I have a client whose husband died 5 years ago. Will left 1/2 house directly to children. This was never actioned.
House has now been sold and new one bought in her sole name. Difference of around £50k lower for new house.
Total assets around £650k
It may give her an issue if she needed care / remarried etc etc. Assuming that’s why 1/2 share in Will initially for protection (though absolute gift maybe not the right way!). Don’t think it matters re IHT though she may need some of his transferable allowance …
If she decides to “honour” the husbands share to children now, can this be done on new house? Or will it be classed as a gift from her now?
What do you think?
(Either way there could be CGT / usual divorce etc risks if she gifts)
On H death a IPDI was created therefore the W has an interest in possession on half the property (main residence - regardless if this changes).
The beneficiaries will inherit on W death.
The new property/downsizing resdiue is typically delt with by the terms of the IPDI in H will.
IHT as you suggest - IPDI is aggregated back into W estate on death.
The W IIP is settled via H will - there isnt any further actions required (Land Registry) as the beneficiaries dont legally “own” any assets.
If care is requied the LA would need sight of the will - its a good idea to ensure probate is granted IMO to solidify the legality of the IPDI.
"she decides to “honour” - the W must legally honour the H IIP. Its not a choice. (On the basis the trust is set up correctly - ref my comments on probate for H).
My reading of the original question is that an absolute gift was made to the children so no IPDI. It certainly is messy as my view is that the children are entitled to half the proceeds of the (first) house. This remains a debt against the mother/wife and ‘honor’ the gift now by giving them half the house, then there are likely to be stamp duty implications.
The debt can still be recorded as a debt, and an agreement to charge/waive interest can apply. I dont see this as a gift. It is discharging the original legacy, that has yet to be satisified.
My reading was the same as Haroon’s. The only point I would add is CGT on the sale should be considered as PPR will not be variable to the children unless they were occupying as their PPR
I agree with Nigel regarding the CGT. Being a bit creative, arguably the children ‘allowed’ mother to live in the house and are effectively regarding themselves as remainder beneficiaries. Many many years ago, we obtained a counsel’s opinion in a similar scenario and counsel suggested that the arrangemnt was that the wife had a life interest in the whole house. Obviously the circumstances were not identical, and I believe that was pre-2006.
I agree with Haroon who has had once again to make an assumption where the question supplies insufficient facts. We are not told in fact whether the other half of the house was left in His will to W or whether she already owned it. Given that 5 years have elapsed since H’s death the sale will have been partly liable to CGT on a gain from the children’s half unless it was also the PPR of one or both and they may have annual exemptions available. So PPDCGT returns are/were required and CG pages on returns for the tax year.
A professional should not act for her unless this is put right because for her not to regularise the position is tax evasion. To go on to advise or assist her will be a moneylaundering offence under POCA 2002. It is not a tipping-off offence for a professional legal adviser or relevant professional adviser or their employee to dissuade the client from committing an offence: s333D(2). If the client refuses then a SAR is required. There may be in some cases a doubt about whether “criminal property” has yet come into existence. If returns are still in time to be made I would suggest not, but if filing dates have been missed I would not want to argue that nicety to avoid a criminal conviction. I should add that a UK company has a positive duty to prevent evasion under Part 3 Criminal Finances Act 2017. LPP gives one a little more latitude but clients can only exercise that if the advice comes from a qualified lawyer and there is no LPP if the crime exception applies. You might think this is over the top and you’d be right. The entire area is way over the top but it’s the law.
This stuff applies just as much to a client who is a little old lady who has blundered into things in good faith as to a cunning scumbag gangster. But the remedy is patently simple: sort it out promptly. Don’t act further until you have evidence it has been done. If she goes elsewhere you have dodged a bullet and it then becomes that Mighty Wonder: an SEP (Someone Else’s Problem).
Property was owned as TIC so W owned her share already. Absolute gift to children so no IPDI.
Daughter has now moved into property referenced in Will - purchased from her mother at market value. Mother bought her current home with the proceeds and kept the surplus. Son was “fine with the arrangement” !!!
Executor was “a lay person who knew what they were doing”. Notes on her file say “transfer 1/2 into children’s names” but she engaged a solicitor to do this and they never did it - “it would get sorted once the two sales had gone though” but now they aren’t responding at all.
As she can no longer transfer shares of the property referenced in the Will, she is wondering if she should transfer 1/2 share of her new home instead. Therefore the Q about if it treated as executing her late H’s Will or as a gift of her current property! And practically, would a Declaration of Trust be the simplest way forward?
I’m continuing with her Powers of Attorney but holding off on a Will for now - though her Will is simple enough - everything to children.
I have said probably more than enough. I would not act further at all. perhaps not yet, but possibly never. Everything in your description of the persons involved and their attitudes seems to put you at risk. There seems to be a risk of a CGT bill that may even force the sale of the property (and how was “market value” calculated?) which is the daughter’s home. Such clients can be a living nightmare when anything goes wrong and you become their target. They also hassle over bills especially when unexpected issues surface which will exceed budget; they will expect you to work these for free. Not even a huge dollop of MUF (Money Up Front) would persuade me to act even assuming they fixed the tax issues. Extricating clients from their own ignorance or recklessness tends to require a multiple of time compared to what would have been required to do it properly first time.
Did they hold the original property as joint tenants or tenants in common. If the former, then any gift will be from her. If the latter, then she holds the new property upon trust.
