Advice please

maxinelouise48

8 years ago my Dad died leaving his estate to be divided between my step mum , myself and my sister.. really complicated but a deed of variation redirected mine and my sisters share to a trust ( with my stepmum to receive a life interest) the trust was then terminated and myself & sister given 1/2 each ... we were not made aware of any IHT payment occurring if the stepmum then died within 7 years so we’re not advised to retain funds or take out life insurance on her ...
6 years later my stepmum passed away ( by this stage myself and my sister had cut all contact with her ... chronic alcoholism ( another long story) 
we were not informed she had died until 5 months later when one of our 3 step siblings got in touch for the first time in 35 years ( her 3 children had nothing to do with her in over 35 years apart from one who appeared after my Dad died and apparently had £££ signs flashing in her head )  the stepsister who contacted us asked my late dads Cypriot estate which my stepmum had inherited as the other stepsister had taken on pr as uk and was withholding any information from the others.. 
In October that year so 11 months after the stepmum died we were asked to sign a form to release paperwork from dad’s estate solicitor which we did 
then may this year 18 months after death we received a letter stating myself and my sister owed 130k each on inheritance tax as the trust became a failed PET 
our solicitor has confirmed that this is the case .. we were absolutely not told this might happen or advised in accordance 
I put my money into property ( my home ) and made gifts to my children so do not have the IHT tax requested to pay 
I have read that if I can’t pay the estate becomes liable can anyone confirm this as I’m worried sick
thank you for reading this long rambling post 

pphillips

It seems like you received either no advice or terrible advice at the time!
Sorry to say this but you and your sister are liable for the inheritance tax on the failed PET, you can't ask the estate to take the hit.
Who told you that you owed £130,000 in inheritance tax and does the bill take into account the available nil rate band and taper relief?

Jeremy535897

My understanding is that if the donees don't pay the tax, the estate will pay it, and have a right of recovery against the donees. Unless there were other earlier gifts, the nil rate band of £325,000 should be available. Taper relief should also be available. See 
https://www.gov.uk/inheritance-tax/gifts 

If the tax rate is 8% (6 years' taper relief) and the nil rate band was available, to produce an inheritance tax liability of £260,000 between the two sisters would mean the gross gift to each daughter was about £1.78 million.

maxinelouise48

Thanks for your replies 
it is the solicitor acting for the stepmums estate that has told us we owe IHT. after speaking to the solicitors that dealt with my Dads estate this has been confirmed so yes we were not given the relevant advice regarding this situation arising when we should have been ...  I think the taper relief comes in the 5-6 years ( 16%) bracket as it’s the date the trust was dissolved that is used... 
the amount received via the trust was 574k each after the nil band rate was used ..
thanks again 

pphillips

If the firm of solicitors involved in dissolving the trust failed to advise you and your sister on the consequences then you should make a complaint. Solicitors have to carry professional indemnity insurance for their negligent acts and omissions.

maxinelouise48

Thank you , we will definitely be doing that , 
it’s all very cloak and dagger with them , both solicitors who managed my dads estate are no longer employed by them, they sent a screenshot of minutes from a meeting that mentions taking out life insurance on my step mum and IHT but that was for a different type of trust that didn’t happen as we knew we wouldn’t get life insurance on her as she was diagnosed with an alcohol addiction ..and we said we didn’t want all the hassle that the trust they were talking about would entail .. I think the screenshot is them saying that’s your advice ! 

They now say for £225 an hour with an upfront payment they’ll check the calculations we’ve been given ... 
thanks again for your reply and time 

Jeremy535897

The calculations must already have been done to give you the figure they say you owe. If they expect you to pay, you would expect to see their calculations at no cost. As they have presumably paid the inheritance tax, they would need to support their calculations if they took any action against you for recovery. It sounds as if you got £1,473,000 between you, on which inheritance tax would presumably be £184,000, rather less than £260,000.

Sibbers123

It’s impossible to calculate the IHT with the information provided. There may be numerous other PETs made by your step-mum and the amount of NRB and RNRB will depend on a number of factors.

You have the funds to pay, it’s just not in cash by the sounds of it.

You can complain about the solicitors but you won’t get anywhere unfortunately. They haven’t given incorrect advice, they just haven’t been very proactive. Even if they informed you, the IHT would still be payable, so it would be hard to argue you have suffered a loss as a result either.

pphillips

Sibbers123 said:

It’s impossible to calculate the IHT with the information provided. There may be numerous other PETs made by your step-mum and the amount of NRB and RNRB will depend on a number of factors.

You have the funds to pay, it’s just not in cash by the sounds of it.

You can complain about the solicitors but you won’t get anywhere unfortunately. They haven’t given incorrect advice, they just haven’t been very proactive. Even if they informed you, the IHT would still be payable, so it would be hard to argue you have suffered a loss as a result either.

How do you know that inheritance tax position would be the same if the solicitor had provided advice?
Why is a solicitor not responsible for the advice that they fail to provide?

sheramber

maxinelouise48 said:

Thank you , we will definitely be doing that , 
it’s all very cloak and dagger with them , both solicitors who managed my dads estate are no longer employed by them, they sent a screenshot of minutes from a meeting that mentions taking out life insurance on my step mum and IHT but that was for a different type of trust that didn’t happen as we knew we wouldn’t get life insurance on her as she was diagnosed with an alcohol addiction ..and we said we didn’t want all the hassle that the trust they were talking about would entail .. I think the screenshot is them saying that’s your advice ! 

They now say for £225 an hour with an upfront payment they’ll check the calculations we’ve been given ... 
thanks again for your reply and time 

So, you thought thee information only  applied to a specific trust.The solicitor consider  that what they told you about IHT  applied to the trust that was set up as well.

Keep_pedalling

You certainly need professional advice, but make sure it is with a tax specialist. By shifting youR inheritance into a LIT you avoided paying IHT on your father’s estate but it is only kicked down the road until the trust was wound up so you definitely owe some, but you need to make sure you are paying your fair share, in particular how his nil rate band has been used.

How much did you and your sister receive from the trust? To be liable for that amount of tax you would be looking at £650k of taxable inheritance (£975k less his NRB)