Inheritance Tax Query

ciderboy2009

This is a (slightly simplified) question I've just been asked which I've not been able to find an answer to:

A (single) person dies and their estate consists of property worth £300k and £100k in cash so inheritance tax is payable.

Their will leaves the property to person A and a specified sum of £100k to person B.

As the Inheritance Tax will have to be paid out of the £100k what happens to person B's bequest?

I think that they should just get the remaining cash after the tax is paid but is that correct? Should person A be expected to pay something towards it as well?

Savvy_Sue

I think it depends on the wording of the will (but I could be wrong).

If the house is left 'free of taxes' then I think you're right, all the tax might have to be borne by Person B.

But if the gift to Person B is 'free of taxes', then the IHT cannot be taken from their legacy.

If both are 'free of taxes', you've got a very badly drafted will.

But there must be a residuary beneficiary or legacy, because you can't possibly know in advance how much there will be in the accounts: it might be more or less than 100K in cash, so where does that go?

Mojisola

As Sue says - a lot depends on the exact wording of the will but normally a gift that's an item (whether that's a piece of jewellery, a car or a house) will be passed on as it is.

Debts are usually paid from available capital. If money has been left to someone, it will be whatever is left after all debts (including IHT) has been paid.

It's usually only if there isn't enough cash available to pay debts that something like a house may have to be sold (or the beneficiary given the opportunity to pay towards the debts).

It would be best to pay for professional advice from a solicitor who can read the whole will.

getmore4less

Is the property mortgage free no other debts etc.

it will depend on the wording there are strict orders for abatement

Very unusual to have the cash residue exactly the same as a legacy

here is one link(note the rules mat be different if not England & walses)
http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm12086.htm

getmore4less

ciderboy2009 wrote: »

This is a (slightly simplified) question

careful simplifying things when you don't know what's important.

ciderboy2009

Thanks all.

The simplification is that a) there are actually 3 monetary bequests which add up to slightly over £100k, and b) there is a residual beneficiary but the residue is unlikely to cover the IHT.

I'll need to double check but I'm fairly certain that the will doesn't mention that any of the bequests are 'free of taxes'.

The will is being dealt with by a solicitor - I was just trying to work out how it would all work.

BobQ

ciderboy2009 wrote: »

Thanks all.

The simplification is that a) there are actually 3 monetary bequests which add up to slightly over £100k, and b) there is a residual beneficiary but the residue is unlikely to cover the IHT.

I'll need to double check but I'm fairly certain that the will doesn't mention that any of the bequests are 'free of taxes'.

The will is being dealt with by a solicitor - I was just trying to work out how it would all work.

Does it actually leave the house or direct that the house is sold and the proceeds are used to pay the person. In that case unless the free of tax phrase is used the IHT can be taken from all of the estate.