have done some more digging and found the will. The wording is even more clear than the example I'd found above.

The will clearly states the house is left to the surviving children with occupancy rights to the surviving spouse.

However, what confuses me is that I've also got the grant of probate, and this states the value of the estate is only the sum of the money left in savings and did not include the value of the house. From this, I am now wondering if the house was owned as 'joint tenants', which means the house would have gone to the wife anyway.

Am I on the right lines?

The title deed doesn't state tenants in common or joint tenants, but there is a restriction: no disposition by a sole proprietor ... which means it was probably registered as tenants in common.

Either way, both the husband and wife are listed as owners on the title deed.

This means, if joint tenants, the house would automatically transfer to the wife and they'd benefit from both of their IHT limit taking them to one million.

If tenants in common (most likely), the husband's half of the house was left to the children and the wife retained her half. Half the house was (and still is) less than £500,000.

This means that there still shouldn't be inheritance tax due, right?

Nope. I moved in after probate was awarded for the second time. It took three years to sort out both trusts as my parents died within 12 hours of each other. I had to process one trust of the one who died first before doing the second. I moved because this house is so much easier to adapt for my neuro disability than the one I had.

In honesty I would ensure you have a solictor who is skilled in handling estate , as in wills etc, matters and probate. The Legal 500 list gives details of reputable firms able to handle wills where inheritance tax may come into play. TBH from experience it was worthwhile paying for such. Some tax was due but that was minimal and fair compared to what I could have been looking at if I had gone with a less skilled option.