IHT, abatement and charitable legacies.

nom_de_plume

ValHaller wrote: »

Naively, being fairly good at arithmetic, but not on top of tax, I would do this:

• Pass on the house and calculate the IHT due on that
• Deduct the IHT on the house from the remaining estate
• Calculate shares to the pecuniary inheritors including the charity on the %age principle
• Pass on the share for the charity
• Re-aggregate the shares of the remaining pecuniary inheritors and calculate the further IHT on this money
• Deduct the further IHT from the re-aggregated shares
• Recalculate shares to the remaining pecuniary inheritors on the %age principle

This will at least ensure that the right IHT is paid. I can forsee the charity cutting up rough about this, but I think that it is fair that they take the hit of IHT on the portion of the estate which is of higher precedence than their own share. And they get their share without paying IHT on it.

I've just fully got my head around your post and it sounds like the route I should have gone down. I've looked back through my own calculations and worked the sums out using your principle and have come to a very similar end result. Once I get HMRC's figures, I'll have another play with numbers and get some final cheques in the post.

getmore4less

nom_de_plume wrote: »

I came to a much quicker and simpler solution to your example and with completely different results thus:

Total legacies 700,000
Estate 600,000
Therefore 6/7ths available

So charity =100,000 * 6/7 = 85,714 (No tax to pay on this)
Other = (600,000 * 6/7 - 325,000) * 0.6 + 325,000 = 438,571

IHT = (600,000 * 6/7) * 0.4 = 75,714

I think it depends if the abaited distribution is before or after the tax is paid. check the will for that.

nom_de_plume

I should probably pay a 'professional' to advise on the final distribution but I'm loathe to do so. The will was prepared by a solicitor who I'm guessing made no effort to advise about the effects of IHT on it's content. I've already shelled out to another solicitor to advice on some aspects (and to cover my backside a bit with a letter from a professional). If I'm eventually out on any of the allocation it won't be by much and I'd rather take that on the chin personally than use any more of the estate other than where it was intended to go.

sleepless_saver

When pecuniary legacies are abated, the charities can see (and query) the estate accounts, apparently - see link. There seems to be a whole industry in helping charities get what they are due. page 8, http://legacymanagement.org.uk/wp-content/uploads/2012/03/ILMStarterManual.pdf .

nom_de_plume

When I sent the interim payments I advised a copy of the will and estate accounts would be forwarded with the final payment. The reply from Marie Curie basically said, if I sent the rest of the money they expected they would not require either. Obviously there's no need to send them a copy of the will as they know of their bequest but I will be sending estate accounts and a covering letter to explain why they are not getting all they are expecting.
My biggest fear is making a mistake in the percentage shares paid to each of the beneficiaries but I'm 99% confident in my calculations.

ValHaller

nom_de_plume wrote: »

My biggest fear is making a mistake in the percentage shares paid to each of the beneficiaries but I'm 99% confident in my calculations.

I suppose the thing to do is to agree with HMRC over the net inheritance tax then forward draft accounts to all of the beneficiaries together with the proposed amounts for distribution and let them make their arguments before you actually distribute.

John_Pierpoint

sleepless_saver wrote: »

When pecuniary legacies are abated, the charities can see (and query) the estate accounts, apparently - see link. There seems to be a whole industry in helping charities get what they are due. page 8, http://legacymanagement.org.uk/wp-content/uploads/2012/03/ILMStarterManual.pdf .

A very interesting link.

This could be of use to ordinary beneficiaries as an indication on how to conduct themselves.

Though the link looks like it is vintage 2012, the document has only been updated to 2008 and thus contains some small but jarring inaccuracies, which is a shame.

I came up with the following "rule of thumb" when dealing with my family's latest estate, as conflicts over the trivial often cause bad feeling out of all proportion to their financial value.

Many charities have a policy of agreeing that items of sentimental
value may pass directly to relatives subject to
the approval of the Executor; however, any individual
items thought to be worth more than £100
should be independently valued and offered to relatives
at that valuation.

I also had a bit of a potential problem with the way that HMRC don't allow, against
IHT, the costs of disposal, but do seem to think that paying IHT on some carpy
personal possession somehow increases its value.

No it doesn't the beneficiary is doing the other beneficiaries a favour by loading it onto the roof rack and taking it away, the last thing they want is to be reminded is that its value has been lifted by (say) an average 10% IHT charge.

(I did make an exception for a gold Sovereign 'cos they are legal tender and anyway can be sold for a smaller commission than most personal possessions)

This was an interesting little gem:
Following the ruling in Cowie’s Trustees Petitioners
(Re Dougal):

IHT chargeable on pecuniary or specific bequests in wills
is divisible between residuary beneficiaries
regardless of whether they are exempt or non-exempt.
Thus, if pecuniary bequests to non-exempt individuals
(e.g. children and friends) total more than the IHT threshold,
the residuary beneficiaries will bear the tax, whether charities
or not

nom_de_plume

John_Pierpoint wrote: »

IHT chargeable on pecuniary or specific bequests in wills
is divisible between residuary beneficiaries
regardless of whether they are exempt or non-exempt.
Thus, if pecuniary bequests to non-exempt individuals
(e.g. children and friends) total more than the IHT threshold,
the residuary beneficiaries will bear the tax, whether charities
or not

In the will I'm dealing with there is property bequeathed specifically to individuals which on their own are valued above the IHT threshold. This was distributed in full with the remainder of the bequests bearing the IHT costs. The charitable bequests fall in the next level in the pecking order as pecuniary bequests together with cash legacies to individuals. All these bequests have been reduced in value but the charitable ones have a higher pay out value due to their exempt status.

For example the will says person A and Charity B are both to get £10,000 but, with the abatement, the charity gets say £6,000 and person A gets £3,600 which equates to £6,000 less IHT.

nom_de_plume

ValHaller wrote: »

I suppose the thing to do is to agree with HMRC over the net inheritance tax then forward draft accounts to all of the beneficiaries together with the proposed amounts for distribution and let them make their arguments before you actually distribute.

Certainly an idea. I'm currently waiting on HMRC's final figure and a few final bills and I should be in a position to do the final sums. Perhaps an email beforehand to the contact at Marie Curie may be worthwhile just in case they want to contest my calculations.

getmore4less

I just re read the thread and you say the legacies are to be paid free of tax.

I think this might mean they get abaited after tax is paid not before.