A will client owns the family home which he lives in with his mother, his wife and children.
He wants to leave his mother and his wife a right to occupy the house for life. There is potential for friction between his wife and his mother and he wants to ensure his mother has the right to live in the house.
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On the husband’s death, will the spouse exemption only apply in respect of 50% of the value of house?
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On the mother’s death, if she is still living in the house will only 50% of the value of the house be included in her IHT estate?
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On the wife’s subsequent death, will the whole of the house be included in her IHT estate if she is still living in the house or will it be limited to 50%?
It seems that that client can only protect his mother at the expense of using part of his nil rate band and potentially a further charge to tax on his mother’s death. An alternative would be a discretionary trust but the house is worth more than the nil rate band so there would be a charge to IHT on the first death.
IHTM16103 suggests that if the wife’s right to occupy is given on condition that she permits the mother to reside with her , this would get round the problem as it is considered that the wife has the sole interest in possession.
Has anyone any other suggestions?