How to calculate values for probate?

lr1277

Hi

I would like to know how you calculate values for probate in order to pay IHT? I have looked around a few sites, including dot gov sites and I am still unclear.

I am currently nowhere near the IHT threshold, but could be at some point in the future.

I am making some money by trading shares and other financial products. When I make a profit, I set aside 20% of the profit in a savings account to pay tax on my self-assessment return.

So in applying for probate, I think you have to pay IHT on what the estate is worth. Would that include the savings for tax purposes?

Or can you submit self assessment returns for the last financial year (if not done) and the current financial year, pay the necessary taxes and then request probate?

I don't want to be paying IHT on money set aside for CGT.

Do you have any advice in this situation?

Many thanks in advance.

naedanger

lr1277 said:

Hi

I would like to know how you calculate values for probate in order to pay IHT? I have looked around a few sites, including dot gov sites and I am still unclear.

I am currently nowhere near the IHT threshold, but could be at some point in the future.

I am making some money by trading shares and other financial products. When I make a profit, I set aside 20% of the profit in a savings account to pay tax on my self-assessment return.

So in applying for probate, I think you have to pay IHT on what the estate is worth. Would that include the savings for tax purposes?

Or can you submit self assessment returns for the last financial year (if not done) and the current financial year, pay the necessary taxes and then request probate?

I don't want to be paying IHT on money set aside for CGT.

Do you have any advice in this situation?

Many thanks in advance.

Are you talking about (1) your own estate i.e. after you die or are you talking about (2) profits arising on the management of someone else's estate during the administration period.

I think it is (1) you are talking about so will answer on that basis.

When you die the estate has to value all your assets on that date (broadly at the then market value). Any capital gains made during your lifetime are not taxable. Any unpaid taxes (that arose while you were living) will be a debt on your estate. Then your aggregate estate is assessed for IHT. 

In answer to your specific points: any assets in a savings account will count towards your estate even if they are to pay a tax, but the tax due is a debt. Your executor (you will be dead) will need to submit self assessment returns for the last financial year (if not done) and the current financial year (up to the point of your death) and pay the necessary taxes. These taxes will be subtracted from your estates net value prior to the assessment of any IHT. You will have to pay IHT on money set aside for CGT (after allowing for any nil rate bands and allowance etc) but on the positive side your estate won't have to pay CGT on any gains made during your lifetime.  (Any CGT will be based on any gain arising after your death. So if the assets were sold by your estate a year after your death only the gain arising over that year would be liable for CGT. Or if your beneficiaries inherited the asset itself then its acquisition value for future CGT purpose would be its value at the date of your death) .

Marcon

lr1277 said:

Hi

I would like to know how you calculate values for probate in order to pay IHT? I have looked around a few sites, including dot gov sites and I am still unclear.

I am currently nowhere near the IHT threshold, but could be at some point in the future.

I am making some money by trading shares and other financial products. When I make a profit, I set aside 20% of the profit in a savings account to pay tax on my self-assessment return.

So in applying for probate, I think you have to pay IHT on what the estate is worth. Would that include the savings for tax purposes?

Or can you submit self assessment returns for the last financial year (if not done) and the current financial year, pay the necessary taxes and then request probate?

I don't want to be paying IHT on money set aside for CGT.

Do you have any advice in this situation?

Many thanks in advance.

You won't be paying IHT; you'll be dead! As explained in the previous post, any debts owing at the time of your death will be deducted from the value of your estate before it is assessed for IHT.

lr1277

naedanger said:

lr1277 said:

Hi

I would like to know how you calculate values for probate in order to pay IHT? I have looked around a few sites, including dot gov sites and I am still unclear.

I am currently nowhere near the IHT threshold, but could be at some point in the future.

I am making some money by trading shares and other financial products. When I make a profit, I set aside 20% of the profit in a savings account to pay tax on my self-assessment return.

So in applying for probate, I think you have to pay IHT on what the estate is worth. Would that include the savings for tax purposes?

Or can you submit self assessment returns for the last financial year (if not done) and the current financial year, pay the necessary taxes and then request probate?

I don't want to be paying IHT on money set aside for CGT.

Do you have any advice in this situation?

Many thanks in advance.

Are you talking about (1) your own estate i.e. after you die or are you talking about (2) profits arising on the management of someone else's estate during the administration period.

I think it is (1) you are talking about so will answer on that basis.

When you die the estate has to value all your assets on that date (broadly at the then market value). Any capital gains made during your lifetime are not taxable. Any unpaid taxes (that arose while you were living) will be a debt on your estate. Then your aggregate estate is assessed for IHT. 

In answer to your specific points: any assets in a savings account will count towards your estate even if they are to pay a tax, but the tax due is a debt. Your executor (you will be dead) will need to submit self assessment returns for the last financial year (if not done) and the current financial year (up to the point of your death) and pay the necessary taxes. These taxes will be subtracted from your estates net value prior to the assessment of any IHT. You will have to pay IHT on money set aside for CGT (after allowing for any nil rate bands and allowance etc) but on the positive side your estate won't have to pay CGT on any gains made during your lifetime.  (Any CGT will be based on any gain arising after your death. So if the assets were sold by your estate a year after your death only the gain arising over that year would be liable for CGT. Or if your beneficiaries inherited the asset itself then its acquisition value for future CGT purpose would be its value at the date of your death) .

