IHT question

billy78

Hi all,

hoping some of you can give me some clarity on my situation.
A few years ago (2007) an elderly friend gifted my wife and I 90K (45K each). Unfortunately she passed away last November.
I'm aware that we are likely to have to pay IHT on this gift now.

Our friend had a reasonable estate. She owned her house (~210K) had just sold her other home for 200K, had approx. 100K in the bank and a few more investments probably totalling 30k approx.

The problem is, we haven't heard anything yet as to what we are required to pay.
Who do I chase on this?
How much are we likely to owe in tax?

Hope someone can shed some clarity!

Thanks, Bill.

blackshirtuk

It is my understanding that the IHT is payable by the estate. The executor would have take into account any gifts within 7 years and pay the tax accordingly.

you could contact the executor and offer to repay some money, or you could wait for them to contact you.

they might not know of these gifts and not declare them to hmrc.

Difficult to work out the IHT liability without full knowledge of the estate, she may have made other similar gifts.

SeniorSam

HI Bill,

The liability for any IHT on her estate is the responsibility of the Executors to pay from the estate and not you. If she made the gifts to you and your wife and she died within the 7 years, then any additional tax that those gifts may attract to her estate is the estates responsibility and need not come out of your gifts, unless you feel you would like to be generous.

Gifts made to others are usually made in good faith and unless she stated that if she died within the 7 years, any tax liability would have to be met by you and your wife, then your gifts are not taxable.

Are you sure that her estate is liable for IHT? If she was married and her husband died before her, leaving his assets to her, the there are two nil rate band allowances free of tax before IHT is chargeable. So £650,000 before tax.

Hope this helps

Sam

billy78

Thanks both.
She was unmarried, no children.
Unfortunately we are aware of a letter stating that we'd be liable for tax if she died within the seven years. We believe this was forced upon her by a relative of hers who was also her solicitor! She didn't really get on with the rest of her family and was certainly closer to us.
On the basis that this letter exists, what (ie, how much!) tax are we liable for?

John_Pierpoint

The deceased died with a 325,000 exempt allowance.
Her estate included two 45,000 gifts, called potential exempt transfers PET's in the jargon.
The recipients of these gifts are potentially liable for any 40% InHeritance Tax (IHT) levied on them.
BUT
When completing the IHT400 "Self Assessment" type tax return, the executor will discover that in the calculation for IHT the full 90,000 value of the PET's mop up part of the 325,000 exemption and so are free of IHT.

Now it is possible that the deceased made other PET payments and so there is not enough nil rate band available to make all the PET's tax free and so there could still be some IHT liability on your gifts, but I doubt it.

we are aware of a letter - What does this mean ?
"My dear friends please sign and return the attached deed to confirm that you have read and understand that should you accept my offer of a gift, it comes with the following amendment to the normal statute law involved and the wishes that will be expressed in my will. Please retain (say) 40% of my gift so that you will be in a position to help my executor with any tax then due".
Such a situation may exist, I discovered something similar outside of a will in one of my elderly relative's deed boxes, a sort of secret trust?

In these circumstances you would be expected to pay the average rate of tax payable on the total estate (eg if the total estate was 650K including the PET given to you, then the liability to tax would be 40% of 325,000 = 130,000. Now 130,000 is 20% of 625,000 so 20% of 90,000 = 18,000.

However under statute PET's that are liable to IHT have a taper relief:

Tapering relief is available if death follows at least three, but less than seven, years after the gift:
Years between transfer and death
Percentage of full tax rate
Not more than 3 100%
More than 3 but not more than 4 80%
More than 4 but not more than 5 60%
More than 5 but not more than 6 40%
More than 6 but not more than 7 20%

Should you both be allowed to benefit from this legally or morally?

This could be a "nice little earner" for a STEP qualified solicitor, so advance with caution paying for proper advice if and when you need it.

I would keep this information under your hat and see what the executor does next - chews elbows?:mad::mad:

billy78

Thanks for the reply.
With regards to 'the letter', let me explain a bit more.
It wasn't until a year or so after receipt of the gift were we made aware of this (what would essentially seem like an addendum??). We have never seen the letter, so therefore nothing has been signed by us. Our friend popped over one day and told my wife that she was advised to do this.
I suppose my concern is that its now six months since her death, we haven't heard anything, but this 'letter' does suggest we should be paying.
Should I chase up the executor?

antrobus

billy78 wrote: »

We have never seen the letter, so therefore nothing has been signed by us.

And therefore is of no consequence.

billy78 wrote: »

Should I chase up the executor?

I wouldn't bother. There's nothing to chase.

billy78

Hi Antrobus, thanks for the reply.
I would certainly like that to be the case of course, but I really can't see how we are not liable to pay someting here.
I've been considering seeking advice from our solicitor and attempting to get this closed out either way through him.
Are you saying you'd just wait until you heard from the executor again?
Trouble is, we've been waiting to hear for over six months now!

dzug1

John_Pierpoint wrote: »

However under statute PET's that are liable to IHT have a taper relief:

Tapering relief is available if death follows at least three, but less than seven, years after the gift:
Years between transfer and death
Percentage of full tax rate
Not more than 3 100%
More than 3 but not more than 4 80%
More than 4 but not more than 5 60%
More than 5 but not more than 6 40%
More than 6 but not more than 7 20%

But ONLY if more than the nil rate band has been given away in PETs

By convention the executor has a year to wind the estate up before anyone has the right to start prodding them. I wouldn't do anything before then except maybe obtain a copy of the will from the Probate Office or register to be alerted when it's granted

However they will have already paid the IHT (6 month limit) or become liable for interest on it.

Have you had ANY contact with the executors? It may be that they have discounted the letter as invalid and have no need to contact you.

If/when they do you need to get them to justify the claim in detail both as to its validity and how it's been calculated.

It's always possible that given that as she didn't get on with her family that she has left the lot/most of it to charity, hence no IHT anyway

billy78

Thanks Dzug1,

So in theory the executor has probably paid the IHT on the estate - or should have by now.
Would this six month limit apply in the case of them 'chasing ' us for our contribution from our gift?

Thanks, Bill

billy78

The only contact we had with the executors occured approx 5 months or so ago. This was when we passed control of her finances across to them as we'd been looking after her bill payments, etc whilst she was in hospital. We mentioned that she'd gifted us the money, but they stated that they'd not looked at the estate yet. that's the last we've heard.