IHT - how are students supposed to pay?

Scooter7

Hi all,

I just wanted to raise awareness of a problem I incurred with Inheritance Tax. My dad died a few years back leaving our 3 bed house to my mum, his Life Assurance paying off the mortgage for her. She died a few years later when I had returned to full time education as a mature student. The estate was valued over the IHT threshold, although with the exception of about £3k that she had in the bank, all the estate value was in the house. She had been ill for a while and had no life insurance etc. I inherited the estate, and wanted desperately to keep my family home (not least as it was full of all my possessions as well those of my parents). This is where it got tricky, as I had to raise some £40k for IHT and Solicitors fees, but as a student I could not get a mortgage - the banks weren't interested in using the property as security as I had no income. I had to string out my payments to the Inland Revenue with silly rates of interest, until I had finished my uni course and was earning again when I could then get a mortgage to settle the remaining debt. It was a terrible time for me, compounded by a money grabbing incompetent solicitor, trying to study away from home, and trying desperately not to lose the only thing I felt I had left of my parents. Boo to the government for doing that to me. Its such a shame that there must be people in this country going through the same thing as I did. My heart goes out to them.

CLAPTON

I'm sorry for the loss of your parents.

As I recall the interest rate charged by the HMRC is quite reasonable.

Scooter7

CLAPTON wrote: »

I'm sorry for the loss of your parents.

As I recall the interest rate charged by the HMRC is quite reasonable.

Hi and thank you.

I guess it depends on which side of the fence you are at the time. The fact that as a student you can't postpone payment until the end of your course means that you have to find the money for the IHT payments whilst trying to pay rent, food, etc.with no real income, and also having to pay bills on the family home. I saved hard before going back into education but my course didn't afford me much spare time, so it was hard to earn extra money. I don't agree with IHT, but I do accept that I had to pay it. I just wish that for people who are now in the position I found myself in, there could be some consideration toward how they are supposed to cope with repayment.

Scooter7

As far as the interest, if you are struggling to pay the government for money that they want to take from you for inheriting something your parents worked their whole lives to afford (and that was owned outright in your family name), the fact that the only concession they can make is to allow you to pay it off in instalments (with almost immediate effect of course) but to charge you for doing so just adds insult to injury. All that is needed is a deferment until the person finishes in full time education.

Please understand Clapton, that this is response not levelled at you in any way whatsoever, just at the system!

CLAPTON

I would imagine the system didn't really cater for people in your specific sistuation i.e. students without any formal income... however being allowed to pay in installments with a modest interest rate is reasonable. I see no insult or any injury.

Whether or not inheritance tax is a reasonable way of taxing us in comparison with other alternatives is open to debate. It may well be that your parents worked hard for the family home but their offspring didn't.

In any event, althoguh through unfortunate circumstances you are now financially very well set up in life compared to most of your contemporaries.

Enjoy what you have.

sdooley

I take it you did the arrangement with the Revenue where you can pay the IHT on a house over 10 years. That would have been £4,000 plus interest each year. The installment scheme is set up to help people who inherit a valuable house they want to keep. It works ok for people who live in the house because the IHT for each year is much less than the rent would have been on an equivalent house. But that didn't work for you because you were temporarily elsewhere. It's quite an unusual situation you were in and unfortunately the law can't deal with every situation. Arguably you could have let the house out until you moved home, but I'm sure in the circumstances that was understandably the last thing on your mind.

As it happens, the new rules on IHT which allow the nil rate band to pass from husband to wife if unused (or vice-versa) effectively doubled the tax-free amount and with other increases this now allows £700,000 to pass tax-free to children. So now people would be much less likely to face your kind of situation (as people in £800K houses tend to have some cash on hand to meet tax when they die).

Scooter7

sdooley wrote: »

As it happens, the new rules on IHT which allow the nil rate band to pass from husband to wife if unused (or vice-versa) effectively doubled the tax-free amount and with other increases this now allows £700,000 to pass tax-free to children. So now people would be much less likely to face your kind of situation (as people in £800K houses tend to have some cash on hand to meet tax when they die).

