Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

harryhound

That would boost the price of gold sovereigns

danandally

A couple of questions:
1) I am the executor of my father’s will. My mother died in 2004 and her will left everything to my father, I have a copy of this. However my father gave me and my brother a cash sum. I don’t know if my father amended her will (deed of variation) or just gifted us the money. Is it possible to find this information out? I don’t have any paperwork this far back. Can we claim my mother’s allowance from 2004 as this is prior to the rule change but I seem to remember it was back dated? What documentation do the tax people require?
2) I understand money given away before you die is counted as part of your estate, hence subject to Inheritance Tax, if you die within seven years of giving the gift. How does the executor or Tax Man know what money has been given away and to whom? Is a record kept somewhere?

jennifernil

Yes, your father will have the double allowance.

If gifting money, it is a good idea to keep records, especially if the 7 year rule may become important.

shelly_h

Can anyone help? I've never dealt with anything like this before but I am slowly starting to make my way through my father in law's will.
His mother died 7 years ago and left nothing to anyone so it was all left to her husband ( my father in law). He has now died so are we now allowed the total tax allowance of £650,000?
Further to this, our solicitor mentioned something about what names the 2 properties they owned were in. I'm unsure if the properties were in both names or just in the fathers name, does this matter and how would I find out?

John_Pierpoint

Hi Shelly,

Welcome to MSE.

When did F-I-L pass away?

My late mother had a solicitor, in the days before MSE, who said to me, "If the family try to do this themselves in part it never works" - so I got myself a more sympathetic solicitor.
I am just wondering if we have a "Why have a dog and bark yourself" situation here?

If father in law's estate is valued at more than 325K, the executor will be required to complete a booklet of complicated self assessment type forms. These forms are are in the IHT400 series.
I would Google to find the appropriate telephone help line and get HMRC to send you a set. (actually I managed to get two sets so I could use one as a draft & copy for my own records).
You can of course down load these forms and run out of coloured ink in your printer.
There are about a score of subsidiary forms that you may or may not need; the executor has to complete a tick list of "yes" or "no" against each subsidiary form number.

One form you are going to need is IHT402, a brown themed job, on which the transfer of (mother in law's) nil rate band must be claimed.

Assuming that there is no readily available proof of what happened when MIL died, you can identify her "Admon" (Letters of administration or grant of probate with her will) by searching the probate registry - Google will provide telephone numbers and addresses.
Probably this will be enough to prove what proportion of M-I-L's estate was left to F-I-L and enable the executor to complete the IHT402.

Turning to the two properties, with a bit of luck the titles will be registered, so 4 quid each pledged to the Land Registry with a credit/debit card on-line, should generate a print out revealing the legal registered owner.

If the deceased and his executor have already worked together on this and all the records are in apple pie order, the whole exercise is just a clerical chore, taking a few months; if you are lucky enough to deal with other institutions, staffed by people with training in probate.


If the executor is starting blind (as a solicitor's clerk would be) think of the task as being given a swamp to drain. The odds are that there will be some alligators lurking in there.

"Which?" publish some good books explaining the process charting a course across the swamp and these should be up to date with the changes made in 2006, 2007 and 2008 by now. Since then I think this area of law and taxation has been relatively stable.

On this forum you will find rants against solicitors for slow expensive incompetence; however having done this task myself several times,
I have a respect for good solicitors and realise that it is almost impossible to give an accurate estimate from the start.

My message is don't start something you cannot finish.

John

PS
A good starting point would be to understand how the deceased completed his income tax return. The executor will have to complete at least one of these in addition to the IHT return.

Have you got all the receipts for the Funeral, Wake & Cemetery? You will need these for page 8 of IHT400.

Hawkeye4aneye

[QUOTE=shelly h;42570110]Can anyone help? I've never dealt with anything like this before but I am slowly starting to make my way through my father in law's will.
His mother died 7 years ago and left nothing to anyone so it was all left to her husband ( my father in law). He has now died so are we now allowed the total tax allowance of £650,000?
Further to this, our solicitor mentioned something about what names the 2 properties they owned were in. I'm unsure if the properties were in both names or just in the fathers name, does this matter and how would I find out?[/QUOTE]

I assume that "mother" died in either 2003 or 2004, if so and it was after 6th April 2003 but before 5th April 2004 then the IHT Nil Rate Band was £255,000. This means as all her estate went to her husband (your F-I-L) this amount can be added to the IHT Nil Rate Band he has available which is £325,000 making a total of £580,000. So if the total assets passing do not amount to over this figure then no IHT is due! If she died after 6th April 2004 but before 5th April 2005 then the figure is £263,000 so therefore a total of £588,000.

The figures for each year can be found here http://www.scopulus.co.uk/taxsheets/uktaxrates2004-5.htm if anyone else has a similar problem from a different tax year.

You mention how the properties re held and if together this could be Tenants in Common or "Jointly" and how you find this out? Do you or the Solicitors have the deeds to the properties? If so you can look and see if they are held "Jointly" or as Tenants in Common. If they are tenants in common the register will have the wording "No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court". If there is no such wording in the Title Documents then it is almost certainly joint tenants (held Jointly). Of course one Property could be held one way and one the other way. Or in deed the properties or one of them could just have been in F-I-L's name

If the deeds are not available then you can find out at the Land Registry
http://www.landsearch.net/landregistry
There may be one you can visit locally if you wish.

