I.H.T.

You are at the start of a process which will no doubt save your children many thousands of pounds. It is a great thing to do and there is no better place to learn about it than here in Usenet but you are going to need proper professional advice to make it work.

This is a "gift with reservation" and yes it will be added to her estate for IHT purposes.

How so? It is not a gift at all, never mind with reservation, because Robert is proposing to *leave* the house (i.e. presumably in his will). Even if it were a GWR, it would be added to *his* estate, not hers.

It seems to me the intention here is that, after his death, the house would be wholly owned by the kids alone, not the wife, but that the wife might be a trustee if the kids are not yet old enough to "properly" own it, so she would be owning it on their behalf until they're old enough, and then they would own it subject to not being able to kick their mother out until she dies or leaves voluntarily.

I don't think there is any question at all in such an arrangement that the wife's "share" of the house would be taxable as part of her estate, since it is clearly not hers to dispose of in any way, be it by sale or by inheritance. The kids would *already* own it when she dies.

In message , Troy Steadman writes

No its not. (I assume the word 'leave' means 'in my will')

Yes, it will but because she will have an 'interest in possession'.

Sadly the CTO doesnt agree with you. She clearly has an interest in possession.

How would they go about valuing it? Clearly a share which cannot be freely disposed of must be worth less than one which can. How would they decide what ratio to use?

Unless she pays a commercial rent. But that's a minefield, as far as I'm aware it's untested.

In message , Matt Robertson writes

The OP made it clear it was to be rent free.

Even if she were to pay a market rent, she would have a right stronger than that of any normal tenant, namely not to be kicked out, and some value must attach to that, surely.

In message , Ronald Raygun writes

It assumes the trust is a sham and that she can freely dispose of itas though the trust did not exist No apportionment or ratio necessary.

In message , Ronald Raygun writes

Yes, it does. It gives her a valuable right of possession which accrues to her. That right is deemed to be as good as almost absolute possession, in the same way that a long lease is as good as freehold. Thats why she will be taxed as owning it in her sole name, and based on the tenure her pseudo occupation replicates.

Who is this "it" which would dare assume such a nonsense? The trust, being no doubt properly set up with due legal advice ect ect, will be unassailable. So, supposing she *really* could not freely dispose, whaddaya reckon?

Look at it this way: While the OP is still alive, she *already* enjoys the right to live there rent-free, as do the kids, so she wouldn't really be gaining anything as a result of the OP's death. So she'd not really have inherited anything, and the kids would have inherited everything, but simply delayed until such time as she either dies or chooses to cease exercising her right of free occupancy.

The Capital taxes Office.

You forget you are dealing with a Government dept.

Her ability to dispose of it is not relevant as far as the CTO is concerned. It is her continued 'enjoyment' that is the point.