Payment of IHT issue

TrishaN

My father has left his house to me and my brother, however it has been left in trust as his partner has a life tenancy.  She also owns her own house which she rents out.  There aren’t funds in the estate to pay the IHT and so the house should really be sold in order to pay the fees.  The sale of the house will pay the fees and also buy another smaller property for our fathers partner to live in as a life tenancy.  The Executor refuses to sell the house to pay the IHT on the grounds that the sale outweighs the benefits and is therefore preserving the estate value.  She and our fathers partner are saying that his partner will pay the IHT due if we enter into a loan agreement and pay interest on the loan when she passes, and that the loan amount and interest is paid back to her estate on her passing.  We will have to pay CGT when we eventually sell the property and don’t think it is fair that we pay interest on a loan when the property is for her lifetime benefit and the value of the property can comfortably pay the IHT and buy a new property. We have resisted this for one year, our father died two years ago, we see no resolution.  We have been forced to use our own Solicitors as we have had some other issues along the line and trust has broken down.  Just wondering from anyone’s experiences if we can ask HMRC to force the sale to pay the IHT? Is the Executor allowed to refuse the sale?  We have also incurred over £2k in penalty charges so far because of the delay in the payment to HMRC and we are responsible for the estate solicitors costs and trust costs too which will form part of the loan.   Do we have any redress?  It all seems so unfair to us when it could be solved by selling the property. Please can you give your experiences if any or comments and advice.  I am contacting HMRC next week to try to obtain advice from them. Thank you 

Bobziz

What is the value of his estate and how much IHT is due ? What has your solicitor advised ?

TrishaN

The estate is valued at £430. Our solicitor is really being guided by our defiance to pay interest, but I wonder whether anyone would have experience of a forced sale by the HMRC ? 

TrishaN

Sorry - the IHT due is around £60k but she is offering to pay all other costs too so that she can remain in the property. 

Bobziz

I assume you've confirmed that his estate doesn't benefit from the rnrb ? Seems unlikely that it would, and if this is the case then the iht payable should be closer to £40k. You can pay this over 10 years, but would need to pay interest on this. Is the Will silent on how iht should be paid?

TrishaN

No, doesn’t benefit from mrb and we are too late to pay by instalments.  The amount of the IHT isn’t the problem, it’s the issue we have with resistance to sell the house to pay the IHT, solicitors fees etc and the proposal by our fathers partner to pay all these costs and charge us interest for doing so, when she is offering to pay so that the house isn’t sold so she can remain there.  So to not sell it is for her benefit.  She will still have a home if it’s sold as we will provide that. The Will states that we are left the residue of the estate after all costs are paid, which is fine, but the Estate Solicitor is defending the proposed action.  My question is can HMRC force the sale so we can end the issue around interest on any loan and the prolonged wrangling which is adding to the HMRC interest costs? Thank you 

Bobziz

I don't think HMRC can dictate how the money to pay the IHT is raised. I'm assuming that as the tax hasn't been paid, you haven't got probate and therefore couldn't sell the house anyway. It seems that a loan will be required. This may help: https://www.barkerevanslaw.co.uk/2019/02/inheritance-tax-cant-pay-wont-pay/

HHarry

Definitely too late for instalments ?

From the Gov website - 

What you pay interest on

You will not pay any interest on the first instalment unless you pay late.

TrishaN

Thanks but the money isn’t there to pay instalments anyway 

xylophone

The IHT needs to be paid. The Executor knows that there is no cash in the estate. She could ask the beneficiaries to arrange a bank loan if they are not in a position to stump up the cash.

The beneficiary of the IIP is willing to lend the estate the money. You could argue self interest since this enables her to stay in the property but you do have to face the fact that your father, who owned the property, wanted her to benefit in this way. Knowing that she owned property of her own, he could have chosen to leave the property to you and your brother without involving her at all?
You could argue that your problem arises from  your father's failure, ( or his solicitor's failure), to anticipate the IHT consequences of his decision.

Neither you nor your brother is in a position to borrow the money to pay the IHT? This would negate the need for a loan from the partner but you would end up paying interest to a financial institution.


Is the plan that the interest on the loan would roll up and be paid with the capital to the partner's estate on death?

Once probate is granted, the Executor will be able to register the property in the name of the Trustees - presumably the partner's solicitor will register a charge in respect of the loan and a restriction in respect of the interest in possession?

When the partner dies, will it be the case that the value of the IIP will be counted as part of her death estate for IHT purposes?   There may be tax implications for you as the Trustees of the IIP Trust. You can google "Tolley Chapter 12 interest in possession trusts IHT issues" 


Presumably the property would be sold as soon as possible after the death of the partner.
You mention CGT but as the property would have been the partner's PPR, could  you as Trustees claim a PPR exemption?

Is your solicitor an expert in Wills and Trusts? Has he actually given you any advice?

TrishaN

Thank you for your helpful response. Please forgive my limited understanding as this is all new to me.   Regarding the suggestion that the beneficiaries (my brother and I) arrange a bank loan, surely it isn’t our responsibility to pay the IHT? My understanding is that costs should be paid from the estate and that it is the Executors duty to ensure all payments are made.  The Will states that all costs should be paid and  we are left “the residuary estate”  Would the fact that it will be held in Trust for the lifetime benefit of his partner (this has yet to be done) prevent the house from being eventually sold to pay the IHT, as this would be our preferred solution? We could not and would not want to apply for a loan.  Moreso if the property were able to be used to pay the debt. 

We are not sure of the reasoning behind our fathers wishes for his partner to remain in the property, probably so that she could receive a rental income from her own property but it is what it is. 

The suggestion is for the whole loan amount (is this the capital you refer to??) plus interest to be paid to her estate on death.

The Executor is also the Trustee.  Our relationship has broken down and so we find ourselves having to query every action.   Are you able please to explain the charge on the loan and restriction in respect of IIP and how that works? There had been talk about a charge on the loan and a fee for setting up the Trust but we have no details yet of this or how it works?  We haven’t been advised of any restriction in respect of IIP at this stage. 

Your para re the value of the IIP being counted as part of her death estate for IHT purposes - we are not the Trustees, the Executor is - does this mean that the Trustee could pass on any tax implications to us/the estate? Could you please explain what you mean by “the value of the IIP”? 

Thank you for the advice regarding possible PPR exemption as we were not aware of this.  

We engaged our Solicitors initially as there were many things not being carried out by the Executor in accordance with our fathers wishes, we also suspect some fraudulent behaviour, which they are currently helping us with.  As it’s very complex our Solicitors are being guided by our requests.  They do have experience in this field and are advising us but we are consistently being met with resistance by the Estate Solicitors.  We don’t believe that either the Estate Solicitors or the Executor are acting in our best interests, hence the problems.  The bottom line is that we refuse to pay interest on a loan because the property is for the lifetime benefit of the life tenant (Junior Counsel advised us on this) or the property is sold to pay costs and a smaller property is purchased for the life tenant, but they are resisting this and stating that the only option is a loan with interest.  We cannot see a way forward.  Thank you for any help and advice you are able to give, it is very much appreciated.  

Trisha