I have clients who are a married couple who own a shop and flat above as tenants in common on one freehold title. The shop is worth 650k and the flat is worth £500k. There are also two children who live in the flat with them. The shop is rented out.
The 1st spouse has now passed away and the Will leaves everything to the surviving spouse who is in poor health.
I am wondering whether it is possible to do a Deed of Variation to the 1st spouse’s estate to gift:
a) just the deceased’s interest in the GF shop to the two children (despite the fact that it forms part of the whole freehold title), or
b) to gift an amount equivalent to the NRB of the deceased spouse in just the Ground Floor shop to the two children and for the half share of the shop to be appropriated to them in satisfaction of this entitlement.
Presumably, if the surviving spouse passes away there will be a 10-15% discount applied for IHT purposes as the survivor was not the sole owner of the entire property?
Also, presumably, the survivor’s NRB can be applied to the shop component that the surviving spouse retained and the two RNRBs can be applied to the flat component that was retained by the surviving spouse?
I wonder if it might be preferable, say, to use the variation to give the widow a 50 year lease on the residential unit, at a peppercorn rent, and the freehold to the children, subject to that lease?
The surviving spouse is already an owner of a half share of the whole property so for the children to have the freehold title would necessitate a gift by him to them of his half share. I understand that the surviving spouse is now terminal so he is unlikely to survive for 7 years. It is just a question of what we do with the first spouse’s half now to ensure that we have the 10-15% discount applied for IHT when the second spouse passes away. I am proposing to go for option B and to do a Deed of Appropriation which will sit alongside the DOV.
If you want to appropriate a share of the ground floor shop in satisfaction of the legacy you will first have to carve out an appropriate leasehold interest from the freehold. As it stands, what the executors can appropriate to the children is a share of the whole.
Yes, the children will have a share in the whole property (i.e the flat and shop) appropriated to them in satisfaction of the NRB legacy, which has a value equivalent to the NRB utilising a Surveyor’s valuation I have obtained for the property as at the date of death of the first spouse. The children will acquire 29% of the whole property from the first spouse’s estate pursuant to the Deed of Variation.