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  • FIRST POST
    • Asher
    • By Asher 6th Jul 17, 11:11 AM
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    Asher
    How to value the Estate
    • #1
    • 6th Jul 17, 11:11 AM
    How to value the Estate 6th Jul 17 at 11:11 AM
    Can somebody explain how an Estate is valued if the main asset is a house and it is owned by a father (now dead) and his two adult children?

    One of the children had Power of Attorney and was on a joint bank account, that's me. Father had dementia hence the Power of Attorney and joint bank account but I did not want to bear the burden of it all and so the house was put in all 3 names. If only 33% of the house has to be declared then it is under the threshold for IT. How do you say that when all you have is a little box to fill in.


Page 2
    • Yorkshireman99
    • By Yorkshireman99 7th Jul 17, 5:54 PM
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    Yorkshireman99
    Thank you! I have had a look at a number of sites and again the answers are conflicting. Apologies to the OP for interrupting their thread. I suppose it illustrates the fairly blunt way IHT applies with rather than it being progressive particularly those with no children. Ce la vie!
    • getmore4less
    • By getmore4less 7th Jul 17, 7:16 PM
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    getmore4less
    Thank you! I have had a look at a number of sites and again the answers are conflicting. Apologies to the OP for interrupting their thread. I suppose it illustrates the fairly blunt way IHT applies with rather than it being progressive particularly those with no children. Ce la vie!
    Originally posted by Yorkshireman99

    Link to two you think are conflicting, it may be your interpretation of what they say is wrong.
    • Asher
    • By Asher 7th Jul 17, 7:49 PM
    • 142 Posts
    • 121 Thanks
    Asher
    Thank you! I have had a look at a number of sites and again the answers are conflicting. Apologies to the OP for interrupting their thread. I suppose it illustrates the fairly blunt way IHT applies with rather than it being progressive particularly those with no children. Ce la vie!
    Originally posted by Yorkshireman99
    I don't mind I am learning a lot from the back and forth posting.
    • Yorkshireman99
    • By Yorkshireman99 7th Jul 17, 8:41 PM
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    Yorkshireman99
    Link to two you think are conflicting, it may be your interpretation of what they say is wrong.
    Originally posted by getmore4less
    Than you and thanks to the OP for their forbearance. What would really help me is two worked examples. For the sake of argument please use these hypothetical figures.


    A had net estate of £500,000. In January 2014 they gift £106,000 to a B, a friend. They have made no other significant gifts before and so are eligible for two year £3,000 allowances. Hence the AIUI the PET is £100,000. If A dies in July 2017 and has a net estate of £450,000. What IHT is payable and by whom?


    Second scenario.


    A survives until 2021 and leaves estate valued at £500,000. I assume that the gift no longer get added bck to the estate value and IHT is payable on the excess above £325,000 with the gift recipient paying nothing? TIA
    • Keep pedalling
    • By Keep pedalling 7th Jul 17, 9:46 PM
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    Keep pedalling
    Than you and thanks to the OP for their forbearance. What would really help me is two worked examples. For the sake of argument please use these hypothetical figures.


    A had net estate of £500,000. In January 2014 they gift £106,000 to a B, a friend. They have made no other significant gifts before and so are eligible for two year £3,000 allowances. Hence the AIUI the PET is £100,000. If A dies in July 2017 and has a net estate of £450,000. What IHT is payable and by whom?

    That would depend on their marital status, and if they owned a home they leave to children or not. If single or divorced with no property to leave to children, then 40% of £125,000 assuming your net figure includes the £100k gift

    Second scenario.


    A survives until 2021 and leaves estate valued at £500,000. I assume that the gift no longer get added bck to the estate value and IHT is payable on the excess above £325,000 with the gift recipient paying nothing? TIA
    Originally posted by Yorkshireman99
    Again depends on marital status etc.
    • Yorkshireman99
    • By Yorkshireman99 7th Jul 17, 9:48 PM
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    Yorkshireman99
    If I have understood you correctly. Unmarried and no children.


    At DOD estate is £500,000 in 2017 with gift of £106,000 made in Jan 2014. So is the IHT calculated on £500,000 plus £100,000?



    Secenario 2



    Estate at DOD in 2021 is £500,000 but gift not added back so IHT calculated on £500,000. TIA
    Last edited by Yorkshireman99; 07-07-2017 at 10:08 PM.
    • getmore4less
    • By getmore4less 8th Jul 17, 6:17 AM
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    getmore4less
    Than you and thanks to the OP for their forbearance. What would really help me is two worked examples. For the sake of argument please use these hypothetical figures.


    A had net estate of £500,000. In January 2014 they gift £106,000 to a B, a friend. They have made no other significant gifts before and so are eligible for two year £3,000 allowances. Hence the AIUI the PET is £100,000. If A dies in July 2017 and has a net estate of £450,000. What IHT is payable and by whom?

    you start with the failed PET that uses up £100k of nil rate band leaving £225 of the deceased own nil rate band

    then you add, RNRB if applicable, transferable nil rate band(s) if applicable.

