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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15917
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I own 50% of a residential property and am living in it, I

Resolved Question:

I own 50% of a residential property and am living in it, I have an interest in possession (or perhaps a qualifying interest in possession as I am not sure what that means)
My children, now adults each own 25% and do not live in the property. My ex husband gave them his share when they were minors and did live in the property. They have the other 50%.
My query is -
Is inheritance tax payable on my death on half the value of the property plus my other assets or on the whole property,
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

Can you tell me if your husband have away his half of the house in his lifetime or via his will. Was there a stipulation that you had the right to live in the house, half of which you own in any event, during your lifetime or until you renounced your right to do so? When was your husband's 50% share given to his children?

Customer: replied 1 year ago.
He gave his share of the property to his children during his lifetime about 1982 approx.
Any clause given to allow me to remain in the property and I tried to put one in was ineffective as it could not override the children's right to their half share and I had a right of occupation by virtue of being a joint owner subject to a court application to sell.
Customer: replied 1 year ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  TonyTax replied 1 year ago.

Do you want me to post an answer first or call you?

Customer: replied 1 year ago.
Please post an answer and if I get it I do not need a phone call
Expert:  TonyTax replied 1 year ago.

OK.

Customer: replied 1 year ago.
Is my written answer getting through. The SEND button does not seem to work
Expert:  TonyTax replied 1 year ago.

I'm typing it now! You won't see it until I post it.

Expert:  TonyTax replied 1 year ago.

As your husband appears to have simply given his share of the property to his children and you only had a right of occupation by your ownership of the other half and as there appears to be no clause in any document giving you a life tenancy, I cannot see how the whole value of the property can be included in your estate when you die. There is no trust in my opinion. When you die, only your half of the property will be included in the your estate for IHT purposes. An interest in possession trust would not allow your sons to apply to sell the property.

Take a look here and here for information on interest in possession trusts.

I hope this helps but let me know if you have any further questions.

Customer: replied 1 year ago.
Thanks. One more question.
Would it make any difference if I had a lifetime right of occupation. Not sure whether this amounts to a life tenancy.
Expert:  TonyTax replied 1 year ago.

That would amount to an interest in possession or a life tenancy.

Customer: replied 1 year ago.
but does it make any difference to the IHT position. Is it still payable only on my half?
Thanks
Expert:  TonyTax replied 1 year ago.

I'm looking at it now.

Expert:  TonyTax replied 1 year ago.

See sections 12.3 and 12.4 here. If you have an interest in possession, then the value of the entire house will be included in your estate for IHT purposes when you die.

If you have the right to remain in the house simply because you own half, that is not an interest in possession trust. The life tenant of an IIP does not normally have any ownership interest in the property. It seems to me that you and the children are either tenants in common or joint tenants. Look here for the difference between the two. If your sons cannot sell until you die, then in my opinion you have an interest in possession. Normally, the ultimate beneficiaries (your children) would not get their names on the title deeds until the life tenancy ends.

Customer: replied 1 year ago.
Sorry I am still confused. It may be a problem of terminology. I think I have a reservation of benefit because I live in the house that I own i Jointly with my children as my ex husband gave his share to them in 1982 and I retained my half share.
Does this mean that IHT is paid on my share alone or on the whole.
It is a simple question but difficult to explain and I still do not know the answer.
Expert:  TonyTax replied 1 year ago.

There is no interest in possession so your estate will include your half share. Your husband gave away his half share to your children and you have not told me that a document exists which gives you the right to remain until you die. I know what I think but you have said that you tried to get a clause but it was deemed to be ineffective. You mentioned interest in possession in your question. I have no access to any documents so I can only tell you what the rules are. What I do know is that you have no convinced me that an interest in possession exists as your sons actually own half the property. Minors cannot own property until they are 18. At 18, your sons became entitled to their share of the property. If there was an interest in possession, they would not have any rights until you died or agreed to sell the property. You have rights because you own half the property. That is not an interest in possession trust.

When an IIP exists, a solicitor will have a document to support that for obvious reasons.

Expert:  TonyTax replied 1 year ago.

An interest in possession has to be left to you by an individual either in their lifetime or via their will, not by a direct court decision. If the court says that you can stay in the house until you die, that is not an IIP trust. Therefore, only your half of the property will be included in your estate for IHT purposes.

