IHT410 form - which life insurance policies to include

edited 29 March 2013 at 1:16AM in Deaths, Funerals & Probate
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thelordgiveththelordgiveth Forumite
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edited 29 March 2013 at 1:16AM in Deaths, Funerals & Probate
I am the executor for my late father and I am dealing with all the IHT and probate issues myself, on the grounds that you have to provide all the information to any solicitor you use in any case.

Most of the forms seem fairly straightforward, but I am not too sure how (or even whether) to tackle the life insurance policy form IHT410. There are four policies of various types involved but I don't think any of them fall within Dad's estate. However, the form notes start off:-
"Fill in this form if the deceased was paying regular monthly or lump sum premiums on any:
• life assurance policies, or if any sums are payable by insurance companies to the estate as a result of the deceased’s death. (It does not matter if the policies were on the deceased’s life or someone else’s life or whether the polcies were for the deceased's benefit).

Dad was paying annual premiums on two life assurance policies. On the face of it the policies score a "yes" on the first half of the (ungrammatical and therefore confusing) bullet. I can see that they might want policy details to check there is nothing coming to the estate. But where would they go? Q2 relates to policies on which payments were made to the estate, Q4 to benefits from continuing policies on others and Q7 to annuities, none of which is appropriate. So am I right to assume that I can ignore IHT410 altogether?

I ought to describe the policies, so that my assumption that they all fall outside the estate can be tested.
i) Annual premium policy on my father's life, in trust, with my sister and I the remaining trustees. This has already been paid up (without grant of probate, which implies must be outside estate)
ii) This is trickier! Annual premium policy on my father's life, payable to my mother. It was taken out under the Married Woman's Property Act. However, she died six years before him. The insurance company tell me that the policy is payable to my father's Executor (me), acting as the last remaining trustee for my mother, for the absolute benefit of my mother's estate. They require Grant of Probate for my father even though it is part of her estate, not his. I appreciate that this might give rise to a retrospective IHT liability on her estate, but I will worry about that later!

(I'm assuming that the annual premiums don't count as gifts, though if they did there was enough surplus income to cover it.)

There were also two single premium (non-qualifying) policies, one payable to me and the other in trust. My understanding is that these could result in an income tax liability (to me in the first case and to my father for 2012/13 in the second) if it pushes us into higher rate tax but they are outside the estate. The first has already been paid up, complete with Chargeable Gain Certificate, and the second would have been if the company involved understood the word efficiency!

I've no intention of trying to "pull a fast one" and the whole thing seems irrelevant to my father's estate, but I do want to get the paperwork right.

Grateful for any advice.
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Replies

  • If I were in your shoes I would have the same queries.

    Call the probate office. I understand they are very helpful.

    Probate and Inheritance Tax helpline - 0845 302 0900 (Monday to Friday, 9am to 5pm).

    You've explained the 4 policies very clearly to us, so I would think the probate office will be able to answer very easily.
  • madbadrobmadbadrob Forumite
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    IHT410 would be tax office for advice not probate or am I wrong? Also I thought all policies no matter who they were entrusted to are and do form part of the deceased estate

    ROb
  • madbadrob wrote: »
    IHT410 would be tax office for advice not probate or am I wrong?

    I think Probate Office would know whether they are to be incuded in the Estate.
    madbadrob wrote: »
    Also I thought all policies no matter who they were entrusted to are and do form part of the deceased estate
    ROb

    Directgov site agrees with you that life insurance payouts would form part of the estate:
    https://www.gov.uk/valuing-estate-of-someone-who-died

    However the new(-ish) directgov site seems to over-simplify some things and I wonder if this is one of them. Like the OP, I was under the impression that some forms of insurance payout fell outside the estate, so I would want to check.
  • Thanks for replies, folks. The directgov link is v-e-r-y simplified, I think, and almost circular - it is part of the estate if there is a payout to the estate (I think). Well, yes...

    Policies are put in trust in order to keep them out of the estate and IHT liability, and as I said, most of them have already been paid up or are about to be. If there was any question of them being part of the estate, the insurance company would not pay out in advance of Grant of Probate, except possibly to an explicit executor's account, which is not what they have done. I'd be very surprised if my conclusion that they are outside the estate is wrong; I'm just not sure about whether the policies ought to feature anyway on the IHT410, and if so how.
  • madbadrobmadbadrob Forumite
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    I disagree totally. They are paid out to a named person to enable that named person to deal with the post death expenses. The money that is paid out actually belongs to the deceased person and therefore the estate not the named trustee. Trustee is just someone entrusted to act in the best interest of the estate. I would seek advice from the HMRC or possibly the probate office before you send in the forms and later find out they should be included.

