How can I give my late brother's property to my son without paying IHT?

Question

My brother passed away recently, intestate [without a will]. I know he would have wanted to leave his home to my son. I am about to be awarded probate as his nearest relative.

How do I gift the property to my son with the minimum inheritance tax (IHT) payable? The house is worth about £79,000 and needs some renovation.

My son is an only child and stands to inherit more than the IHT limit if both my husband and I died at same time.

SE/Swansea

Answer

No matter what your brother “would have wanted”, the only way to ensure it happens is with a valid will.

Normally if there is a will you can get a “Deed of Variation” within two years. Basically, this allows the executors to vary the distribution of assets – provided all beneficiaries agree to it.

I am not sure what the legal process is for this where there is no will, but I wonder if you have discussed this with the solicitor? They are the people best placed to advise on the legal aspects, but the revised award to your son would have to be made before probate – the application to get the legal right to deal with the estate – is completed and “sworn”.

James Antoniou, head of wills at Co-op Legal Services, says:  “If you do not want to receive the property from your brother’s estate, you could put in place a document called a ‘deed of variation’. This would allow you to re-direct the property outright to your son.

“Provided the deed is drafted correctly and signed by you within two years of your brother’s death, then the effect for IHT purposes would be that property is treated as being gifted directly to your son, from your brother’s estate.

“This means that the value of your brother’s property does not become part of your estate or add to the value of it for IHT purposes. Also, if something was to happen to you in the next seven years, you would not be treated as making the gift yourself.

“It is recommended to take legal advice regarding the drafting of the deed to ensure that matters are fully reviewed before you decide how to proceed.”

I would also point out that you don’t say how old your son is; if he is under 18, and therefore unable to hold assets in his own name, the house would have to be held in trust for him until he reaches that age.

 

A further question would be your own age and health. Assuming you are in good health and have a normal life expectancy, you could give the property to your son once probate is granted. Providing you live for seven years after making the gift, it would not form part of your estate. Your husband’s survival and estate are not relevant here as it would be you making the gift.

There is no capital gains tax on death, so unless the property has increased substantially in value since your brother died there would be no capital gains tax if you give it to your son now. If you wait till after the renovation, and assuming that increases the property value, there could be capital gains tax implications on a subsequent transfer to your son. You would therefore be better transferring before the renovation.

Above all, though, you need to discuss all this with the solicitor before probate is granted.

Dying without a will

If you die without a will, your estate will be split according to the rules of intestacy. Your own wishes are not factored in. If you are married without children, this means your spouse will receive your entire estate. If there are children, then your spouse will receive the first £250,000 of your estate and half of the remainder. The other half goes to your children.

 

However, if you are unmarried, then the rules can mean your estate is left to a distant relative rather than your spouse. If you have children, your estate will be split equally between them.

If you have no children, your estate will go to your parents, siblings, grandparents or aunts and uncles depending on whether you have any surviving relatives. If you have no blood relatives, then your estate will go to the taxman, rather than to your friends or partner.

The rules differ slightly if you live in Scotland or Northern Ireland, but the outcome if you die without a will remains the same: your family will have no say over what happens to your estate; it will be decided by the government.

You can get a will drawn up by a solicitor for around £100. Alternatively, you can get two mirror wills drawn up for around £150. A mirror will is where two wills are the same except for a reversal of the beneficiary, they are ideal for couples who want everything to go to each other. If you do have a will, make sure you keep it up to date when your circumstances change.

Francis Klonowski

Francis Klonowski

is principal of Klonowski & Co in Leeds.

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