If the deeds were "Tenants in Common" then there would normally have been a Trust in "mothers" will in respect of the property they lived in at least. If not and the whole estate went to her husband as mentioned then even if half the property went under the Will it would have gone to him and negated the advantage of holding the property that way as it might as well have been held "Jointly" which passes by survivorship.

John_Pierpoint

Hawkeye4aneye wrote: »

[QUOTE=shelly h;42570110]Can anyone help? I've never dealt with anything like this before but I am slowly starting to make my way through my father in law's will.
His mother died 7 years ago and left nothing to anyone so it was all left to her husband ( my father in law). He has now died so are we now allowed the total tax allowance of £650,000?
Further to this, our solicitor mentioned something about what names the 2 properties they owned were in. I'm unsure if the properties were in both names or just in the fathers name, does this matter and how would I find out?

I assume that "mother" died in either 2003 or 2004, if so and it was after 6th April 2003 but before 5th April 2004 then the IHT Nil Rate Band was £255,000. This means as all her estate went to her husband (your F-I-L) this amount can be added to the IHT Nil Rate Band he has available which is £325,000 making a total of £580,000. So if the total assets passing do not amount to over this figure then no IHT is due! If she died after 6th April 2004 but before 5th April 2005 then the figure is £263,000 so therefore a total of £588,000.

The figures for each year can be found here http://www.scopulus.co.uk/taxsheets/uktaxrates2004-5.htm if anyone else has a similar problem from a different tax year.

[/QUOTE]

Slightly wrong there. What counts is the amount that M-I-L did NOT leave to her husband.
Let us say M-I-L had a nil rate band of 255K and she left 127,500 to her favourite nephew, then she would have used up 50% of a nil rate band. Everything she left to her husband would of course be tax free.

Some time later husband dies, He has a nil rate band of 325K of his own and by inheritance he has 50% of another nil rate band now valued at 325,000/2 = 162,500 making an IHT tax free total of 487,500.

karie

Hi, I have some questions about inheritance tax.
My partner's father passed away recently and we are trying to understand what, if any, tax implications there are for his mother. All of his fathers estate passed to her in his will.

Their joint assets were:
House worth c£500,000
Savings of c£100,000

In addition, she has received a lump sum payout from his pension of c£80,000 and a further £80,000 payout from an insurance policy he had which paid out if he died within 10 years of taking out the policy.

He also had some shares in his own name (not sure how much but I think less than £20k).

As this was all left to her and is less than £1 million, is it therefore exempt from any IHT?

Also, she is now keen to add my partners name to her savings accounts (he is an only child). We are not keen as surely this would count as inheritance for him and there would be tax implications?

Finally, am I correct in thinking that he will be able to receive £650,000 tax free upon his mothers death in the future, but anything above that will become liable for tax?

Thanks
karie

Mojisola

It depends on how the house was owned. If they were "joint tenants" then the house is automatically now owned by your partner's mother. It is not counted as part of the estate.

If they were "tenants in common", they will each have owned a percentage of the property. How much of the value of the house will be counted in the estate depends on what percentage was owned by the father.

If the house was entirely in his name, the whole value will be part of the estate.

The IHT threshold after which tax has to paid is £325,000.

SeniorSam

Hi Karie,

Whichever way the house was owned, if all assets have been passed to the spouse, then all the value of the house is in her name. Usually, when a house is owned as Tenants in Common, it is so that the half value in the house of the first to die can be 'sheltered', as with a Discretionary Will Trust.

The best advice would be to consult a specialist in this field. However, there are no tax implications where one spouse has passed all assets to the other on death. When the survivor dies, then there are both nil rate band allowances that can be claimed against the value of the survivors estate. At present this is £650,000, as you have correctly assumed.

There are many ways in which inheritance could be saved ........... this is why a specialist would be beneficial ..... and depending on circumstances, there is a two year window from the date of the first death, in which time, the Will could be changed if it was felt that a more tax efficient Will could be effected.

Not knowing all the details, it is difficult to say what would be best, but one consideration may be a Deed of Variation to the Will, that effects a Discretionary Trust, to which the deceased's nil rate band could be allocated.

The 'pluse's' to this would be that the NRB ( £325,000) would be assigned to the Trust and not accessible against costs if the surviving spouse were to go into care. Also that value would be growing in the Trust and not the survivors estate.

If capital were used towards the Discretionary Trust, then, with the Trustees agreement, the Trustees could make loans to the survivor for anything the survivor wanted. Those loans would be repayable from her estate on death and so reduce the value of her estate.

Other considerations could be investment by the survivor in a Loan Trust, where the survivor could have withdrawals of 5% per annum, with tax deferred, to support her income needs. Such a Trust is unlikely to be attacked if care costs were needed.

Gifts could be made by the survivor, either directly or into Trust to reduce the value of her estate. Annual gifting allowances of £3000 single gift, plus £250 to any others as well as regular gifting from income under 'normal expenditure' rules.

The minus may be that if the survivor lived for many years and the NRB increased in value, then only the survivor's NRB would be allowable as 100% allowance of the first to die had been used to go into Trust.

All rather complex, which is why a STEP solicitor and/or a qualified Independent Financial Adviser who specialises in this area would be best for you.

I hope this helps

Sam