Lifetime interest IHT worries

[Anonymouseky]

My mum died many years ago. My dad met a new partner a short time later. They have not married. My dad has told me that he has written his will to state that if he dies first, his partner will have the right to live in his house until she dies, after which I will get the house. I believe his savings and investments will pass to me immediately on death. I’m not sure what the total value of the estate could be, but I think it could surpass the IHT threshold of 325,000 if the house and savings and investments are all combined. I don’t know much about these types of wills (lifetime interest?), but I am concerned that I will be liable to pay IHT immediately on his death (which is likely to come before her death) despite not having access to any capital on his house immediately when he dies. I already have money worries of my own and have no idea how I would pay such a bill if that was the case. It is a sensitive issue and I do not wish to cause upset by discussing this with him, but I am starting to really worry about what I may need to pay. It wouldn’t be an issue paying the bill on her death as I would be able to sell the house, but if I can’t do that on his death, how do I pay the bill? I believe she has substantial savings of her own (and children from a previous marriage), so these IHT issues could be complex as I think IHT could be payable twice as they are not married? If anyone has any knowledge or insight, I would be so grateful.

If you have a copy of your father’s will it would be worth getting a probate specialist to advise. However the standard procedure in this case is that the property is held in trust until his partner dies with you as his main beneficiary as one of the trustees. No IHT would be payable on the trust element until she dies and you inherit. The value of the property would not form part of her estate when she dies so there would not be a duplication of tax.
When property is passed to offspring there is an additional allowance of £175000 so inheritance tax would not apply unless the total value of the estate exceeds £500,000.

You may also get the benefit of your mother's allowance. So th e threshold might be much higher than you think

Yes, presumably your DF has 'inherited' your DM's IHT allowance - although you'd need to check on this if she died years ago.

As has already been said, since property forms part of the estate, the IHT threshold will be at least £500k if not £1m for both DM and DF allowance combined.

IHT is self-declared and the forms online are quite easy to complete (although if you seek third party probate support this would also be handled for you). I don't think you have as much to worry about as you imagine.

Thanks all, this has put my mind at rest. I think I may need to talk to my dad about how he owned the property with my mum, but I imagine it was as joint tenants. I doubt the inheritance would exceed 500k so hopefully it will be ok if and when the time comes.

Another question for you Dad. Who has to pay for the upkeep of the house. Repairs etc.
She could live a long time and if not maintained it would be a crumbling wreck in 20 or more years.

I think this needs legally resolved so that any upkeep is paid for by his partner and she isn't able to pass her inheritance on.

I would be very nervous if this isn't tied down. What happens when she is elderly and needs care? Would the local authority assume it's her house to sell to pay for it?

These are really good questions. I know she isn’t allowed to move another partner in if she met someone else and I believe she couldn’t pass it on to her own children as it would be in trust to me. The care question I’m really not sure on though. I’m also not sure about the upkeep or whether there would be any implications for bills. It’s a minefield, but if it’s made me certain of anything, it’s that I will never put my own children in this position.