I have a query relating to a non-taxable estate and would be very grateful for any opinions or if someone could point me in the right direction of any guidance. The answer won’t make a difference from an IHT perspective as the estate is well under the limits when transferrable nil rate band is taken into account.
Deceased lived with her daughter in a home they genuinely shared. The property was owned 2/3rds by the deceased and 1/3 by the daughter. It was agreed that bills would be shared and this appears to have happened but this was a rather informal arrangement with inconsistent records.
The daughter was supposed to pay for her 1/3rd share at the rate of £300 per month. On death of the mother, the Will releases the daughter from all future obligations to pay the remainder of the “loan” and states that this is to be construed as a tax free legacy.
There is a little work to be done before the figures can be agreed but as an example:
The 1/3rd share was valued at £100,000
The daughter has paid back £20,000
The release of the outstanding £80,000 left to pay becomes a legacy to the daughter.
Does anyone have any experience of how to value the mother and daughter’s shares in this kind of scenario. Would it simply be a case of deducting the amount the daughter has already paid back to the deceased from the value owned by the mother at the date of her death?
Thank you very much in advance
Nikki,
Respect Wills Ltd
It seems mother owned a property 100% and sold a 1/3rd interest to daughter presumably at market value. Broadly, at the time of sale the 1/3rd interest would be worth 1/3rd of market value of the property with perhaps a 10%. discount. The consideration for the purchase was to be paid to mother over however many years the figures provide.
On mother’s death her 2/3rd would be valued at 2/3rds of market value of the property at the date of death less a 10% discount.
The outstanding amount of the purchase price owed to mother is a debt due to mother owed by daughter and forms part of mother’s estate for inheritance tax (although you suggest that mother’s estate is not liable to IHT).
Thank you for your reply, Malcolm. I can see that my question isn’t at all clear - apologies. My concern is that everything appears to have been handled informally with no paperwork documenting the arrangement, so no agreement of original purchase cost of the daughter’s share. I can locate some payments the daughter has made towards the unknown purchase price but many were in cash and cannot be evidenced according to the client. Many of the bill payments have also been made in cash with no records. I was also concerned about potential reservation of benefit as my understanding is that there genuinely need to be a split of the household bills in this scenario and this doesn’t appear to be fully evidenced. Thank you for answering and apologies for my confusing question.
You indicated in your opening post that IHT was not a problem due to the values involved. I therefore assumed that whether or not there was any reservation of benefit was irrelevant. Having said this, such would only occur of mother made a gift of the 1/3rd interest which would only arise if the purchase of this 1/3rd by daughter was at less than market value at the time of purchase.
The lack of document as to the precise facts is, of course, somewhat unhelpful but on the face of it it does seem likely that the reservation of benefit provisions are in point as there is no proof that there was no gift element when mother “sold” 1/3rd to daughter or proof that all expenses were shared 50/50 or that only mother paid them.
Regarding valuation which you asked about my comments above still stand.
How was the transfer of the 1/3rd interest documented? Did mother retain legal title and simply execute a declaration of trust in favour of herself and daughter? Was anything filed at LR?