Thats fantastic, I wasn't aware of that. The threshold was £275k at the time for me. Unfortunately the house wasn't in the condition where it could have been let without quite a lot of work. I understand however that if I was able to live there at the time it would have been a much better financial situation.

CLAPTON wrote:

I would imagine the system didn't really cater for people in your specific sistuation i.e. students without any formal income... however being allowed to pay in installments with a modest interest rate is reasonable. I see no insult or any injury.

Whether or not inheritance tax is a reasonable way of taxing us in comparison with other alternatives is open to debate. It may well be that your parents worked hard for the family home but their offspring didn't.

In any event, althoguh through unfortunate circumstances you are now financially very well set up in life compared to most of your contemporaries.

Enjoy what you have.

You know, I do try very hard to enjoy what I have, and granted, I have a house worth more than I would be able to afford on the same mortgage repayments had I not inherited, but I would give it all up in an instant to bring my parents back. I kept the house to keep close to my parents, not to keep up with the Joneses. I'll remember to make sure my 'offspring' work hard for what they get in life.

Its very hard not to bring emotion into this situation even though on paper it may seem extremely black and white, but when you are on your own, going through all that, all you want is some way to temporarily take the pressure off. At least it now sounds like the scenario of my initial posting will only affect a very small minority, and hopefully they can resolve their issues easier than I was able to.

John_Pierpoint

If I was a bank and someone wanted to borrow 4K a year against a 275K asset,
I would be very tempted to say yes.
Did HMR&C put a charge on the house making it impossible for you or the bank to sell it?

Scooter7

John_Pierpoint wrote: »

If I was a bank and someone wanted to borrow 4K a year against a 275K asset,
I would be very tempted to say yes.
Did HMR&C put a charge on the house making it impossible for you or the bank to sell it?

There were several issues as IHT was payable before the estate had been fully administered (and the deeds signed over to me). IHT becomes due 6 months after the date of death, but in my experience it often takes much longer than this to sort out an estate, so in effect I had to pay Inheritance Tax on an estate I was yet to inherit. There were no other funds for the solicitors to release so I became responsible for these payments. I also had valuations from 3 different estate agents, but the district valuers office refuted them all as my house is in an area where there are a few larger houses that had recently sold for far greater sums than my house was worth. The Inland Revenue still required IHT to be paid on a blind estimated property valuation that they agreed wasn't their final decision, and may change either way once they had sent a valuer out (which took many months and in the end they didnt even enter the house to do it). I was living in student accomodation, and all my belongings and those of my parents were in the house. Selling it just wasn't an option for me. If I had tried to sell, it would have required much modernisation to reach the value that was finally set for it, and at the time it would have just been too much for me to deal with. In hindsight, I guess I was just in a unique set of circumstances, and unfortunately the solicitors appointed as executors made matters worse by making several large errors, and charging me a heck of a lot, for something that could have been fairly straight forward. But I suppose what goes around comes around as they say.

Pee

It is the estate that pays IHT. You inherited it all yourself. Some people could be paying IHT on an estate where they "only" inherited a quarter share in the house...

I think the installment option for IHT works very well.

Did inheriting the money affecting your student grants?

Scooter7

Pee wrote: »

It is the estate that pays IHT. You inherited it all yourself. Some people could be paying IHT on an estate where they "only" inherited a quarter share in the house...

I think the installment option for IHT works very well.

Did inheriting the money affecting your student grants?

Very true, but IHT still had to be paid before I had actually taken ownership of the house so I still needed to raise the funds, and for a long period I didnt even own the property to use as security. Yes you could be paying IHT on a quarter share, but then at least that burden is also shared.

Grants were calculated while I was in full time employment prior to studying so was based on my income at the time. If I recall I only obtained a student loan which paid for my top up fees.