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Taxes to be paid on inheritance query

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A friend of ours and her sister have been leaf a property when their father died last December, they are just completing on the sale of the property which has been sold for £380,000, there was also a little bit of money from other places but not really much more then £20,000

Once the house completes they will get equal share of the money from the sale of the house

What taxes is our friend expected to pay and is there any way of avoiding this, she is saying she is just not going to tell the tax man but I think that this is dodgy and that surely 'he' would find out, but I have no idea, she is elderly and I want to ensure she is not doing something that may come back and bite her and her not to be able to cope with

Any advice you can give on is she and her sister have to pay tax and / or inform the tax man, what this tax it called, how much they would have to pay each and if there is any way of avoiding it would be appreciated
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  • jem16
    jem16 Posts: 19,584 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    A friend of ours and her sister have been leaf a property when their father died last December, they are just completing on the sale of the property which has been sold for £380,000, there was also a little bit of money from other places but not really much more then £20,000

    Once the house completes they will get equal share of the money from the sale of the house

    What taxes is our friend expected to pay and is there any way of avoiding this,

    Inheritance Tax may be due and no there is no way of avoiding it if the estate is over £325,000 unless her father is entitled to use his wife's IHT allowance.

    Was her father still married to her mother at the time of death or did the mother die earlier and were they still married at that point?

    If mother died before and all of her estate passed onto your father, then you father would now have two lots of IHT allowance to use which will give him £650,000 and no IHT would be due.
    she is saying she is just not going to tell the tax man but I think that this is dodgy and that surely 'he' would find out, but I have no idea, she is elderly and I want to ensure she is not doing something that may come back and bite her and her not to be able to cope with

    A very stupid idea and it will come back to bite her later.

    If her father is only entitled to use £325k of IHT allowance then 40% tax would be due on £75,000 so £30,000 tax due.

    However it may not be payable if Dad has his wife's allowance to use.

    I suggest you and your friend read up about it.

    http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm
  • poe.tuesday
    poe.tuesday Posts: 1,858 Forumite
    The wife died some years before, the house was jointly owned by the father and son and when the son died 7 or so years ago, the whole house then went over to the father I believe

    The mother and father were married at the point of her death

    So looking at the worst case scenario, 30k would be payable between them?
  • jem16
    jem16 Posts: 19,584 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    The wife died some years before, the house was jointly owned by the father and son and when the son died 7 or so years ago, the whole house then went over to the father I believe

    Was the house owned by the mother at the time of her death and then her share passed over to her son?
    So looking at the worst case scenario, 30k would be payable between them?

    The £30k would be paid by the executor - usually from the proceeds of the estate. The estate would then be shared out according to Dad's will.
  • uknick
    uknick Posts: 1,767 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 12 October 2014 at 11:45AM
    How did they sell the house without probate? And the subsequent IHT payment? (Edit: not relevant IHT question, just seen mother's allowance should cover IHT.)

    How could they sell the house without Land Registry getting involved to change ownership to the benficiaries?
  • poe.tuesday
    poe.tuesday Posts: 1,858 Forumite
    Probate was granted and every thing so far has been done via the solicitors and executors, as soon as probate was granted, they then put the house on the market

    So going by what you are saying, the executors would pay the inheritance tax out of the proceeds of the house sale, but I don't think they are doing this as its the sisters who have put the house on the market, not the execs, the house I believe was transferred into the sisters names and they are selling it

    As for the mother and the ownership of the house, i don't know what that set up was, I am thinking that the parents and son had joint ownership if the house ( ex council house)

    So if they do have to pay inheritance tax then the execs should do this? Is there any other taxes they have to pay as the value of the house in the will was 280k but in reality, it's worth a lot more, so would they have to pay capital gains too?
  • zagfles
    zagfles Posts: 21,421 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Chutzpah Haggler
    You can't get probate until the IHT forms are filled in and submitted and HMRC have assessed the IHT liability. Until the IHT is paid the estate can't be distributed (including transfer of ownership of property).
  • jem16
    jem16 Posts: 19,584 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Probate was granted and every thing so far has been done via the solicitors and executors, as soon as probate was granted, they then put the house on the market

    I would suggest your friend finds out from the solicitors what exactly is happening with regards any IHT due. As has been said probate will cannot have happened without the IHT forms (if necessary) being submitted.
    So going by what you are saying, the executors would pay the inheritance tax out of the proceeds of the house sale, but I don't think they are doing this as its the sisters who have put the house on the market, not the execs, the house I believe was transferred into the sisters names and they are selling it

    As for the mother and the ownership of the house, i don't know what that set up was, I am thinking that the parents and son had joint ownership if the house ( ex council house)

    So if they do have to pay inheritance tax then the execs should do this? Is there any other taxes they have to pay as the value of the house in the will was 280k but in reality, it's worth a lot more, so would they have to pay capital gains too?

    If the value was £280k when ownership was transferred then yes there would be CGT to pay too if it's sold for £380k.
  • xylophone
    xylophone Posts: 45,606 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    If the estate has been settled and all property transferred to the beneficiaries, then on sale of the property, each beneficiary will need to pay any CGT that is due.
    http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-divorce.htm

    See the above under Selling or disposing of assets you've inherited
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Did they move into the property?

    Was the house was deliberately undervalued or has it gone up £100k in the last 9 month?

    If there was some transferable nil rate band and there was no IHT due then this could have been a mistake/backfire if it was undervalued
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