Can a limited company be considered a direct descendant for inheritance tax purposes?

I'm not sure what you are trying to achieve.
What would be the purpose of transferring the property to a limited company.
Does he plan to sell it, live in it or rent it out
Also what is the approximate value of the house, and you should probably also be thinking about the exit strategy... Will he want to leave it to someone at some point, is he likely to need the capital, will he use the rental income now or reinvest it
All of these are relevant to the best course of action and you will probably need to speak with a legal/tax specialist at some point (not me).

If he has kids, passing it direct to them could allow the rental income to be theirs and tax free

Interesting….
Deed of variation
My personal thoughts if director in the limited company then may be ok..:?
I believe grandma could have left to anyone as nil band…
You as benefactor asking via courts etc …. So could be favourable (my thoughts)

If OK for limited company then long term better as ‘investment’ rental, business etc

interesting from a tax perspective as if you transfer direct to the limited company via a deed of variation the company paid zero for it but if you want to draw that money out for personal use there would be a tax whereas if you received it in your personal name and sold it to the company at market value but instead of payment you provide a directors loan no money hands there is stamp duty but you can draw the value of the property out of the company tax free which sounds far more tax efficient. Not that I am a tax advisor but it would seem to make sense to receive direct and sell to the company to minimise tax long term

To a large degree, I concur with the comments made by Paul Fenton above.

However, you have not said anything about the value of the property, or the value of the estate, or any other beneficiaries. Nor have you said anything about your sons longer-term objectives, which he may not have considered fully given that there are several outcomes and opportunities for planning here.

If the value of the property is less than £325,000, and if there are no other beneficiaries, and if the value of the estate is less than £325,000 in total then the IHT position will not change if a Deed of Variation is made

I suggest you seek professional guidance by booking a Property118 tax planning consultation.

Hi Ricky
We require more information to be able to comment on your query about the implications the deed of variation might have on the estate’s eligibility for the residential nil rate band relief.

For example, we don't know the value of the estate, the value of a property, did grandfather make any lifetime transfers whilst he was alive.

Kind regards
Swati
P118 Property Tax Consultant

A deed of variation will mean the property bypasses your son, and goes to a body corporate which is not a lineal descendent. You don't mention of this was the deceased's home or not, if it were there will be no RNRB as it doesn't go to a lineal decendent. Unless your son is the only beneficiary, it is not his decision to make, as all the beneficiaries will have to agree to the deed of variation.

Reply to the comment left by paul fenton at 19/03/2024 - 11:58
I don't see any point in taking the proposed action unless it is to bolster the value of the company for another purpose.

Apologies for the late reply and thank you for your comments. Here is a little more info.
The inheritance rules state that a £350k per couple allowance is available if property given to direct descendant. The property is worth £400k. We need this allowance to be valid or we would have to pay significant inheritance tax.
The direct descendant's ambition is to build an investment property company.
If he first inherits in his personal name then transfers to a company there is SDLT to pay (This will be his first investment property).
He would rather not have to pay the SDLT hence wanting to check if company can be a direct descendant on basis direct descendant owns 100% shareholding in the company.

Reply to the comment left by Swati at 19/03/2024 - 12:58
Hi See comment above. I would say that I fully understand the inheritance tax rules the total estate is less than the £1m couple's allowance.

There are no lifetime time transfers to consider.

HMRC have confirmed that as it stands there is no tax to pay.

Obviously by changing the beneficiary from direct descendant to direct desendant's company that may trigger loss of residential nil rate band relief and thus an inheritance tax bill.

I'm pretty sure it cannot be left to a limited company as that is not a descendant. But not 100% sure. However if he inherits it in his own name and then transfers into the ltd company (not sells) - presumably in advance of a remortgage - you are incorrect, there is no SDLT to pay as no money has been transferred.
https://www.gov.uk/guidance/stamp-duty-land-tax-transactions-that-dont-need-a-return