    Of the £450k there may be exempt legacies like to a spouse or charity they come off the total, then you use up the nil rate band.
    anything left is Taxable by the estate.


    Second scenario.


    A survives until 2021 and leaves estate valued at £500,000. I assume that the gift no longer get added bck to the estate value and IHT is payable on the excess above £325,000 with the gift recipient paying nothing? TIA
    Originally posted by Yorkshireman99
    if the PET does not fail you miss of the first bit using up nil rate band.


    these are really basic examples still think you would be better off picking 2 of the ones you think are conflicting and getting someone to explain them.

    a lot of older examples will now be wrong as they won't include the RNRB.

    the adding gifts back into the estate can be confusing because you calculate the tax on the gifts separately and that is paid by the gift not the estate. and get taken off the total(if you use the add back method) far better to just use the use up the nil rate band method.
    Last edited by getmore4less; 08-07-2017 at 6:30 AM.
    • Yorkshireman99
    • By Yorkshireman99 8th Jul 17, 6:48 AM
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    Yorkshireman99
    The problem is that all the examples I have seen complicate matters with ifs, ands, buts and maybes! The examples I gave are a real world situation that I have been discussing with someone. I just want a straightforward answer to the exact question asked. If that would not be too much trouble please could you tell me? Thanks.
    • getmore4less
    • By getmore4less 8th Jul 17, 8:10 AM
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    getmore4less
    The problem is that all the examples I have seen complicate matters with ifs, ands, buts and maybes! The examples I gave are a real world situation that I have been discussing with someone. I just want a straightforward answer to the exact question asked. If that would not be too much trouble please could you tell me? Thanks.
    Originally posted by Yorkshireman99
    Done that already.
    • Yorkshireman99
    • By Yorkshireman99 8th Jul 17, 9:10 AM
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    Yorkshireman99
    Done that already.
    Originally posted by getmore4less
    Thank you for being your usual helpful approach.
    • Keep pedalling
    • By Keep pedalling 8th Jul 17, 9:34 AM
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    Keep pedalling
    Adding gifts back into the estate can be confusing because you calculate the tax on the gifts separately and that is paid by the gift not the estate. and get taken off the total(if you use the add back method) far better to just use the use up the nil rate band method.
    Originally posted by getmore4less
    Good point. If the receiver of the gift is also the regularly beneficiary then the effect is the same, but if you want to give someone else a gift and want to ensure they don't pay tax on it you need to do one of two things, either set up a term insurence policy that will cover the IHT on the gift (made in trust to the person receiving the gift) or you amend your will to leave them an additional legacy equal to any IHT payable on that at time of death.

    The term life policy is a good way of covering IHT for PETs given to residuary beneficiaries as well,
    • Keep pedalling
    • By Keep pedalling 8th Jul 17, 9:38 AM
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    Keep pedalling
    If I have understood you correctly. Unmarried and no children.


    At DOD estate is £500,000 in 2017 with gift of £106,000 made in Jan 2014. So is the IHT calculated on £500,000 plus £100,000?

    That is correct, and as GM4L has pointed out the responsibility for the tax on the £100k is with the recipient

    Secenario 2



    Estate at DOD in 2021 is £500,000 but gift not added back so IHT calculated on £500,000. TIA
    Originally posted by Yorkshireman99
    Also correct the PET is now totally exempt.
    • getmore4less
    • By getmore4less 8th Jul 17, 9:50 AM
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    getmore4less
    That is correct, and as GM4L has pointed out the responsibility for the tax on the £100k is with the recipient
    Which happens to be Zero.

    All the tax due is by the estate
    • Yorkshireman99
    • By Yorkshireman99 8th Jul 17, 11:19 AM
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    Yorkshireman99
    Which happens to be Zero.

    All the tax due is by the estate
    Originally posted by getmore4less
    The tax falling on the recipient if the donor does not survive seven years is what is the problem in the case I was discussing off forum. It seems that the donor had not been told that the tax might fall on the recipient. The recipient is not in a position to pay as the money was used to pay off a loan. Howver the donor has willed the remaining bulk of their estate to the donee so I suppose who pays is largely academic. It still seems bizarre to me that taper relief should not apply regardless.
    • getmore4less
    • By getmore4less 8th Jul 17, 12:04 PM
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    getmore4less
    The tax falling on the recipient if the donor does not survive seven years is what is the problem in the case I was discussing off forum. It seems that the donor had not been told that the tax might fall on the recipient. The recipient is not in a position to pay as the money was used to pay off a loan. Howver the donor has willed the remaining bulk of their estate to the donee so I suppose who pays is largely academic. It still seems bizarre to me that taper relief should not apply regardless.
    Originally posted by Yorkshireman99
    If the gifts in the last 7 years were under the nil rate then the recipients are not liable for any tax.
    • cte1111
    • By cte1111 8th Jul 17, 12:38 PM
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    cte1111
    Just to add - taper relief does not apply if the donor still lives at the house, unless they pay full market rent for the share they do not own.

    So the house is likely to be considered as part of the estate, as the transfer will be seen as a gift with reservation.

