Do we have any tax experts here?

[robinw]

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robinw, i'm not an expert but this doesn't seem right to me. the only thing i can think of is that the fact that your neighbour lived in the house after her husband's death means that for iht purposes the whole bequest is treated as having gone to her - which would as you say have been exempt from iht. then on the second death it is treated as the bequest to the charity and to the daughter in which case iht would be payable. i think taper relief (i.e. whereby the tax decreases depending on the length of time since the gift) is only relevant for gifts during life.

anyway, if your neighbour's daughter is unsatisfied as to the explanation she has received, she should most certainly get a second opinion.

hth.

Dh is a probabte lawyer and deals with this type of thing a lot. If you can wait I will ask him this evening after work.

dh is a tax lawyer - I can ask him later on (may not be until tonight though).

Just e-mailed this to DH and he has sent me this message back just now.

"Based on this information, the solicitor's advice is correct. Wife has a benefit in the whole of the house (does not matter who has legal ownership) and therefore the value of the whole house is taxable."

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yes it is really important to get good iht planning these days, as many houses are over the value threshold where iht becomes chargeable.

Are there any tactful ways to bring these types of things up with your relatives? My mom left her affairs in a bit of disarray and I keep thinking how much more clever she could have been about her assets and inheritance tax liabilities. We ought to try to discuss it with MIL, but I am unsure what to say. She won't take any "advice" from us; only likes to listen to her soliciter. And sounds like Robinw's neighbours didn't get very good advice from their soliciter! If MIL said she was going to leave it to a Dog's home, fine, it's her money, but seems a shame, since she probably is leaving it to her sons, not to be clever about reducing the tax liability.

DH agrees that IR would argue that the neighbour as surviving spouse had an interest in the whole house- and therefore IHT will be payable on the whole amount.

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apparently there is a way round it- if the husband's money had gone into a particular type of trust (can't remember the name- dh told me yesterday), but not a life interest trust which is waht has happened (think that's what he said, but I do switch off when he talks about trusts). He said that this was a common cock up with wills. The problem really is that getting decent tax planning and wills advice is pricey and people aren't willing to spend very much - so they end up with an expensive cock up after death iyswim.

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yes that is a problem- solicitors do something as a favour and it ends up a cock up.

it depends a bit when the advice was given though I guess. A decade ago fewer people needed to worry about IHT, so it may not have been a relevant concern at the time.