Inheritance tax when surviving spouse dies

bodOrange_2

As I am executor of an elderly relatives will, I am looking into DIY probate. I am collecting the required forms and information but I am stuck on how to proceed with inheritance tax.

When her husband died in 2002, everything was left to her (the deeds of the house changed from his name to hers and joint bank accounts changed to her solely).
In her will, she leaves everything to her daughter (only child). I estimate the total estate will just exceed the IHT threshold (£325K?) but that is dependent on the value of the single property involved.
I'm led to beleive that, because her husband left all to her, his nil rate band allowance is passed on to his wife, making hers £650K. Is this correct?

Now, when it comes to submitting the HMCR forms, there is IHT200 and IHT400. Which to use seems dependent on knowing whether estate will be subject to inheritance tax.

In this situation where the estate likely falls between the single persons IHT and the combined one (which I beleive/hope is applicable here), do you have to fill in the long form regardless (ICH400)?

Also, what evidence do the HMCR require for the combined threshold to be recognised and does this have to be established before choosing or submitting the form?

I've been searching the forums and have come quite a way but can't find an answer to these questions.

Any help is much appreciated.

Thanks.

nicter

Pretty sure Im right in saying Inheritance tax is due on an estate and thresholds are per estate not per person. This link could be helpful to you
http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm#3

bodOrange_2

nicter wrote: »

Pretty sure Im right in saying Inheritance tax is due on an estate and thresholds are per estate not per person.

Thanks nicter.

moneysavingexpert.com/family/inheritance-tax-planning-iht say that a husband's nil band allowance is passed on to the wife in the event he leaves everything to her. I have also heard similar from other people too. So, when the wife dies, the estate has a nil rate allowance of double the threshold at that time. i.e. it's calculated based on percentages of the husbands allowance rather than absolute amounts.

I feel this applies in this case. If it does, then I'd like to know how to proceed: Just submit form IHT200 and assume the higher nil band rate applies or what? Presumably you have to prove to HMRC that it does apply.

Old_Wolf

The transferable nil rate band would apply as a percentage of that available when the second spouse dies. So if your Father did indeed leave the whole estate to your Mother, then on her death she has 100% of his allowance (as at the date of her death, not his i.e. the higher amount) as well as her own allowance - i.e. twice the nil rate band at her date of death.

This is complicated slightly if your Father left anything at all to someone other than your Mother, as the nil rate band available would be the percentage of that left at his date of death. In other words, if he left a small legacy of £10K to a friend, and the residue to your Mother, and (for the sake of simple maths) the nil rate band at the time of his death was £100,000 then 90% of the current nil rate band of £325,000 would be available to transfer to your Mother. (Note that the nil rate band in 2002 wasn't £100K I just wanted an easy example!)

As far as the forms go, I'm in Scotland so things are slightly different here, however as far as I can see in England/Wales you can only use the IHT200 form if the estate is an "excepted estate" which, in rough terms, means worth less than the single nil rate band, or everything in the estate over the nil rate band goes to a spouse/charity, or person was of foreign domicile with UK estate of less than £150K.

As this doesn't apply in this case, you would need to fill in form IHT400 (main form) as well as the supplementary page IHT402 "claim to transfer unused Inheritance Tax nil rate band" - both are available from the HMRC website, as well as any other supplementary pages you need. I know the forms seem a nightmare, but you'll find most of the boxes don't apply and to be fair to HMRC, the help forms given with the IHT400 is excellent.

In short then, you can transfer the nil rate band and "claim" the full £650,000 - but you have to do it via the longer form rather than just declaring the £650,000 as a nil rate band on the short form, which I would imagine would be rejected by HMRC.

Hope that helps!

bodOrange_2

Old_Wolf wrote: »

Hope that helps!

Many thanks Old Wolf. That was incredibly helpful. The husband left everything to his wife (my grandmother). So looks like the full nil rate transfer will applly. Like I said, the estate will only be a little over the 325K limit, however the fact he did not leave anything to anyone else will hopefully simplify completing the forms. Thanks again.

Mojisola

Although it doesn't affect the estate you're dealing with, any money held in joint accounts isn't counted as part of an estate. The money held in joint accounts is owned by both named persons so when one dies, the money belongs to the survivor.

getmore4less

To start you neeed PA1 and IHT205 and the notes that go with it.

The probate pack should have these.


Try to fill in IHT205 and you will find if you need to use IHT400 and the suplimentry pages.

IHT402 for nill rate band transfer if you do.(which you probably will)


The best place to search for IHT issues is the HMRC site.
For the info to support a nil rate band transfer this one helps.
IHTM43012
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM43012.htm

You will find it usefull if you can dig out the previous estates docs do you know who was executor at that time?


I have found the notes etc to be very usefull and the helplines and tax people are quite OK with DIY probates and helpfull.