Inheritance Tax. Who pays and how much?

Gimpster

Mojisola wrote: »

The executor has a conflict of interests and sounds as if he/she is trying to maximise his/her own inheritance.

Sadly that's how I see it too. I suspect that's exactly what she is trying to do. I am not the only person, both beneficiaries and not who don't trust this person. Worse I suspect they have confused and upset the lovely lady this all relates to in their quest for the money.

holly_hobby

Gimpster wrote: »

Holly I really appreciate the help. I think my post confused matters. But I just wanted to clarify from every eventuality so I had my head around things. I have now read through all your replies and think I have everything straight in my mind. I will look into her late husband's position. I suspect, as you say, it should be ok and they can use part of his nil rate thing too which would be ideal.
I feel a lot more confident now in asking some questions.

A huge thank you o everyone that as replied.

Hi Mr Gimpster .. no problem, there will always be lots of help here for you x

Regarding her late husbands IHT allowance, its the executor (or the administrator where there is no valid will) whom applies for this allowance from HMRC.

So, either way the Executor will have to be tackled, if they are a layman, they won't be aware of the rulings re being able to tsf her late spouse's unused allowance until advised, but once they know they may be more than willing to apply to HMRC for such application ... I'll attach at the end of this post the links you can read, print off and show him/her.

However, if you and the other beneficiaries believe, as it appears, that they aren't adminstering their role correctly or with due diligence, you know that you do have leave to have them relieved of their executor duties.

Should this be the case, I would chose to appoint a protabe solicitor to adminster the estate for you - as they will be familiar with all the discussions we have held here, inc applying for spousal tsf, and (all things being equal) should be able to be relied upon to carry out their duties as per Will requirements and without predjudice to any party.

Here's the forms to get things started ....

Probate - PA1 for Eng/Wales http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=VKhb2F_R9Q4&formid=3301 )

HMRC Tsf of relief - guidance notes with links for your general info- http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

And ..

HMRC IHT Forms Reqd to get the party started ....

Forms HMRC IHT205 and IHT217 relevant for excepted estates and your circs .... e.g - relevant where fully qualifying 100% spousal IHT exemption tsf is available for tsf ( as we think is the case for her hubby), AND where the decd's (aka your friend) estate is less than double current IHT personal limit ie in this case below 650k (which at 500k is the case for your Friend).

Download and print off for the executor to complete and submit to HMRC - if they refuse, then this is your opening to have them discharged as not diligently adminstering the estate ....

1. Form IHT 205 - Return of estate information ....
http://www.hmrc.gov.uk/cto/forms/iht205-2006-2.pdf

2. Form IHT 217 - Application for tsf of 100% of decd's spousal relief ....
http://www.hmrc.gov.uk/cto/forms/iht217.pdf

Hope this all helps you feel more confident, and to see the wood for the trees .... perhaps you could even suggest to the executor if they are nervous in completing such forms and administering the estate, that they could employ a probate solicitor to do this on the beneficiaries and their behalf ? (professional fees come out of the estate as a debt)

Anyhoo, hope this is useful to you ....

Best of luck

Holly xx

John_Pierpoint

How do you know what the "last will and testament" says, when the executor is refusing to co-operate with you as supposed main beneficiary?

You can apply for the probate and will or letters of administration for the prior death of the husband at the probate registry. It costs about £10.

That documentation of what happened when the late husband died should give you some indications of the value of the estate (unfortunately the figure given might not be the one used by HMRC for calculating the transferable nil rate band percentage) and who got what at the time.

Usually gifts in the will are given tax free and the residuary has to pick up the tab.

Unfortunately many wills leave out a major beneficiary, who actually gets first bite at the estate, HMRC.

Being the executor of a will is a lonely thankless job, fortunately it is generally accepted that the executor gets the first year to sort out the mess he has been left to administer, during that time the executor legally holds the cards.
Three times I have had to stand up to beneficiaries trying to pull rank or suggest I am some sort of idiot/crook and politely tell them to go forth and multiply.

So with no power yet, you need to be sweetness and light as far as the executor is concerned (but nobody's fool). If you are really worried that the executor is incompetent/venal and the executor is refusing to even discuss in general terms with you, the will and its ramifications; you can put a requirement to be notified of any application for grant of probate, so you can then legally object..

There are three more potential sources of tax confusion:
If the estate is liable for IHT, the executor will have a vested interest in getting the lowest possible valuation on the property. However if this strategy works there could be an increased future liability for CGT, unless you intend to live in it as your principle private residence.
If the deceased was the beneficiary of a trust, the value of that trust might form part of the estate valuation for tax purposes. [It came as a nasty surprise to a beneficiary, who thought they were inheriting a small estate to discover their legacy would have to chip in towards the IHT liability]
If the will leaves money to charity, there will be another beneficiary in what you hope is your tax free situation, with a well funded legal eagle trying to muscle in on the act.

