Inheritance tax and trust funds?

beefster

My Grandmother passed away recently (October) and has left me some money held in a trust fund.
£x was placed into the fund in April 2001
and
£y was placed into the same fund in July 2002

As my financial advisor explained it to me...... the IHT on these from the sliding scale means that....

40% of £x is taxable at 40%.
and
60% of £y is taxable at 40%.

However my solicitor suggests that the £x is taxable in full at 24% and £y is taxable in full at 32% ?????????

Can anyone explain how this works please...... thanks

dunstonh

They are saying the same thing but in different ways. Although there appears to be a difference in the number of years each is allowing.

60% of £y taxed at 40% = 24% of the full amount.

The adviser is using the HMRC way of saying it:
http://www.hmrc.gov.uk/CTO/customerguide/page13-1.htm

The solicitor is using the solicitor way of saying it.

The number of whole years is 4 and 5 which makes 40% and 60%.

The solicitor seems to think the number of whole years between gift and death is 3 and 4.

beefster

Thats worrying since the solisitor is doing the form for the inland revenue!

Am i right in saying.... for instance.. not that my figures are anything near these! Unfortunatly........

Estate value of say £250000 inc property and assets.

2 x trust funds of
£100000 each. One from 2001 and one from 2002

Taxable liability on 2001 fund is 40% of fund value = £40000
Taxable libility on 2002 fund is 60% of fund value = £60000

These are added to the estate value of £250000 to give a total of £350000.

Thus £65000 is liable at the 40% rate so £26000 would be required by the I.R.??????

That makes sense to me any way...... which prob means its wrong! )

NeilW

beefster wrote:

Thats worrying since the solisitor is doing the form for the inland revenue!

Am i right in saying.... for instance.. not that my figures are anything near these! Unfortunatly........

Estate value of say £250000 inc property and assets.

2 x trust funds of
£100000 each. One from 2001 and one from 2002

Taxable liability on 2001 fund is 40% of fund value = £40000
Taxable libility on 2002 fund is 60% of fund value = £60000

These are added to the estate value of £250000 to give a total of £350000.

Thus £65000 is liable at the 40% rate so £26000 would be required by the I.R.??????

That makes sense to me any way...... which prob means its wrong! )

I don't understand why anybody thinks there is any reduction at all. Failed PETS sit at the bottom of the stack for inheritance tax purposes.

From what I can see the total chargeable value of the estate is £450,000, from which you deduct £285,000 giving £165,000 taxable estate at 40%. I make that £66,000 due to HMRC.

You don't get any reduction in the chargeable value of the trusts when calculating the estate value. It is only if the total of the value of all gifts made in the person's lifetime exceed the inheritance tax threshold that IHT taper relief comes into play at all.

See http://www.hmrc.gov.uk/cto/customerguide/page6.htm#7

Now there may be some clever use of Quick Succession Relief due to the type of trusts that are in play, but I don't believe that IHT taper relief has anything to do with the calculations you are looking at.

The fact that your financial advisor thinks that the tax is tapered in some way is really quite frightening.

NeilW

beefster

So i was wrong then.........

Seem's odd everyone is advising the sliding scale does apply but the hmrc guide implies not???? Maybe i missed some important info regarding the trusts?