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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15975
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Re: Inheritence Tax. I am a joint executor with my two sons

Customer Question

Re: Inheritence Tax.
I am a joint executor with my two sons of my late wife's estate who past away May 2007, and we are having some difficulties with HMR&C regarding IT on a property left to my sons by their Grandfather ( D. 1990) - The following is the extract from his will relating to the property:-
Extract from Grandfather's Will
4.I devise my freehold property known as _____________ aforesaid to my daughter ______________________ for and during her life time with full power for her to sell the property as she shall in her discretion think fit and invest the capital in accordance with the terms of this my will and apply the income for her benefit for and during her lifetime and after her death the following provisions shall take effect.
(i) I devise the said property -----====== aforesaid or any capital fund as the case may be (if the property is sold) to my grandsons ______________ and _____________ absolutely in equal shares between them on their attaining the age of twenty one years.

My late wife opted to retain the property, spent a considerable amount of money in revovation ( +£25K) and operated the property on proffesional level as a holiday letting business which HMR&C are, at present refusing to allow Buss. Relief, which is an other matter. The property for probate purposes was valued 2007 at £360K and HMR&C have, within the last month, now issued their 'bill' for IT on the £60K.
My question is, does the grandfarther's will not constitute a form of trust to his grandsons and would qualify for some relief of IT?
Submitted: 4 years ago.
Category: Tax
Expert:  TonyTax replied 4 years ago.

As far as I understand it, when your wife's father passed away, he left the property in trust for your sons but with a stipulation that your wife had the right to live in the property or, if she chose to sell it, in the income produced by the capital until she passed away at which time the property or capital would pass to your sons. That is what is called an interest in possession trust. There are some notes on IIP trusts here and here.

When the life tenant of an interest in possession trust dies, the assets in the trust are included in the life tenant's estate for Inheritance Tax purpose. Once the IHT is paid, the assets can be distributed to the ultimate beneficiaries, your sons.

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