Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Family home and IHT

Practical Issues
jdoe
Posts: 31
Joined: June 18th, 2021, 4:49 pm
Has thanked: 30 times
Been thanked: 6 times

Family home and IHT

#431185

Postby jdoe » July 29th, 2021, 11:42 am

This is a new topic to split out one specific question from another wider-ranging thread.

Situation:
House is owned by married couple as TIC.
They have one adult son who wishes to eventually live in the family home (currently has own house but works mainly abroad)

On first death, 50% ownership of the house could be passed to son within the IHT allowance of deceased (50% house value = £400k). AIUI this would incur no IHT or reservation of benefit issues for the surviving spouse who would continue to live in the house. It would also 'bank' the deceased's IHT allowance rather than risking the IHT rules changing in the future. So far, so good (I think).

My specific question concerns the type of ownership of the house passed on to the son after the first death. Given that 50% of the ownership is inherited by the son then TIC ownership between son & surviving parent might be appropriate, which is fine.

BUT, I understand that a TIC shared ownership can be changed at anytime to joint ownership (and vice versa) and that with joint ownership the shared asset passes automatically to the survivor on the death of one of the shared owners. This would take the house out of the probate process, making things simpler for the eventual executor (in this case the son).

My question is, would joint ownership also take the house out of the deceased's estate for IHT purposes? Or are there any other tax implications of converting TIC to joint ownership when the two owners are not a married couple?

DrBunsenHoneydew
Lemon Slice
Posts: 555
Joined: November 10th, 2016, 10:04 am
Has thanked: 65 times
Been thanked: 158 times

Re: Family home and IHT

#431187

Postby DrBunsenHoneydew » July 29th, 2021, 11:49 am

jdoe wrote:My question is, would joint ownership also take the house out of the deceased's estate for IHT purposes?

No, because they're not spouse co-owners.

Gengulphus
Lemon Quarter
Posts: 4255
Joined: November 4th, 2016, 1:17 am
Been thanked: 2628 times

Re: Family home and IHT

#431212

Postby Gengulphus » July 29th, 2021, 12:50 pm

A point to remember with any such arrangements is that nothing is certain about the order of the deaths: it's highly probable that one parent will die, then the other, leaving the house in the possession of the son. But it's possible that one parent will die, then the son, leaving the other parent with a 50% interest in the house and the son's estate with the other 50% interest in it - which could be very awkward for the surviving parent if the son's heirs aren't co-operative about the surviving parent remaining in the house. (I am incidentally assuming that the more obvious risks of a falling out between the surviving parent and the son, of bankruptcy or divorce of the son, etc, after the first parent's death are being considered.)

Gengulphus

jdoe
Posts: 31
Joined: June 18th, 2021, 4:49 pm
Has thanked: 30 times
Been thanked: 6 times

Re: Family home and IHT

#431302

Postby jdoe » July 29th, 2021, 7:55 pm

DrBunsenHoneydew wrote:
jdoe wrote:My question is, would joint ownership also take the house out of the deceased's estate for IHT purposes?

No, because they're not spouse co-owners.


I wasn't thinking so much about spousal IHT exemptions, more about what happens at the point of death. AIUI a joint asset would automatically revert fully to the survivor immediately on death, in which case it is no longer physically owned by the deceased's estate, hence the IHT question.

I presume the taxman has already thought about this and treats the value concerned as part of the estate for IHT calculation purposes. A bit like a large gift no longer being physically owned but still counted for IHT purposes (ie a PET).

jdoe
Posts: 31
Joined: June 18th, 2021, 4:49 pm
Has thanked: 30 times
Been thanked: 6 times

Re: Family home and IHT

#431305

Postby jdoe » July 29th, 2021, 8:01 pm

Gengulphus wrote:A point to remember with any such arrangements is that nothing is certain about the order of the deaths: it's highly probable that one parent will die, then the other, leaving the house in the possession of the son. But it's possible that one parent will die, then the son, leaving the other parent with a 50% interest in the house and the son's estate with the other 50% interest in it - which could be very awkward for the surviving parent if the son's heirs aren't co-operative about the surviving parent remaining in the house. (I am incidentally assuming that the more obvious risks of a falling out between the surviving parent and the son, of bankruptcy or divorce of the son, etc, after the first parent's death are being considered.)


In my scenario, one parent is already deceased, which simplifies things to some extent. Nevertheless you're quite right to point out the risks, in which case a joint ownership might be preferable, then the outcome of the first death (parent or son) is known in advance and not subject to the whims of any future cooperation, ie the survivor gets the entire house.

DrBunsenHoneydew
Lemon Slice
Posts: 555
Joined: November 10th, 2016, 10:04 am
Has thanked: 65 times
Been thanked: 158 times

Re: Family home and IHT

#431307

Postby DrBunsenHoneydew » July 29th, 2021, 8:10 pm

jdoe wrote:
DrBunsenHoneydew wrote:
jdoe wrote:My question is, would joint ownership also take the house out of the deceased's estate for IHT purposes?

No, because they're not spouse co-owners.


I wasn't thinking so much about spousal IHT exemptions, more about what happens at the point of death. AIUI a joint asset would automatically revert fully to the survivor immediately on death, in which case it is no longer physically owned by the deceased's estate, hence the IHT question.

I presume the taxman has already thought about this and treats the value concerned as part of the estate for IHT calculation purposes. A bit like a large gift no longer being physically owned but still counted for IHT purposes (ie a PET).

You have to declare jointly owned houses, land and business assets at the point of death and say who the other person is and their relationship.
Then claim relief if a spouse. You can't just ignore them even if they're effectively tax-free.

