How to divide inheritance tax?

David36

Good evening all,

I hope somebody can help the situation we are in, I am writing this on behalf of my father.

His father passed away and sadly did not sort out his inheritance very well, leaving his estate approximately £350,000 to pay the taxman in inheritance tax. There are four siblings (including my father) and four properties. My father looked after his dads estate all of his life (in terms of maintaining them and finding tenants, and dealing with all the paperwork), and was left a property in the will (in 2005) which has turned out today to be worth the most. It was not worth the most when my father wrote the will in 2005.

His other siblings are not happy with this, and want him to pay the largest share of the IHT.

Does he legally have to do this? Can it not be split equally? The others did nothing for their dad, but are instead trying to maximize what they receive.

My father was left as the executor of the estate.

Keep_pedalling

Assuming these 4 are the only beneficiaries and the will does not state that any particular bequest should be given tax free then his brothers are correct the tax taken from each beneficiary proportionally to their bequest. Your father still gets more than his siblings, but it is the wording of the will that matters here, who did what for their father is irrelevant.

Your father really should take legal advice, if he has got this wrong he may have got other things wrong as well.

David36

Sorry I forgot to mention, my father was gifted his property. It was still included in the estate, as his father benefited from the gift.

Does this change anything?

[Deleted User]

David36 wrote: »

Sorry I forgot to mention, my father was gifted his property. It was still included in the estate, as his father benefited from the gift.

Does this change anything?

For your Dad - considerably. It means that he will be liable to pay Capital Gains tax if or when he sells the property. The gain will be calculated using the value at the time of the gift.

Now - and,given that it appears to be a rental property, was the capital gain declared to HMRC at the time of the gift?

Keep_pedalling

David36 wrote: »

Sorry I forgot to mention, my father was gifted his property. It was still included in the estate, as his father benefited from the gift.

Does this change anything?

Not sure about how this effects where the IT comes from, but unless your father was also living with with your GF he has a potencial capital gains issue with his gift.

Making gifts with reservation is usually a bad idea, as is leaving specific properties to people in your will, as that risks a major beneficiary losing out if that property needs to be sold before your death.

Your father should seek professional advice, and you all need to review you own wills to make sure you are not making the same mistakes.

getmore4less

If the house was gifted before death then it is no longer in the estste for distribution purposes.

Sounds like gift with reservation so does have tax implications on the estate.

Get expert advice on the liabilities and which values need to be used for the gifted property..

Heedtheadvice

I agree in general with the other respondents.
Being Executor is a responsibility and one is to ensure that the estate and bequests are treated properly. Your grandfathers estate is as has been described a little complicated and it seems that both Executor and beneficiaries do not know what is the correct thing to do.

This seriously risks errors being made and the potential for disputes. Both need to be avoided.


Your father as executor should seek advice from a solicitor immedately before any action is taken. It will cost the estate but might save money in the long run and avoid potentially costly disputes plus ensures you father correctly discharges his duties, which he seems to have accepted.


There is also something known as a Deed of Variation whereby it may be possible to amend the terms of the will. Without detailed knowledge of the will it cannot be stated if there is any possibility of reducing inheritance tax liability, probably not, but it could be investigated.

Keep_pedalling

If this was a PET gift the tax would normally come out of the remaining estate. If the same applies to a GWR then all the tax would also fall on the remainder unless the gift was over the nil rate band.

Another consideration is that giving your main residence away also means your estate has lost the ability to claim the primary residence nil rate band. If GF was a widower then that is up to an additional £100,000 in IHT. I predict big family trouble, especially as the executor was involved in managing his father’s estate while he was alive.

[Deleted User]

Keep_pedalling wrote: »

If this was a PET gift the tax would normally come out of the remaining estate. If the same applies to a GWR then all the tax would also fall on the remainder unless the gift was over the nil rate band.

Another consideration is that giving your main residence away also means your estate has lost the ability to claim the primary residence nil rate band. If GF was a widower then that is up to an additional £100,000 in IHT. I predict big family trouble, especially as the executor was involved in managing his father’s estate while he was alive.

Yes - i was going to make that latter point also. However, it seems that there are four properties in the mix so probably not relevant.

Keep_pedalling

[Deleted User] wrote:

Yes - i was going to make that latter point also. However, it seems that there are four properties in the mix so probably not relevant.

Only the primary residence counts to claim PRNRB, and that appears to be the one given away, so I am pretty sure it is relevant.

Obviously no professional advice was sort at the time, but it is definitely needed now.