InherItance Tax

Al_Ross

Is this correct according to a financial advisor, money inherited does not get released until any inheritance tax due gets paid first by the person receiving the inheritance.

Or can they pay it out of their inheritance ?

le_loup

The money comes from the estate. The money cannot be distributed until IHT is paid.

Al_Ross

So the information give by our advisor was incorrect, he tried to get us to take out a policy for our son so he could pay off it off as he said our son would need to be able to pay it off before he could recieve his inheritance.

CLAPTON

Al_Ross wrote: »

So the information give by our advisor was incorrect, he tried to get us to take out a policy for our son so he could pay off it off as he said our son would need to be able to pay it off before he could recieve his inheritance.

that might indeed be very good advice depending upon your circumstances


your son won't be able to get his inheritance until the IHT was paid; albeit that the IHT is paid from the estate

if your son is the sole heir then the difference whilst legal is fairly irrelevant

getmore4less

There is a catch 22 with IHT.

To get probate HMRC will want to asses the IHT tax situation and in most cases will want some/all paid, there are some cases(property) where this can be done in instalments after probate.

A good Idea is to go through a trial run with PA1 and IHT400.

fairly simple process to try out and get an idea of the process

John_Pierpoint

getmore4less wrote: »

There is a catch 22 with IHT.

To get probate HMRC will want to asses the IHT tax situation and in most cases will want some/all paid, there are some cases(property) where this can be done in instalments after probate.

A good Idea is to go through a trial run with PA1 and IHT400.

fairly simple process to try out and get an idea of the process

PA1 & IHT4xx are the self assessment forms for Inheritance tax and they have their own weird and wonderful rules for filling them in
[For example the deceased had a modest clerical job and owned his own house Etc. Etc.]
Q. How many printed pages of forms did I have to fill in by the time I had completed the IHT400 and its ancillary forms? (The answer to this quiz question is at the foot of this posting)]

Depends how simple the estate is, it even links to how much income tax the beneficiaries pay in certain circumstances.

The financial adviser is trying to get the family to set up a life insurance policy "in trust" that will pay out enough cash to pay the IHT, so the family can carry on without the effect of a grenade going off in its finances.
(It will also generate a payment to the adviser - surprise!)

The other choice is simply to pay the 40% levy on the net worth above the nil rate band (likely to be in the range £325K - £650K depending on "legal partnership" status in previous life).
A bachelor living in a £1,000,000 house, with no mortgage and only pensions that die with him, leaves a cash flow problem; especially so if he leaves a live in girlfriend or relatives that share the accommodation or even part ownership of the house and its land.

£1,000,000 - 325,000 = £675,000 @ 40% = £270,000 tax take.

[HMRC would like at least the first stage payment, one of ten, within 6 months of the death, ie £27,000 when interest on the remaining £243,000 will start being charged as it is appreciated that land cannot be liquidated overnight. You thought the property had been paid for but now you are buying back 27% of it from the government over 10 years??!!]
http://www.hmrc.gov.uk/payinghmrc/inheritance.htm#12


There is no substitute for understanding the basics of the IHT tax system.

http://www.amazon.co.uk/Giving-Inheriting-Which-Essential-Guides/dp/1844901181/ref=sr_1_1?s=books&ie=UTF8&qid=1321715145&sr=1-1

A sensible investment of £25

John.

A. Sixty printed pages = Quiz answer (OK some of them read £0.00 + £0.00 = £0.00)

getmore4less

PA1 & IHT4xx are the self assessment forms for Inheritance tax and they have their own weird and wonderful rules for filling them in


By doing them as a trial run it leads to asking the sort of question you will need the answers for when the time comes for real and can start looking.
It is a lot easier to ask the living for some of the answers than trawling through paper work .

Also if you can you can get the paper work in order before the time comes it makes it easier to do the initial assesment and kick start the process(things like the addresses to make the initial notification and ask for the statement to DOD)

Agree there are a few good books that cover the ground quite well, I got 4 of them from the library and they made a good read along side the actual forms.

If you are going to insure you need to know for how much anyway or it might be that there are assets in suitable form that can be released before probate for payment of IHT.

John_Pierpoint

Having only discovered that I was sole executor after the death, I one hundred percent agree with you. Everyone should die after having a tidy up and simplification of their affairs. That said, I would not like to be my executor, if I were to drop dead tonight.

BUT it can be very difficult to have a conversation with an elderly relative about their finances and their assets.

The 10% tax band used to be useful as you could honestly say. "I think you are entitled to a refund from the tax man of perhaps £400, would you like me to help check it out with you".

Anything else sounds like some sort of coffin chasing.

getmore4less

Thats a tough one when you don't know.

I was lucky my dad thought about it and was in order, my mum was no state to do the job so I did it for her.

Years before one of her(mums) elder relatives knew they were on the way out and gave it ALL away so there was no probate, tax forms almost becomes optional if no one can be bothered allthough you have to be carefull of trackable assets.

Bottom line if they trust you to be an named executor they should be comfortable discusing the job with you at least as far as where stuff is kept and what they want to happen. If early enough then the coffin chase is less of an issue.

Looking at the bigger picture

Many people overlook multiple generations when planning
It does not take much for 3 generations to be worth £1m between them when there are 3 houses a bit of life cover and

It is not just the higher up the tree that need to be sharing their status its everyone.

Inheriting unknown funds can really mess up your own planning.