    Also I would look into what each of the policies were for and whether they would have matured after a certain length of time or whether they were one of these newer types that are whole life policies.

    Rob
  • busicatbusicat Forumite
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    OK, at last my years of specialism on this subject comes in handy for someone (hopefully)! Rob's almost right, but not quite.

    Who can get the proceeds from the insurer (the trustees) is one thing (ie it's outside probate rules as far as "handover"). Whether it's treated as outside the estate by HMRC when totting up inheritance tax owed by the estate is another. So far Rob's right.

    The tax depends on who is stated to be the beneficiaries of the estate. They are who the money actually belongs to because by doing the trust, the OPs Dad has already given the policy away some time ago. So it wasn't his anymore, even before he died. This is the bit where Rob is wrong, unless for some reason the trust was badly written and allowed the benefits to bounce back into his estate. That would be unlikely, as one of the key reasons for giving policies away by using a trust is to ensure the life policy isn't sitting there uselessly attracting tax when the life assured has no use for the money themselves.

    Hope that helps!
  • madbadrobmadbadrob Forumite
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    busicat wrote: »
    OK, at last my years of specialism on this subject comes in handy for someone (hopefully)! Rob's almost right, but not quite.

    Who can get the proceeds from the insurer (the trustees) is one thing (ie it's outside probate rules as far as "handover"). Whether it's treated as outside the estate by HMRC when totting up inheritance tax owed by the estate is another. So far Rob's right.

    The tax depends on who is stated to be the beneficiaries of the estate. They are who the money actually belongs to because by doing the trust, the OPs Dad has already given the policy away some time ago. So it wasn't his anymore, even before he died. This is the bit where Rob is wrong, unless for some reason the trust was badly written and allowed the benefits to bounce back into his estate. That would be unlikely, as one of the key reasons for giving policies away by using a trust is to ensure the life policy isn't sitting there uselessly attracting tax when the life assured has no use for the money themselves.

    Hope that helps!

    Thanks for correcting me there. My understanding was incorrect and I can now amend this in my storage device (brain lol)

    Rob
  • busicatbusicat Forumite
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    Cheers, Rob.
    (Wish I could still get my brain to operate as storage device!)
  • busicatbusicat Forumite
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    I'm just not sure about whether the policies ought to feature anyway on the IHT410, and if so how.

    I imagine the OP will have got their answer by now, but just in case, have now had a mo' to grapple with the IHT410 form, which I agree is not the best.

    One of the things HMRC need to check is whether the premiums counted as lifetime gifts (yes in this case) and, if so, whether they attract IHT or are covered by exemptions. Question 12 is the relevant one:

    "Did the deceased, within seven years of their death, pay any premium on a life assurance policy for the
    benefit of someone else, other than the deceased’s spouse or civil partner?
    No
    Go to
    question 14
    Yes
    Provide details on form IHT403 Gifts and other transfers of value"

    So it looks like you're expected to fill out 410 even though the policy details aren't required there in your case. Instead, details will go in IHT 403 for the ones where premiums were paid in the last 7 years.
  • Been away for a bit. Only answers I have got are those from this forum, so thanks.

    I'm in no doubt about whether the proceeds of the policies belong to the estate. They do not, as my father was not the beneficiary. As has been pointed out, trusteeship is quite different.

    Busicat's conclusion that Q12 is the way to go seems sensible - so sensible that I don't know why I failed to spot it in the first place.

    It makes sense that the premiums then count as gifts on IHT403. Now I have to demonstrate there was sufficient surplus income to justify gifts from income in any case. Now if they are gifts, they are not part of his expenditure, so surplus income gets boosted by precisely the amount of the premiums, enabling the premiums to be gifted from that surplus income. So in Dad's position, it seems to me that whether they are gifts or expenditure doesn't actually make any difference. (If he had had no surplus income, it would be another matter of course.) I'd like to get the forms right though, and having got this far I'll probably ask HMRC for confirmation.
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