IHT and Probate

alrg500

My mother in law has just passed away, she has left behind a house worth approx. £300k and savings of approx. £200k as a mixture of investments, shares & savings accounts, her husband passed away approx. 10 years ago and left everything to her.
The estate is now being left equally between my wife and her brother.


my questions are
1 What IHT forms are best to fill in?
2 Will the house need a proper valuation? (I suspect so)
3 Do we need letters off the investments and share companies saying their worth on the day or can we just put the share value based on share price?
4 If the brother continues to live in the house as he does at the moment will their be any possible capital gains/ IHT tax liabilities in the future?


Thanks for your help

Dox

Given the estate looks as if it is below the £650K mark: your MIL's IHT allowance + her husband's IHT allowance transferred to her (because none of it was used when he died if everything was let to her). There is a further margin because the property is being left to her children, but you don't need it because there is plenty of headroom anyway.

1. Have a look at HMRC's website for help and guidance or ring your local probate office. This article may also be helpful: https://www.telegraph.co.uk/financial-services/investments/inheritance-tax/inheritance-tax-forms-help/
2. Given the value of the estate is well below IHT limits, get a local valuation (possibly 2) from an estate agent, ignoring anyone on this site who trumpets that a valuation from a qualified surveyor is essential. It isn't
3. You need to get accurate figures for the investments, which is often most easily done by asking the relevant companies to confirm in writing
4. Quite possibly CGT when your wife disposes of her share, because it isn't her main residence. Worth getting some advice on that now, from a suitably qualified professional.

alrg500

thanks for those answers that's a great help.

Tom99

[FONT=Verdana, sans-serif]You situation looks very straight forward. You have an estate worth £500k and have a NRB of £650k so plenty of headroom. You don't even need to think about claiming the £250k additional RNRB. The estate would need to be £900k before any IHT would be payable.[/FONT]

[FONT=Verdana, sans-serif]I think you need forms PA1, IHT205, IHT421 and IHT217.[/FONT]

[FONT=Verdana, sans-serif]You can download them all here: [/FONT]

[FONT=Verdana, sans-serif]https://www.gov.uk/government/collections/inheritance-tax-forms[/FONT]

[FONT=Verdana, sans-serif]Fill in the forms on your laptop, don't print them out until they are complete because doing it that way all of the b/f c/f and totals will be automatically populated.[/FONT]

[FONT=Verdana, sans-serif]The CGT situation is also straight forward. CGT might be paid if the property is sold for more than the open market value at the date of death. There are three possible parties who may/may not have a CGT bill. Each of the parties has a £11,700 allowance and can also claim all of the disposal costs and acquisition costs before any tax is paid so we are probably talking about a sale of above £315k or so before any CGT.[/FONT]

[FONT=Verdana, sans-serif]The three parties who may potentially have a CGT bill are:[/FONT]

• [FONT=Verdana, sans-serif]The estate, which is the current owner of the property. If the property is sold by the estate and not transferred to either of the beneficiaries then it is the estate who will pay the whole CGT bill but only if it makes a profit in excess of all the allowances including a generous acquisition allowance only available to estates. The estate has a £11,700 annual allowance this tax year and in 2019/20 and 2010/21. After that the estate has no annual allowance. The estate would pay CGT at the higher rate of 28%[/FONT]
• [FONT=Verdana, sans-serif]Your wife but only if the property, or say 50% of it is transferred to her. If 50% is transferred to her then her acquisition cost will be say £150k plus any fees incurred in that transfer. She will have her £11,700 allowance or whatever that is in the year the property is sold plus a deduction of 50% of the sale costs, EA solicitor etc.[/FONT]
• [FONT=Verdana, sans-serif]Your Wife's Brother he is in a similar position to you wife but it will be his main residence therefore that will be no CGT no matter how large a gain he makes.[/FONT]

[FONT=Verdana, sans-serif]If your wife's brother is to continue living in the property them the best option would be for the three current parties estate/wife/brother to agree that the house will be transferred by the estate to the brother, you wife will get all of the £200k cash and shares and the brother will pay your wife £50k. That way both parties have a £250k inheritance.[/FONT]

[FONT=Verdana, sans-serif]If the brother cannot raise £50k there are several options:[/FONT]

• [FONT=Verdana, sans-serif]The house is transferred equally to both of them and the £200k is also split equally[/FONT]
• [FONT=Verdana, sans-serif]A 1/6th share worth £50k is transferred to your wife the rest to brother and your wife gets the £200k[/FONT]
• [FONT=Verdana, sans-serif]Your wife lends her brother £50k which could be charged against the house ie she grants her brother a mortgage.[/FONT]

[FONT=Verdana, sans-serif]Given you have so much headroom with the probate value for IHT and that value will be the acquisition cost for and CGT, it isn't in your interests to play for a low probate value, quite the opposite. So if you have EA values at say £300k/£310k/£315k then there is no reason why you cannot submit a value of £315k. It is not even necessary to send a copy of the EA value you can just return £315k if you think that's reasonable, you don't have to back it up with any calculations and since the house would need to be worth £700k before and IHT is paid its highly unlikely any reasonable figure you submit would be queried[/FONT]

alrg500

Thanks Tom, that's a great help.