Let the executor know that you will be looking forward to the detailed accounts that he will legally be required to provide to you for the estate, as soon as he is able to get the probate and tax sorted, and of course he realised there is interest to be paid on the tax after 6 months and on the bequests after a year. There will be Council Tax to pay on the property 6 months after probate and in the mean time, who does he think is liable for the heating/water/phone/electric/gardening? (Are you friends with the neighbours?)

Good luck let us know how you get on.

Remember "jaw jaw is better than war war", extra legal bills and an ongoing sore of family resentment, are to be avoided if possible.

https://forums.moneysavingexpert.com/discussion/4480987

Gimpster

I know what was in the will because I have seen it.

I am not trying to pull rank on the other people in the will, as I stated in my OP, I was originally thinking I'd have to sell the house to pay 40% IHT on it. Then reading the HMRC website thought differently.

From what the helpful people here have told me, the estate itself is liable for the IHT. Looking into this further over the weekend it seems the husband left what he had (very little to the wife) so his nil rate amount would be untouched.

The estate has enough cash and shares to clear the likely IHT, so I assume now that the house will come to me clear.

The executor has financial problems and we feel is trying to expand their share of the final balance.

Gimpster

Actually this does raise further questions and a couple of additional answers.
No there are no trusts in place, no charity donations. If I have to pay a share of the IHT I would do so, but feel it should only be my share not the entire amount.

Questions - If the house was rented out later would CGT become liable or only if I sold it (have no intention of selling as there are many years of happy memories attached to the house for me)

Would I be liable for the upkeep and council tax on the house from day one because it wasn't the lady's residence at the time of her death? Does the 6 months council tax free thing only apply to a main residence.

holly_hobby

Yes, assuming this will not be your own home, you will be liable to CGT, on any gain realised on sale, whether its rented out or left empty.

The gain will be based on the value at the time of your friends death, and the sale price.

This will be mitigated by your annual unused CGT exemption (£10,900 2013/14 rising to £11,000 for 2014/15 tax yr), and improvement costs (keep receipts for audit purposes), and costs associated with professional advice and disposal.

If however you reside in the property as your primary residence from the point of inheritance (tsf of ownership to you), you will be able to apply Primary Residence Relief (ie the time its your main residence is excluded from calcs) & the last 36 mths of ownership .... so if can see if you reside from point of ownership, but subsequently move out of the property, as long as you then dispose of it within 36mths of vacation (leaving) - there will be NO CGT assessment or liability at all (due to the permitted exemptions I've noted above).

Just to top and tail, if the details of residency result in you being liable to tax on the net gain (ie after the application of all qualifying reliefs/exemptions/allowances), this is reported to HMRC via annual self assessment.

Hope this helps with the basics

Holly

holly_hobby

Gimpster wrote: »

Looking into this further over the weekend it seems the husband left what he had (very little to the wife) so his nil rate amount would be untouched.

This is great for the beneficiaries, BUT only of use IF application for its tsf to your friends estate (by the executor) is made (I've already given you forms for this in my previous post).

It is imperative to note that IF application isn't made your friends estate will only have 325k exemption.

Just wanted to be clear on that

Hope this helps

Holly

Gimpster

Yes completely understand you. thanks so much Holly. I was explaining this at the weekend to two of the four who will share the remaining estate. As with me, they had been told they would have to pay the IHT themselves so were interested to hear the exact procedure.

One of them is sister to the executor (even she doesn't trust her unfortunately) and I have given her all the links you gave me. It's surely in everyone's best interests if we can use the husband's percentage too.

I can't thank everyone enough for all the help. At a difficult time to find out that several of our worries can be allayed has been a huge help.

holly_hobby

No probs .... of course whilst forum advice is great, nothing takes the place of you seeking clarification from your own personally engaged adviser.

In this case, the HMRC links and refs provided are pretty clear and transparent on whats what ....

Good luck

Holly x

Savvy_Sue

Gimpster wrote: »

Worse I suspect they have confused and upset the lovely lady this all relates to in their quest for the money.

Does this mean that the question is currently theoretical? ie this is a will written by someone who is still alive?

If so, and she is mentally competent, would it not be worth re-writing the will, or at least taking advice from whoever drew it up, to be sure that her intentions are correctly expressed in the will. She could also at this point appoint different or additional executors.