Inheritence tax and intestacy

sakt77

First time posting so after some advice.
My Fiancees dad dieed 27th of December aged 71 and it was out of the blue.
He was a self employed Accountant who worked from home up till the day he died.
He re married and had a son. So there his wife my Fiancee, her sister and their half brother left behind.
Now they've just found out he left no will (Great!) so he Intestacy and now they are going to be screwed over for Inheritence tax- His property is probably worth around £350'000 ( although could be more if they get planning permission- alot more) and then there's the rest of his money and business etc so easily over the threshold. So lets say £450,000 as a figure
Are they stuck or is there anything they can do?
I gather they only pay 40% on anything over the limit?

I cannot beleve her father never made a will- a bloody accountant aswell:eek:

Any advice appreciated

wise_fool

Oh dear - I'm sorry to hear that.

Unfortunately, the intestacy laws can create a bit of a mess, as under the rules the spouse receives the first 250k with a 'life interest' in the remaining 50%. His blood children receive the other 50% between them, and then when the spouse dies the capital that formed her life interest will be divided between his children.

If certain conditions are met his business may be exempt from IHT.

However what goes to his wife will be exempt from IHT and what goes to his children now (assuming they are all 18) will only use up part of his 325k IHT threshold - so on the face of it there will be no IHT liability.

So on a practical level this creates a bit of a mess - but moving further forward, the outcome may not be that desirable for your fiancee and her sister. For his widow (and your fiancee's stepmother) can ultimately leave 'her' 250k to whoever she wants - which may mean the half brother.

This is probably not what the guy would have wanted and is the law of 'unintended consequences'. Are you sure there was no will?

sakt77

Thanks for the reply.
At the minute they've found a will from 1981 but he's divorced and re married since then. They cannot find another will in his office or files.
I myself cannot beleive he's not made a Will?

CLAPTON

can you clarify about the ownership of the house and other property
is the house jointly owned?
are any saving accounts jointly owned?

etc.

dzug1

The other solution is to execute a Deed Of Variation such that the estate is more 'equitably' distributed.

Those adversely affected would have to agree to this though. Given that there are no IHT reasons for doing so , it may be a non-starter.

sakt77

CLAPTON wrote: »

can you clarify about the ownership of the house and other property
is the house jointly owned?
are any saving accounts jointly owned?

etc.

No the house was in his name and they didn't have a joint bank account. He actually paid his wife a wage each month ( not an accountant so not sure why)..she did do some paper work for him.
So the business is in his name and the house solely in his name
As far as savings accounts- they are in his name.
An accountant is looking thru his ( deceased) business and is going to offer some sort of recompense for it..he's not been back with a value yet as my fiancee's dad is still owed money from customers e.g £12'000 from one etc

John_Pierpoint

sakt77 wrote: »

He actually paid his wife a wage each month ( not an accountant so not sure why)..she did do some paper work for him.

Does step mother have independent means of her own?

If not the "wage" father pays her is to mop up her income tax personal allowance and possibly avoid some of that other income tax called NI.

Alternatively if father is a 40% tax payer and step mum is a 20% payer, same comment applies.

How old is step mum?
How old is their son?
What is the structure of father's business ? Sole trader or limited company? (presumably no "partnership" involved ?)
How old are father's daughters?
Presumably father did not live in self governing Scotland?

Are there any of those "special" assets: Farmland, Woodland, Land with "hope value" as intimated above, interests in trusts, Life insurance written in trust, unquoted, Venture Capital Trust or AIM listed shares, overseas assets, pension funds........................


I think I know the answer to this question, but can someone explain the IHT (and "care-home") treatment of the Interest in Possession (life interest) trust the intestacy has created for step mother - now and when step mother eventually dies?

wise_fool

John_Pierpoint wrote: »

I think I know the answer to this question, but can someone explain the IHT (and "care-home") treatment of the Interest in Possession (life interest) trust the intestacy has created for step mother - now and when step mother eventually dies?

I think you probably do, too - however:

IHT - when the stepmother dies, the value of her estate for IHT purposes will be the assets of her own - which will of course include the 250k - plus the value of the life interest.

If she has got assets of her own already, there's the strong possibility her estate will exceed the nil rate band and she would have to claim the 'unused' part of her late husband's nil rate band. If after claiming the unused nil rate band there is an IHT liability, IHT will be apportioned between her own assets and the assets that form the life interest.

Care fees means test -
A) capital - the capital value of the assets that she owns that will exclude the life interest (as that capital doesn't belong to her)

income - the income she enjoys which will include what the life interest produces.

If there is the potential for a future IHT liability then some estate 'planning' would be in order in the near future.

John_Pierpoint

So the (2nd) wife inherits her life interest tax free, together with the 250K she gets absolutely. as both are payments to a legal partner. The life interest (Interest in Possession's) capital is protected against care home fees and when the 2nd wife dies the three children will get 1/3rd each.

However this used to be the position prior to the 2006/07 changes to trust taxation (?!?)
less any IHT liability averaged over her whole estate including the value of the Interest in Possession.
(This is what happened when my great aunt was left the use of my grandmother's home and then died in 1995).

Provided the value of the Interest in Possession trust is less than the Nil Rate Band, (currently £325K) it is not subject to periodic charges of IHT every 10 years and on exit, can hold over its CGT gains so making it a useful way to being sure that the widow gets the benefit of the capital but cannot destroy it. 325K should be enough to provide most widows with a suitable home?

(I post this after grubbing about on the net and on this forum:

http://www.estatesortrusts.co.uk/how-is-an-interest-in-possession-trust-taxed.html

http://forums.moneysavingexpert.com/showthread.html?p=6523093&highlight=#post6523093

Please correct me of I've got it wrong),

sakt77

Answered in Bold..cheers

John_Pierpoint wrote: »

Does step mother have independent means of her own? Yes she teaches at College full time

If not the "wage" father pays her is to mop up her income tax personal allowance and possibly avoid some of that other income tax called NI.

Alternatively if father is a 40% tax payer and step mum is a 20% payer, same comment applies.

How old is step mum? 48 i think
How old is their son? 18 Years Old
What is the structure of father's business ? Sole trader or limited company? Sole trader but not 100% sure on this
(presumably no "partnership" involved ?) NO
How old are father's daughters? 29 and 27 years old
Presumably father did not live in self governing Scotland? NO

Are there any of those "special" assets: Farmland, Woodland, Land with "hope value" as intimated above, Not sure but the land his property is quite large and if they gained planning permission the value of the house would be alot lot more
interests in trusts, Life insurance written in trust, unquoted, Venture Capital Trust or AIM listed shares, overseas assets, pension funds........................ Unsure of any of these at the min i'll get back on this

John_Pierpoint

All those inheriting an interest are adults - so they are capable of agreeing a Deed of Variation and there is no automatic trust created for the son.

You could have an interesting discussion with the VOA (Valuation Office Agency) still better known as the District Valuer, but as we all have access to the values of land sales these days, the Valuation Office is probably over worked and prepared to haggle on valuations.
(I've twice managed to get a reduction in the third case we used the sale value as there was no IHT payable any way.)

I know of someone with a small bungalow on a large corner plot, who was offered well into 7 figures by a developer, wanting to demolish the bungalow at the height of the boom..

The value for IHT is the value on the day of death, though you can substitute the actual value for a sale within 3 years in a falling market. In a rising market you should be able to argue that the increase is subject to CGT in the hands of the beneficiaries; where it would be subject to individual nil rate bands and costs of sale are allowable expenses..