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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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HMRC have regarded a relelative as having a life interest in

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Hi. HMRC have regarded a relelative as having a life interest in a property whereby a Tenants In Common agreement stands at 50% each.. 50% of the whole property was used tp calculate inheritancr tax on the first death.. the remaining party had the right to remain until death.. but revenue say the later deceased needs to include 100% of the value.. the executor is therefore sayinh that as the property is taxed at 100% all proceeds go to her family and not distrbuted as the per the first deceased will.. is this correct.. or is life interest only for tax purposes only and does not affect the legal ownership and will proceeds
Assistant: Has the executor talked to a lawyer about this? What country does the executor live in? If different, what country does this legal question relate to?
Customer: No.. he lives in Spain and the case is in the uk.. he wishes for my father in the uk (who is not executor) to seek legal advice
Assistant: What steps has the executor taken so far?
Customer: He has asked the Revenue to recalculate my grandfathers inheritance to rrfund taxes on his share... and will then pay taxes on 100% on the proerty of his mother.. and not distribute the proceeds at 50% fron sale to both sides
Assistant: Anything else you want the lawyer to know before I connect you?
Customer: No not at this point

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Was the interest in possession trust set up via a will. When did the first deceased die? Was the remaining party the wife of the first deceased? Who was the property left to after the end of the life tenancy according to the terms of the will? Can you explain who the parties are to the 50:50 Tenants in Common ownership? Was the life tenant a part owner of the property with the first deceased?

Customer: replied 1 month ago.
Tenant in Common Agreement held whereby share of house is 50/50..unmarried.. and both parties leave their share to each of their own dependents. Clause held that either party remains in the property after the death of the 1st until their own death.
Upon the 1st death 2014 50% f the house value was included for inheritance tax purposes.
The 2nd party was placed in a care home and the property let.. whereby all income was taken by the 2nd party.
Upon the death of thr 2nd party 2018 50% of the value was included for tax purpses.
The revenue state that the 2nd had a life time interest and therefore should include the full value for inheritance.
The Executor is now stating that this means that the 2nd party owns the house in its entirety. He has requested the Revenue send a refund for the inclusion of the house value in the 1st party inheritance calculation and be returned to the beneficiary of 1st party will and all proceeds from the sale of the property go to the the beneficiaries of the 2nd party. Is it not the case that the Will stands.. and the Revenue refer to the value for tax purposes only.

Thanks.

Leave this with me while I draft my answer.

Normally, if the 1st party to die owns 100% of the property and their will puts it into a trust with a life tenant (an interest in possession trust), when the 2nd party dies the whole value of the property is included in the estate of the 2nd party on their death for IHT purposes simply because the property avoided IHT on the 1st party's death.

As half the property was owned by the 2nd party and half by the 1st party I don't understand why 50% was used to calculate the value of the 1st party's estate for IHT purposes death as it was effectively left in trust for the ultimate beneficiary with a life tenant. Therefore, the whole value of the property should be included in the estate of the 2nd party. However, the terms of the original will stand and the 50% owned by the 1st party goes to the beneficiary named in that will. The other executor is simply wrong. The 2nd party does not own the whole house.

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

Customer: replied 1 month ago.
effectively the 2nd party pays tax on a whole property even though they only own half..
Customer: replied 1 month ago.
To add both parties left their own shares to their own children

That's correct.

Normally, the life tenant owns none of the property but it is still included in their estate for IHT purposes.

Customer: replied 1 month ago.
Would we therefore have a potential case to reclaim from Revenue.. 1st pary inheritanxe was paidnat 86k but without house would have been 26k.. also can you be both tenant in common and life tenant

See the final paragraph under "Income and Capital" here.

Customer: replied 1 month ago.
Sorry very paidly

I'm not sure of the law around being a life tenant as well as being a tenant in common. It may that the value of 50% of the house was included in the 1st party's estate for IHT purposes as the couple were not married and did not enjoy the tax breaks associated with marriage.

I doubt that HMRC will entertain a claim for the IHT to be reassessed on the first death but it may depend how long ago the first death was.

It is certainly not the case that the life tenant owns all the property.

Customer: replied 1 month ago.
Thank you. That to me right now is the most important factor.

Thanks.

Would you mind rating my answer before you leave the site please.

Customer: replied 1 month ago.
Although we potentially cannot pursue a case against revenue can we pursue a case against Executor is this was handled incorrectly?

I would say you could if they got it wrong.

TonyTax and 3 other Tax Specialists are ready to help you

Normally, IHT only applies to lifetime transfers into trust, not via a will.

Thanks.