Following the death of her mother in October 2016 my wife…

• Is my understanding above correct? We have set out the position above as regards ***** ***** If the house remains in his estate and as gifted to his daughter then it can count as using up the additional main residence £175K band available.
• Am I correct in thinking that the fact the house is now rented out does not affect this? Correct, providing he has at some point lived at the property previously to it being rented as his main residence
• If my father-in-law gifted his share to my wife there would be no stamp duty to pay? Correct providing there is no mortgage on the property at the time of the gift.
• Is there any particular format the gift should be recorded in to avoid any unnecessary later tax liabilities? A deed of Transfer can contain a declaration of gift.
• Assuming my wife retained the property, upon the demise of her father, would the value of the gifted share be treated as “additional allowance”, effectively meaning IHT liability would be NIL, or would the value of the gifted half share be treated as “cash” which, coupled with his savings, would generate an amount of IHT payable? My understanding is that if his property shares gifted to his daughter and he no longer lives there then it would not be possible to claim the RNRB in relation to the this gift if he passes away within 7 years but other allowances would still apply.
• If this is the case presumably the seven-year sliding scale reduction would apply? Correct.
• Assuming my wife sold the property shortly after being gifted the half share, upon the demise of her father, would the value of the gifted share be treated as “additional allowance”, effectively meaning IHT liability would be NIL, or would the value of the gifted half share be treated as “cash” which, coupled with his savings, would generate an amount of IHT payable? See above
• If this is the case presumably the seven-year sliding scale reduction would apply? Correct
• If the property was sold now under its present ownership (i.e. Tenants in Common) could all proceeds be paid directly to my wife? If your FIL so wished but remembering that if it is gifted now and then sold by your wife the same position as above would apply whereby RNRB would not be available though other allowances would.
• If so, upon the demise of her father, would the value of the half share be treated as “additional allowance”, effectively meaning IHT liability would be NIL, or would the value of the gifted half share be treated as “cash” which, coupled with his savings, would generate an amount of IHT payable? See above
• If this is the case presumably the seven-year sliding scale reduction would apply? Correct
• If the property was sold now under its present ownership (i.e. Tenants in Common), with proceeds split equally between my wife and her father, I assume upon his demise his estate would be all “cash” and subject to IHT as appropriate? As to the part retainined by your FIL, RNRB could be applied if gifted under his will under the "downsizing relief element" introduced in the Finance Act. As to the part paid to your wife outright, MRNRB would not be available but if your FIL died within 7 years other allowances would along with taper relief.