IHT / facing bankruptcy?

JWHAIL

I wonder if anybody can help with this please.
A young lady in our office is being faced with an awful situation due to IHT. Her father sadly passed away recently, he left her a house worth approximately £800,000 & £82,000 in cash. The father had a girlfriend who loved his house & a 10 year rent free lease was granted to her in the will for her to continue using the property. The problem is the IHT situation, the 20 year old young lady is now faced with an IHT bill for £222,800 & has absolutely no way of paying it.
The young lady is absolutely beside herself with worry & is facing bankruptcy. Is their nothing that can be done in this situation, it seems insane to me.

Any help / advice work be fantastic.

dojoman

I think she needs to seek proper legal advice on this matter. She could try talking to one of the debt charities, they may be able to help/point her in the right direction.

https://www.cccs.co.uk/
https://www.nationaldebtline.co.uk/
https://www.citizensadvice.org.uk/

StrawberryYogurt

Oh wow what a crazy situation I really hope it can be sorted out, seems so unfair.

JasX

yup, take proper advice. the fact that she can't access the asset for 10 years due to this Lease might well affect the value of it for IHT purposes. (ie she could have to pay IHT on the house value minus the value of a 10 year lease. girlfriend on the otherhand would need to pay IHT on the value of a 10 year rent free lease on an £800k property)

back of envelope calculation at discount factor 7% = about half of the £222k each, but do HMRC/the courts take account of value that way?

would she be able to pay 2/3 of a 110k bill and get come kind of (bridging?) loan on the remaining 30k? she'd end up needing to pay the interest on that but might find that more managable than comming up with 220k....

JasX

PS if it helps direct.gov.uk states

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/InheritanceTaxEstatesAndTrusts/DG_179347

""
Deadline for paying Inheritance Tax

In most cases, you must pay Inheritance Tax within six months of the end of the month in which the deceased died. After this, interest will be charged on the amount outstanding.
You can pay in annual instalments over ten years if the value of the estate is tied up in property such as a house.

"

JWHAIL

Thank you for your reply, it just seems crazy that she is liable for this much money when she cannot use the property. She wont be able to borrow money against it, she cant sell it & apparently if the girlfriend dies within 7 years she will get another huge IHT bill.
I just feel this situation is so very unjust & cannot believe she is saddled with this huge debt.

fermi

Hi.

I'm going to move this thread over to the Cutting Tax board for now, as obviously the first thing is to try and work out how to deal with this without anything as drastic as bankruptcy.

If you have specific bankruptcy related questions, then please post these back on the BR board. Hopefully it won't come to that though......

StrawberryYogurt

JWHAIL wrote: »

Thank you for your reply, it just seems crazy that she is liable for this much money when she cannot use the property. She wont be able to borrow money against it, she cant sell it & apparently if the girlfriend dies within 7 years she will get another huge IHT bill.
I just feel this situation is so very unjust & cannot believe she is saddled with this huge debt.

I bet her dad never realised he would be placing her in this position I have no idea how it works, but it seems unfair if the girlfriend does not have to pay anything towards the IHT as she is benefiting more then anyone.

Fingers crossed she doesn't die to!! The GF that is! :eek:

JWHAIL

Thanks JasX
I spoke to the tax office about this & they said IHT had to be paid on the full amount. The house is deemed to be a gift to the girlfriend, because the will did not state who was liable for IHT it has to be paid by the estate (my friend). Also if the girlfriend dies within 7 years the house reverts to the estate as another gift & therefore IHT is payable by my friend again.
If my friend wanted to sell the property with a 10 year lease (no rent) it would surely be worth a fraction of its true value. I would have thought you only paid IHT on the true value of the estate. But according to our nice tax office IHT has to be paid on the full market value without the lease.
So 20 years old she loses her father & faces bankruptcy, what a wonderful country we live in.

JWHAIL

StrawberryYogurt wrote: »

I bet her dad never realised he would be placing her in this position I have no idea how it works, but it seems unfair if the girlfriend does not have to pay anything towards the IHT as she is benefiting more then anyone.

Fingers crossed she doesn't die to!! The GF that is! :eek:

Their is no way he would have done this knowing the situation he would be putting his daughter in. If the girlfriend dies within the 7 years my friends total IHT bill could be as much as £450,000 on a house worth £800,000:eek:

StrawberryYogurt

She really has to get legal help, as soon as possible. This is an impossible situation for her to be in. I really do wish her so much luck. How awful.:(