Thank you. Yes I was talking about my own estate. I am not completely clear on your answer.

Let suppose:

My estate is over the ITH threshold.

I have traded shares in the current financial year, which take my gains above the CGT threshold.

I have put aside money in a savings account to pay the CGT for the current financial year (and previous financial year if applicable).

I die tomorrow.

So I have set aside monies to pay the CGT that has arisen in this current financial year.

But the savings set aside should match the debt created by the CGT due? Which should be zero-sum calculation?

I hadn't thought about the CGT generated after I die.

I had planned on all the shares being sold ASAP, taxes paid, and the proceeds distributed as cash. This is because the potential beneficiaries due to their job requirements are not allowed to hold shares in any company.

naedanger

lr1277 said:

naedanger said:

lr1277 said:

Hi

I would like to know how you calculate values for probate in order to pay IHT? I have looked around a few sites, including dot gov sites and I am still unclear.

I am currently nowhere near the IHT threshold, but could be at some point in the future.

I am making some money by trading shares and other financial products. When I make a profit, I set aside 20% of the profit in a savings account to pay tax on my self-assessment return.

So in applying for probate, I think you have to pay IHT on what the estate is worth. Would that include the savings for tax purposes?

Or can you submit self assessment returns for the last financial year (if not done) and the current financial year, pay the necessary taxes and then request probate?

I don't want to be paying IHT on money set aside for CGT.

Do you have any advice in this situation?

Many thanks in advance.

Are you talking about (1) your own estate i.e. after you die or are you talking about (2) profits arising on the management of someone else's estate during the administration period.

I think it is (1) you are talking about so will answer on that basis.

When you die the estate has to value all your assets on that date (broadly at the then market value). Any capital gains made during your lifetime are not taxable. Any unpaid taxes (that arose while you were living) will be a debt on your estate. Then your aggregate estate is assessed for IHT. 

In answer to your specific points: any assets in a savings account will count towards your estate even if they are to pay a tax, but the tax due is a debt. Your executor (you will be dead) will need to submit self assessment returns for the last financial year (if not done) and the current financial year (up to the point of your death) and pay the necessary taxes. These taxes will be subtracted from your estates net value prior to the assessment of any IHT. You will have to pay IHT on money set aside for CGT (after allowing for any nil rate bands and allowance etc) but on the positive side your estate won't have to pay CGT on any gains made during your lifetime.  (Any CGT will be based on any gain arising after your death. So if the assets were sold by your estate a year after your death only the gain arising over that year would be liable for CGT. Or if your beneficiaries inherited the asset itself then its acquisition value for future CGT purpose would be its value at the date of your death) .

Thank you. Yes I was talking about my own estate. I am not completely clear on your answer.

Let suppose:

My estate is over the ITH threshold.

I have traded shares in the current financial year, which take my gains above the CGT threshold.

I have put aside money in a savings account to pay the CGT for the current financial year (and previous financial year if applicable).

I die tomorrow.

So I have set aside monies to pay the CGT that has arisen in this current financial year.

But the savings set aside should match the debt created by the CGT due? Which should be zero-sum calculation?

I hadn't thought about the CGT generated after I die.

I had planned on all the shares being sold ASAP, taxes paid, and the proceeds distributed as cash. This is because the potential beneficiaries due to their job requirements are not allowed to hold shares in any company.

Firstly you will only have to pay gains on shares that you have sold prior to your death. 
I will do an example with some numbers.
I assume your estate's Nil Rate Band is £325,000.
I assume you die this tax year and at your date of death your assets are cash in the bank of £350,000 including £30,000 to pay a CGT bill you have already incurred from shares you sold this financial year (so you have an unpaid tax bill also for £30,0000) .
Your net estate on which IHT applies is cash less debts = £350,000 less £30,000 (being the sum you owe the taxman) = £320,000 which is less than your IHT nil rate band, so no IHT is payable.

If when you die you still own assets (such as house or shares) that might grow in value then your estate is liable to pay CGT on any gains made during the period the estate is in administration (but your estate also get an allowance, so the first £12,500 or so of gains are taxed at 0%). When calculating such gains they are based on the sale value (which would be after your death) less their value at your date of death. So if the executor managed to sell all your assets on the day you died your estate would pay no CGT. Obviously this is extremely unlikely, but if there are any gains by the time your assets are sold then that is actually good news for the beneficiaries since, even after the CGT is paid, the assets will have increased from what they were on the date of your death.

Normally an executor would sell the assets and pay any CGT and distribute proceeds as cash.  But not always e.g. the beneficiaries may express a preference to inherit the actual assets (this is more common for assets such as a house or physical possessions rather than for example shares). If you wish you could stipulate in your will that the shares must be sold, but if you trust the executor to do what the beneficiaries wish, then I wouldn't.

Keep_pedalling

Unless you have been diagnosed with a terminal illness, you are totally overthinking this. If you don’t know when you are going to die how can you possible plan to liquidate your assets in advance? Not that it matters, beneficiaries can always get the executor to sell any equities and take their bequest in cash. 

lr1277

Thanks to the both of you. I think I understand.