    Despite this, there will be CGT to pay on the increase in value between the date of transfer and the date of sale. This may be zero, as each recipient will likely have their annual CGT allowance to pay.

    I wish people wouldn't give the taper relief advice, it is completely incorrect and misleading not only to the OP, but also to other lurkers who might then do something similar themself.

    In short - transferring a house to your children's names for 'simplicity' or any other excuse is very unlikely to be a good idea, no matter how long they live afterwards it is likely to cost in more tax rather than save. I also wish people would be honest and admit that the reason they are doing this is usually to avoid hypothetical future care costs rather than other vague excuses. Sorry rant over.
    • getmore4less
    • By getmore4less 8th Jul 17, 12:53 PM
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    getmore4less
    The tax falling on the recipient if the donor does not survive seven years is what is the problem in the case I was discussing off forum. It seems that the donor had not been told that the tax might fall on the recipient. The recipient is not in a position to pay as the money was used to pay off a loan. Howver the donor has willed the remaining bulk of their estate to the donee so I suppose who pays is largely academic. It still seems bizarre to me that taper relief should not apply regardless.
    Originally posted by Yorkshireman99
    Thinking about it, if this is the example(single 100k gift) you asked about you have clearly not understood anything, as neither IHT on the recipient or taper relief apply to that case.

    I am even more convinced it is your (mis)understanding that makes you believe there are conflicting sites.

    Give examples of where you think there is conflict.
    Last edited by getmore4less; 08-07-2017 at 12:57 PM.
    • Yorkshireman99
    • By Yorkshireman99 8th Jul 17, 2:37 PM
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    Yorkshireman99
    Just to add - taper relief does not apply if the donor still lives at the house, unless they pay full market rent for the share they do not own.

    So the house is likely to be considered as part of the estate, as the transfer will be seen as a gift with reservation.

    Despite this, there will be CGT to pay on the increase in value between the date of transfer and the date of sale. This may be zero, as each recipient will likely have their annual CGT allowance to pay.

    I wish people wouldn't give the taper relief advice, it is completely incorrect and misleading not only to the OP, but also to other lurkers who might then do something similar themself.

    In short - transferring a house to your children's names for 'simplicity' or any other excuse is very unlikely to be a good idea, no matter how long they live afterwards it is likely to cost in more tax rather than save. I also wish people would be honest and admit that the reason they are doing this is usually to avoid hypothetical future care costs rather than other vague excuses. Sorry rant over.
    Originally posted by cte1111
    Thank you. You have got to the root of the problem. Most of the sites include examples that don't cover the very simplistic case I have been discussing with someone off forum who has no internet access. That was why I asked for specific answers to ta specific situation. The replies that cover other, more complex scenarios are, frankly, of no interest whatsover to me at this time. The person I have been discussing it with, and myself, have become thouroughly confused by the whole thing partly because he was told, by his, now ex, IFA that the tax would be subject to taper relief. Maybe we are just plain stupid! As we now think we understand it taper relief is a red herring in the specific case we are concerned with. So until the seven years have expired the whole of the gift is added to value of the donor's estate for the calculation of IHT. This is not a particular problem to the donor, they just want to know the facts! To GM4L I would just say that making slightly snide remarks, really is not in the spirit of the forum. Instead of answering the specific question, not for the first time I might add, you chose instead to complicate matters just to show off your own knowledge. Please desist!
    • getmore4less
    • By getmore4less 8th Jul 17, 3:50 PM
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    getmore4less
    To GM4L I would just say that making slightly snide remarks, really is not in the spirit of the forum. Instead of answering the specific question, not for the first time I might add, you chose instead to complicate matters just to show off your own knowledge. Please desist!
    Originally posted by Yorkshireman99
    I provided the simple answer and covered the key information to cover the potentially missing basic facts.

    For someone that claims to have administered many estates, failed PET's in the last 7 years that total less than the nil rate band should be something you have nailed for IHT as the same rules apply to any non exempt gift from £1 up to the nil rate band.

    There are loads of examples of how failed PETS work.

    somthing like this covers basic and more complex cases
    http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0320

    it predates RNRB which may or may not be relevant to your simple case.

    very surprised you believe that CTE111 post clarifies it for you as that was referring to gift with reservations not PETS.

    why did you piggyback this thread rather than start a new thread with the full details of the case you were discussing?
    Last edited by getmore4less; 08-07-2017 at 3:59 PM.
    • Yorkshireman99
    • By Yorkshireman99 8th Jul 17, 5:43 PM
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    Yorkshireman99
    Since when are you the arbiter of what, when and where anyone should post? That is the function of the board moderators not some self appointed know all. As it happens, with one exception, I have never had to deal with an estate that had a significant gift before that might have affected IHT. All but one of my friends or relatives had little money to leave. For the one that did I took paid for advice on the valuation and IHT submission rather than rely on some unknown, unqualified, and I am bound to say arrogant, person on a forum who delights in showing off. Instead of answering the questions you often spout an excess of complicated detail rather than trying really help the poster. You may think you are king of the search engine but in reality many legal answers need knowledge of the underlying principles. With respect, as we say in the North consider winding your neck in a bit.
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