Reducing Inheritance Tax

des1954

I am the Executor of my brother's will. He is terminally ill and I've seen the Will and there are lots of bequests in it, some quite large, others small. His house is probably worth about £450,000 plus he has money in savings accounts.

I have 2 concerns - one being the amount of Inheritance Tax that his Estate will have to pay - and the other concern is what do I as Executor do if there isn't enough money to pay the bequests?

CLAPTON

do you mean that he has made bequested greater than 450,000 plus the amount of money he has?

is he married or was he married?

getmore4less

Might be worth talking to him about the will and his intentions.

Especialy if the financial circumstamces have changed a lot since it was drafted.

googler

He can bequeath £X to A, £Y to B and £Z to C.

If the balance of the estate after funeral expenses, IHT, etc is less than X+Y+Z, then, in Scotland at least, there's an order of priority in which beneficiaries get their inheritance. I would imagine there's similar in E&W. You don't, as Executor, have to make up any shortfall from your own pocket. Just look up the rules on Govts websites, and stick to them.

xylophone

http://www.howto.co.uk/family/probate-wills/interpreting_a_will_and_deciding_what_bequests_and_liabilities_should_be_fulfilled/

might be of interest.

des1954

Thanks for the interest here. I suppose our primary concern is over the payment of IHT. His will, only a few weeks old, bequests sums of £100,000 & £50,000 to family members, and lesser amounts to others. If IHT is paid in full, then there probably won't be enough in the pot to go round. Bearing in mind that, realistically, he will die in 2013 what can be done to reduce IHT? Trouble is he's not interested in sorting out that side of things so it's going to be tricky. Also, what's the position of the recipients regarding paying tax on what they receive?

dzug1

The recipients don't pay the tax - the estate does. If after paying IHT and other expenses and debts there isn't enough to pay their bequests then what they get is reduced in proportion and the residuary beneficiary gets nothing. Exactly how you work it out is small print you can go into later.

The main way of avoiding IHT is charitable donations - so the beneficiaries still lose out.

holly_hobby

IHT is caluclated on the NET (of liabilities) value of the estate.

If there remains a IHT liability, this is paid to HMRC before any bequests are made - which sometimes means that beneficiaries walk away empty handed, as settlement may mean selling the assets of the deceased, which if still leaving an unpaid tax liability, will be followed by HMRC pursuance of indvidual benefiiciaries of unexpired PETs (which can be covered by a gift inter vivos policy).

So, firstly calcluate what the likely net value will be, after the application of all mortgages, debts and liabilities - then disucss with your IFA and Solicitor how this may be mitigated IHT wise.

Obv life assurance on the individual to prepare for IHT (which is a typical estate planning tool, along with gift inter vivos policies as mentioned above) would be the first call, but thats now too late given his impared health (inc the over 50s plans, which although don't pay a huge amount or have a medical etc, generally have a 2 yr qualifying period, which of course he may surprise everyone and survive to or not).

So some estate planning advice with an IFA is imperative (you may wish to consider effecting a LPA in respect of administration of his estate pre death, which may be necessary if he becomes unable to administer himself as his illness progresses further), I would also like to take this opportunity to express my heartfelt sympathy to you and your family ... and hope this post helps a little.

Holly x

getmore4less

des1954 wrote: »

Bearing in mind that, realistically, he will die in 2013 what can be done to reduce IHT?

get Married/civil partner.

the will usualy say if the bequests are freeof tax.

if this has just been writen it should take into account what will be left in the estate.

If the house is worth £450k(asume mortgage free) thats a IHT bill of 50k + 40% of the rest of the assets.

There should be over £400k to pay out.

Any gifts in the last 7 years will also need to be looked at.

holly_hobby

There is no IHT re transfers between spouse/civil partner.

Any other bequests from the decds estate will be apportioned against the indiviuals nil rate band (currently 325k 2012/13 tax yr), of which the residual amount (if any) may be transferred to the suriving spouse to be added to their own nil rate band - giving a max 2nd death relief of 650k. (as per 2012/13 relief).

Gifts with reservation, certain trusts and unexpired PETs remain part of the decds estate. (PETs discussed in my earlier post).

To avoid any confusion ... please refer to the attached HMRC guide, and as stated earlier, I would really advise some individual advice from a suitable and qualified practioner (solicitor/IFA).

http://www.hmrc.gov.uk/inheritancetax/

It should be ensured that there is a valid and appropriate will in place, otherwise the laws of intestacy will apply, which means that the division of the estate may not be as desired by your brother.

Hope this helps

Holly