Inheritance Tax and how it's calculated

AgRegina

Hi - my father in law died in 2011 leaving his estate in trust with the income going to his second wife for her lifetime.  It was set up in this fashion as they both remarried late in life and it was protect their existing families and their individual estates - one being much larger than the other.  His second wife died in 2018 and father in law's trust was valued at £386472.55 net  ie £61472.55 over IHT threshold.  His second wife's estate was valued at £607,853.00 ie £282853 over IHT threshold.  The solicitors have aggregated the two parts and arrived at an IHT burden of £137730.22 of which my late father in law's trust has to pay - well has already paid £53,532.96 to HMRC - which by my simple arithmetic means my late father in law's estate is paying tax at 87%.  The executor's solicitors - Lloyd's Bank assures me this is correct but it appears to me the lesser estate is actually subsidising the larger or being penalised for being smaller. Taken to absurdity if the smaller estate was below the IHT threshold it would still pay tax - this surely can't be correct?  Or am I being too simplistic?

Yours looking of clarity of the situation and plain English

Dox

Without knowing the structure of the trusts, it's impossible to answer with certainty. I'd put the question to Lloyd's Bank and ask them to explain why it is correct. 

xylophone

The second wife benefited from a " qualifying interest in possession"?
If you type 
qualifying interest in possession trust inheritance tax on death into Google, you should be able to pick up Tolley Chapter 12 IIP Trusts -IHT issues which may help with the calculation.
Following example calculation in the above
The value of the IIP is added to the late wife's estate  = £994,325.
Divide  the value of your father's trust (£386,472)  by £994,325 =  0.38867774621
Multiply by the IHT to be charged (£137,730)  = £53,532 - this agrees with the calculation done by LLoyds.

getmore4less

Is there no relevant residential nil rate band that can be used.?

xylophone

Is there no relevant residential nil rate band that can be used.?

As the IHT on an estate of £994,325 has been calculated as only £137,730, it would seem that any available allowance has been given?

relaxtwotribes

That amount of IHT suggests only 2 NRBs totalling £650k utilised, so might well be worth looking into the residential NRBs.

getmore4less

Even if no house now downsize rules may be relevant. 
Any other pre deceased spouses?