Inheritance Tax Transfer

LackingKnowledge

My Mum died in April 2002 without leaving a will. She left about £5000 which went to my Dad. My Dad did not transfer her inheritance tax allowance to himself. At the time of her death my Dad wrote his will leaving his estate to me.
Now Dad has been diagnosed with a terminal illness and has drawn up a new provisional will. His estate is possibly worth £500000. Will there be Inheritance Tax to pay? I am very worried that I will have to pay the IHT out of my own funds which I don't have. I am not the only beneficary of his will but the other beneficiary has been left a large sum written as 'inheritance tax free'.

RayWolfe

IHT is paid out of the estate, before the beneficiaries get their slice.
You do not transfer IHT allowance, it transfers automatically.
It is unlikely that any IHT will be payable in this case.
If you are concerned, get a solicitor to draw up the new will. Cost? around £100. Worth it? Must be

LackingKnowledge

Thank you for the reply. My husband is the executor so any IHT will have to be paid after 6 months of the death. As the main asset of the estate is a house I doubt in the current climate that I would be able to sell it quickly so we may be in the situation of having to fund the IHT before receiving anything from the estate. I don't have the funds for this.
My Dad is using a solicitor to draw up the new will & he is aware that I might have to pay IHT. I think he feels that because I will eventually benefit from the estate that in the end it will be worth the trauma. I am wondering how I'm going to survive losing my remaining parent as well as having financial worries albeit that the finance should at some stage resolve itself.

John_Pierpoint

RayWolfe wrote: »

IHT is paid out of the estate, before the beneficiaries get their slice.
You do not transfer IHT allowance, it transfers automatically.
It is unlikely that any IHT will be payable in this case.
If you are concerned, get a solicitor to draw up the new will. Cost? around £100. Worth it? Must be

It is NOT automatic. You have to prove they were married and that the first to die did in fact transfer everything to their spouse.
(Or demonstrate what percentage of the nil rate band was not used up during the first death's administration).

http://www.hmrc.gov.uk/inheritancetax/iht402.pdf

This form is one of a family of forms in the IHT4xx series. I have recently sent in a wad of documentation and OVER 60 SIDES OF A4 forms for a modest estate; but it is over the single person nil rate band for IHT.

In the case of my relative's estate, I was able to get an embossed stamped copy of the "Letters of administration" from the Probate Registry for a modest fee. Hopefully this together with a marriage certificate and a covering letter saying that there were no children or parents alive at the first death will be enough, to claim the transfer.

I'm not sure what proof is acceptable if the first death was of an estate, so small that it did not need a grant of probate (eg where modest savings were in a joint account and nothing else required written change of title).

John.

(At a previous death I had a situation where an asset (house) sold and the transaction was CGT exempt, even if 100% of the sale price had been capital gain - BUT I still had to waste a day of my life finding the value back in 1980 something and calculating the indexation etc. so that some jobsworth would know how much CGT I would not be paying - be warned.).

Pee

Ok, you are right, it doesn't transfer automatically but it is claimed by the Personal Representatives of the second to die. Assuming they were legally married and both domiciled in England and Wales - probably the whole of the UK would be ok there - then your father will have a Nil Rate Band of twice the rate at his date of death, so £750,000 until next April. This is not so straightforward if either made large gifts during their lifetime, had property which was eligible for any IHT relief or had an alternatively secured pension fund.

The tax is payable in installments, with interest running, over 10 years, so if he was over £750,000 it would be 40% of anything over in intstallments. The money to pay IHT can be borrowed against a property if need be, but I don't think that will apply here.

p00hsticks

LackingKnowledge wrote: »

Thank you for the reply. My husband is the executor so any IHT will have to be paid after 6 months of the death. As the main asset of the estate is a house I doubt in the current climate that I would be able to sell it quickly so we may be in the situation of having to fund the IHT before receiving anything from the estate. I don't have the funds for this.

If the major asset is the house, then you can spread the IHT payments out into installments over up to ten years (or when the house is sold if sooner) - you only have to pay 10% of the total in the first six months

See her for further details from HMRC

http://www.hmrc.gov.uk/inheritancetax/paying-iht/yearly-instalments/index.htm

John_Pierpoint

Typo?
6 April 2009 xxxxxxxxxxx £325,000
6 April 2008 5 April 2009 £312,000
6 April 2007 5 April 2008 £300,000
6 April 2006 5 April 2007 £285,000
6 April 2005 5 April 2006 £275,000

16 August 1914 9 April 1946 £100
http://www.hmrc.gov.uk/rates/iht-thresholds.htm

s12s

most of whats been said already covers your question but just to add you will get the 100% of the first parents nil rate band so longs they were married and no other estate went to anyone other than the surviving parent. If any went to others then that would be taken to work out the % left to carry forward. You should not have any IHT to pay and to be very honest if the solicitor you have spoken to has not given you this info but has made you believe you will have IHT to pay then i would be a little concerned about just how good they are. If i made a client think they had to pay IHT on this i would think i should be looking for another job!

They would however be prudent to point out that you have no IHT so longs the requirements are met and at the time of your second parents death the law is as it is today but that really is the only reason for any doubt that IHT is payable.

LackingKnowledge

Thank you to everyone- I'm feeling a little calmer! I know what it was like to loose my Mum & I was dreading going through it again this time with potential financial difficulties. It was my father who spoke to the solicitor not me & it was my father who said that there might be IHT liabilities. This coupled by the fact that the other beneficiary has been left a sum 'free of inheritance tax' (this is actually written in the will) made me think I might be embarking on a rollercoaster.
I thought at the time of Mum's death that Dad was granted Letters of Administration to deal with her estate. Am I right in assuming that that would be proof of the value of her estate? Obviously with such a small amount of money left (£5000) it would be difficult to prove that Dad kept the money. The only evidence would be that the Bank paid the money into his account & not anyone elses.
As for the rest of the criteria they were legally married & domiciled in England.

localhero

Pee wrote:

your father will have a Nil Rate Band of twice the rate at his date of death, so £750,000 until next April.

Huh?

OP, your father will be entitled to leave an estate of 650k if he dies before the next tax year begins, otherwise it will increase to 700k from 6th April 2010.

It is customary to make specific cash gifts in a Will free of inheritance tax, so if there had been no previous large gifts made by either of your parents you have nothing to be alarmed about.

Keep all the paperwork to do with the letters of administration as well as the marriage certificate etc, and you shouldn't have too much trouble claiming the additional tax allowance.

John_Pierpoint

My grandmother did that.
She tried to parcel out everything free of taxes.
Funny thing the first beneficiary to get paid - the chancellor of the exchequer - did not leave enough behind for the rest of them to get what she promised them.
Thus creating a generation of debt and discord - no prizes for guessing who had the unpaid job of sorting it out.
Thanks heaven for inflation.

Looks like economic history is about to repeat itself.