Inheritance tax query. Can it be tax deductable?

Pete111

Hi All.

I have an inheritance tax to pay on some property which is currently rented out and making me an income.

Does anyone know if I can pay the IHT (which relates to the property) and list it as an expense against the property income? Ie can I pay it out of gross (untaxed) income without getting into hot water with HMRC.

I assumed initially it would need to be taxed as income first and then the net amount used to pay the IHT - but am I correct?

CLAPTON

Basically no your can't pay IHT out of your personal gross income.

IHT is paid from the estate rather than from you as an individual (even if you are the sole beneficiary).
You then get paid your inheritance from the estate after tax has all been paid.

Pete111

CLAPTON wrote: »

Basically no your can't pay IHT out of your personal gross income.

IHT is paid from the estate rather than from you as an individual (even if you are the sole beneficiary).
You then get paid your inheritance from the estate after tax has all been paid.

That's what I figured....But worth an ask!

Ta

P

CTA_2

Pete111 wrote: »

Hi All.

I have an inheritance tax to pay on some property which is currently rented out and making me an income.

Does anyone know if I can pay the IHT (which relates to the property) and list it as an expense against the property income? Ie can I pay it out of gross (untaxed) income without getting into hot water with HMRC.

I assumed initially it would need to be taxed as income first and then the net amount used to pay the IHT - but am I correct?

You will not be able to claim the IHT as an expense in your property business computation. Given that you are alive and have IHT to pay, I am guessing that you are transferring the property into trust?

For an expense to be deductible in your property business it needs to be revenue in nature. I believe that the IHT charge is more akin to capital than revenue (one off nature, not a recurring expense, relates to the fixed assets of the business rather than circulating capital).

Re Clapton - you are not entirely correct. An estate can specify who is to bear the tax when gifts are transferred such that the beneficiary may have to settle any liability.

Pete111

CTA wrote: »

You will not be able to claim the IHT as an expense in your property business computation. Given that you are alive and have IHT to pay, I am guessing that you are transferring the property into trust?

For an expense to be deductible in your property business it needs to be revenue in nature. I believe that the IHT charge is more akin to capital than revenue (one off nature, not a recurring expense, relates to the fixed assets of the business rather than circulating capital).

Re Clapton - you are not entirely correct. An estate can specify who is to bear the tax when gifts are transferred such that the beneficiary may have to settle any liability.

The property was in a trust which has now ended. We are now in a situation where I believe the property is held in a bare trust. There are 4 trustees (I am 1) each of whom gain 1/4 of the annual income and must bear 1/4 of the IHT.

What's interetsing is that we are allowed to pay 1/10th of the IHT bill over the next decade so it will actually be a re-occuring cost on the property - hence my (perhaps hopeful!) query about it being a tax deductable business expense.

CLAPTON

CTA wrote: »

You will not be able to claim the IHT as an expense in your property business computation. Given that you are alive and have IHT to pay, I am guessing that you are transferring the property into trust?

For an expense to be deductible in your property business it needs to be revenue in nature. I believe that the IHT charge is more akin to capital than revenue (one off nature, not a recurring expense, relates to the fixed assets of the business rather than circulating capital).

Re Clapton - you are not entirely correct. An estate can specify who is to bear the tax when gifts are transferred such that the beneficiary may have to settle any liability.

although I am aware that the Will can determine who pays IHT, I didn't know that the estate (executors presumably) could do that.

CTA_2

Pete111 wrote: »

The property was in a trust which has now ended. We are now in a situation where I believe the property is held in a bare trust. There are 4 trustees (I am 1) each of whom gain 1/4 of the annual income and must bear 1/4 of the IHT.

What's interetsing is that we are allowed to pay 1/10th of the IHT bill over the next decade so it will actually be a re-occuring cost on the property - hence my (perhaps hopeful!) query about it being a tax deductable business expense.

In much the same way you can spread CGT payments, but of itself that doesn't defeat the capital nature of the tax.

Hope this helps.

Pete111

CTA wrote: »

In much the same way you can spread CGT payments, but of itself that doesn't defeat the capital nature of the tax.

Hope this helps.

Yes - thanks for the confirmation.

CTA_2

CLAPTON wrote: »

although I am aware that the Will can determine who pays IHT, I didn't know that the estate (executors presumably) could do that.

Yes, i can't quite remember the latin terms for it - gifts passing without tax and gifts passing with effectively.