Gengulphus
Lemon Quarter
Posts: 4255
Joined: November 4th, 2016, 1:17 am
Been thanked: 2628 times

Re: Family home and IHT

#431368

Postby Gengulphus » July 30th, 2021, 8:49 am

jdoe wrote:
Gengulphus wrote:A point to remember with any such arrangements is that nothing is certain about the order of the deaths: it's highly probable that one parent will die, then the other, leaving the house in the possession of the son. But it's possible that one parent will die, then the son, leaving the other parent with a 50% interest in the house and the son's estate with the other 50% interest in it - which could be very awkward for the surviving parent if the son's heirs aren't co-operative about the surviving parent remaining in the house. (I am incidentally assuming that the more obvious risks of a falling out between the surviving parent and the son, of bankruptcy or divorce of the son, etc, after the first parent's death are being considered.)

In my scenario, one parent is already deceased, which simplifies things to some extent. Nevertheless you're quite right to point out the risks, in which case a joint ownership might be preferable, then the outcome of the first death (parent or son) is known in advance and not subject to the whims of any future cooperation, ie the survivor gets the entire house.

It's not subject to the whims of future cooperation with the son's heirs if the son dies - but it is subject to the whims of future cooperation with the son while he's alive - that's because a joint tenancy can be severed at the instigation of either of the parties to it, without the agreement of the other. Hopefully that's just a nitpick, i.e. it seems highly unlikely that the son will want to (or be forced to) take such action and so you were only commenting on co-operation in the event that the son dies before the surviving parent.

Gengulphus

jdoe
Posts: 31
Joined: June 18th, 2021, 4:49 pm
Has thanked: 30 times
Been thanked: 6 times

Re: Family home and IHT

#431477

Postby jdoe » July 30th, 2021, 1:28 pm

Hmm. I hadn't thought about a unilateral change from joint to TIC ownership. Could be a very important 'nitpick' ! Thanks.

It also suggests another question (if we're considering a falling out) - can a joint owner force the sale of a property against the wishes of the other owner (assuming just two owners here, even though there could be examples of multiple owners)?

And even if they can't force the sale of the whole property, would be possible for a TIC owner to sell their own interest in a property without the consent of the other owner?

My imagination is now running riot with all manner of nightmare scenarios whereby a joint owner could end up either being forced to sell up or finding themself joint owners with . . . well, almost any sort of undesirable you care to mention!

I'm beginning to think that retaining control over one's own destiny (as far as that's ever possible) might be more important than saving a bit of IHT and that there might be better ways to achieve that end.

Interesting how these sorts of discussions can tease out unconsidered complications!

Kantwebefriends
Lemon Slice
Posts: 356
Joined: November 5th, 2016, 4:02 pm
Has thanked: 26 times
Been thanked: 102 times

Re: Family home and IHT

#431494

Postby Kantwebefriends » July 30th, 2021, 2:41 pm

Would this be any use?

Let the first to die - call him Dad - leave £175k of house to Son, and the other £225k of house to a discretionary trust with Mum and Son and descendants as beneficiaries. Mum would also be one of the trustees. The trust has power to lend money to Mum and therefore can do so in future once it has cash e.g. if Mum and the Trustees sell the house. Or if, say, Dad also leaves the trust some money (up to £100k would be IHT-efficient).

Son sells his share of the house to Mum in exchange for a debt charge over her share of the house i.e. he sets up an interest-free mortgage loan. The house is now owned as TiCs by Mum and the Trust while Son will eventually receive £175k if Mum and the Trustees decide to sell the house. Or perhaps Son will inherit all Mum's share and will then negotiate with the Trustees about how to deal with their share.

The terms of the loan would need careful thought: when might it be recalled by Son?

jdoe
Posts: 31
Joined: June 18th, 2021, 4:49 pm
Has thanked: 30 times
Been thanked: 6 times

Re: Family home and IHT

#431586

Postby jdoe » July 30th, 2021, 9:20 pm

Interesting ideas, though my first thought is the complexity of setting up trusts etc. My instinct is to keep things as simple as possible.

Lootman
The full Lemon
Posts: 18674
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6559 times

Re: Family home and IHT

#431616

Postby Lootman » July 31st, 2021, 7:34 am

jdoe wrote:It also suggests another question (if we're considering a falling out) - can a joint owner force the sale of a property against the wishes of the other owner (assuming just two owners here, even though there could be examples of multiple owners)?

And even if they can't force the sale of the whole property, would be possible for a TIC owner to sell their own interest in a property without the consent of the other owner?

It would be difficult, but not impossible, for one party to force a sale of a property jointly owned with another. The first step would be to unilaterally sever the joint tenancy, as noted. Then there would have to be an application to the court by the party who wants to sell. This happened in our family when my grandfather died, and his three sons disagreed about selling his property. My father wanted to keep the house but his two brothers wanted to sell. They would have happily let my father buy them out but he could not afford that at the time. Eventually he reluctantly agreed to the sale rather than endure a court battle.

I imagine a judge would take into account the stated reasons for the sale and of course who lives in the property at the time. I would imagine that usually a judge would not agree to a sale where the unwilling owner actually lives there, for instance. And if his or her non-adult children lived there, then definitely not.

To the other question, a TIC owner can sell his or her individual share of a property. In fact this is fairly routine with multi-unit buildings owned by partners. However if it was an ordinary house or flat, then the value of 50% of it would be significantly less than 50% of the full value. Nobody wants to buy half a house and share it with a total stranger, except as a speculation.


Return to “Taxes (Practical)”

Who is online

Users browsing this forum: No registered users and 7 guests