Customer: replied 1 year ago.
Sorry I am still confused. It may be a problem of terminology. I think I have a reservation of benefit because I live in the house that I own i Jointly with my children as my ex husband gave his share to them in 1982 and I retained my half share.
Does this mean that IHT is paid on my share alone or on the whole.
It is a simple question but difficult to explain and I still do not know the answer.My fault for using terminology which is confusing.
I accept there is no interest in possession. The property is registered to me and my children as trustees for ourselves. We are joint owners and shown as such at the Land Registry.
I live in the property. My ex husband gave his share to the children when they were minors but they are now adults and shown as owners.
I still cannot understand whether IHT is payable on my share alone on my death or on the whole property because I have a reservation of benefit in that I continue to live in property which is jointly owned by me and my children.I am sorry to trouble you again but I need to sort this out.
Expert:  TonyTax replied 1 year ago.

There is no interest in possession. You own 50% of the property and your two children each own 25%. Your estate will only include your 50% share. Once again, there is no interest in possession trust. There has to be one for your estate to include 100% of the property when you die. Many parents own their property with a child or more than one child. That is not a trust, it is shared ownership. I have dealt with so many questions on interest in possession trusts over 37 years in tax and they all have one thing in common that your case doesn't have. There was a legal document, normally a will setting out the terms under which the ultimate beneficiaries inherit a property. That will will also say that the spouse will have the right to remain in the property for their lifetime, hence the term life tenant. All that happened in your case was that your husband gave his share of the property to your children as minors and they became entitled at 18. Your situation is simply one of joint ownership. There is no trust, period.

Customer: replied 1 year ago.
Okay. Thanks. I think I get that. I do not have an interest in possession. Nor do I think I have a tenancy. I have a right of occupation because I own half the house.and it was also stipulated by my ex husband that my right of occupation could not be terminated during my lifetime.
Please advise on whether this means IHT is payable only on my share or on the whole value of the property.
Expert:  TonyTax replied 1 year ago.

OK, so there was a proviso. If it was stipulated by your husband that your right of occupation could not be terminated during your lifetime, then that is an interest in possession which means that 100% of the property value will be included in your estate when you die. Is that stipulation documented? See paragraphs 12.3 and 12.4 here.

Customer: replied 1 year ago.
The stipulation is not documented in the trust deed giving my ex husband's share to the children and not documented in the document changing the name of my ex husband as trustee to that of my brother, so that my brother and I were trustees of the property for myself and my minor children and it was not documented in the document transferring ownership to them and me outright.
It was mentioned in other documents.
Does this make a difference?
Sorry I cannot understand the reference you gave me.Does this make a difference?
Expert:  TonyTax replied 1 year ago.

What other documents was the stipulation mentioned in? I need as much detail as you can give.

Customer: replied 1 year ago.
The stipulation is not documented in the trust deed giving my ex husband's share to the children and not documented in the document changing the name of my ex husband as trustee to that of my brother, so that my brother and I were trustees of the property for myself and my minor children and it was not documented in the document transferring ownership to them and me outright.
It was mentioned in other documents.
Does this make a difference?
Sorry I cannot understand the reference you gave me.Does this make a difference?It was stipulated in the document appointing my brother as trustee in place of my ex husband.
Customer: replied 1 year ago.
It was in the document appointing my brother as trustee in place of my ex husband
Expert:  TonyTax replied 1 year ago.

So, the stipulation that you say your husband made appears not to have been documented at the time but in another document which was drawn up some time later when there was a change of trustee. How much later?

I'm afraid that we are getting into legal territory now which is not my area of expertise. Quite simply, if there is an interest in possession in your favour, then 100% of the property value will be included in your estate when you die. You said that your husband stipulated that you should have a right of occupation until you die and that is the definition of an interest in possession. The waters are muddied by the fact that the original trust deed did not mention the stipulation but a later one did. In addition, your sons names are ***** ***** deeds which is not usually the case until the life tenant dies. You also mention that there is a document transferring the property to you and your children outright. This is one for the lawyers to sort out.

I deal in facts and their implications but it is looking like that if nothing else there was an intention to give you a right to occupation of the property over the ownership rights of your children until you die.

If there was no documented stipulation, I'd say that your estate should only include 50% of the property value when you die. As that stipulation appears to exist and is recorded in a legal document, you do have an interest in possession.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Okay. Thanks. You have done your best here and I appreciate your efforts.
Expert:  TonyTax replied 1 year ago.

Thanks.

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