Probate, intestacy and inheritance tax thresholds

mal79

Hi all,

Following the recent passing of my mum, I'm looking to sort out the estate but am having trouble figuring out what thresholds apply. 

Some background first.  Mum and dad were married, owned the family home and had two children (me and sister).  Dad passed ten years ago without a will.  Me and sister acted as executors as mum was unable.  Mum died recently, also without a will.

When dad died, we completed the IHT205 form.  As I understand it, dad's share of the house automatically passed to mum, so the net value of the estate was the remaining assets minus debts, which was approx £60k.  Mum continued to live in the house and received all moneys recovered from dad's estate.

Mum's estate comprises of the house and cash/assets, with an approx total estate of £600k.  What I am trying to understand is how the inheritance tax thresholds work given the circumstances. 

In particular, I am unclear about what happens regarding the nil rate band that applied to my dad, £325k at time of his death.  Can this (or the remainder, given his estate was reported as £60k) be transferred to mum's estate, or would this not be possible due to him having died intestate?  The "£250k + 50% of remainder to spouse" part of the intestacy rules that applied at time of dads death are confusing me here.  Do the intestacy rules have a direct effect on the inheritance tax thresholds, or am I confusing two different things?

On a similar note, I understand that a Residence Nil Rate Band was introduced a few years ago, and as it wasn't around at the time of my dad's passing, 100% of this could be transferred to mum's estate. If somehow, we can't transfer the main IHT threshold, could this come into play?

My thinking is that the intestacy rules on beneficiaries of an estate (i.e. Dad>Mum>Children) follow the general criteria set out for transferring the various inheritance tax thresholds/ allowances, which should therefore apply.  Or am I completely misunderstanding how this all works and potentially facing a big bill?

Any advice would be greatly appreciated. Thanks.

Mal79

pphillips

The transferable NRB from you dad to your mum is £325,000 less gifts to anyone other than his spouse.

I believe the transferrable RNRB is relevant because when your dad died, a notional half share of the house passed from his estate to your mother's estate.

The IHT threshold your mother's estate should therefore be £1 million.

naedanger

mal79 said:

Hi all,

Following the recent passing of my mum, I'm looking to sort out the estate but am having trouble figuring out what thresholds apply. 

Some background first.  Mum and dad were married, owned the family home and had two children (me and sister).  Dad passed ten years ago without a will.  Me and sister acted as executors as mum was unable.  Mum died recently, also without a will.

When dad died, we completed the IHT205 form.  As I understand it, dad's share of the house automatically passed to mum, so the net value of the estate was the remaining assets minus debts, which was approx £60k.  Mum continued to live in the house and received all moneys recovered from dad's estate.

Mum's estate comprises of the house and cash/assets, with an approx total estate of £600k.  What I am trying to understand is how the inheritance tax thresholds work given the circumstances. 

In particular, I am unclear about what happens regarding the nil rate band that applied to my dad, £325k at time of his death.  Can this (or the remainder, given his estate was reported as £60k) be transferred to mum's estate, or would this not be possible due to him having died intestate?  The "£250k + 50% of remainder to spouse" part of the intestacy rules that applied at time of dads death are confusing me here.  Do the intestacy rules have a direct effect on the inheritance tax thresholds, or am I confusing two different things?

On a similar note, I understand that a Residence Nil Rate Band was introduced a few years ago, and as it wasn't around at the time of my dad's passing, 100% of this could be transferred to mum's estate. If somehow, we can't transfer the main IHT threshold, could this come into play?

My thinking is that the intestacy rules on beneficiaries of an estate (i.e. Dad>Mum>Children) follow the general criteria set out for transferring the various inheritance tax thresholds/ allowances, which should therefore apply.  Or am I completely misunderstanding how this all works and potentially facing a big bill?

Any advice would be greatly appreciated. Thanks.

Mal79

The intestacy rules make no difference. As you Dad's total estate went to your mother then your mother's estate can use your father's full NRB - at its current value - i.e.£325k. (This assumes no gifts were made by your father to anyone other than your Mum in the seven years prior to his death.)

You can also claim a RNRB iro your Dad since it was not used by your father. (The fact it didn't exist then doesn't matter.)

So the total is £650k plus the value of the house your mother has left her children up to £350k. So up £1 million provided you claim all allowances. 

If either your Mum or Dad made gifts in the seven years prior to their deaths the amount will be reduced but unless they made very large gifts the estate should be well below the maxium claimable allowance.

PS The reference to "[personal effects plus] £250k + 50% of remainder to spouse" is what your mother should have inherited from your father's estate under the intestacy rules. Since his estate was less than £250k she inherited the lot. 

mal79

Thanks pphillips and naedanger. 

That is logical when I think about it - the intestacy rules being an attempt to fairly distribute an estate in absence of a will, and the inheritance tax rules covering the value of an estate over the £325k threshold not passing to the surviving spouse.  As the value of dad's estate was well under the limits set out intestacy rules, it all went to mum.

Looking at the IHT205 we did for dad, there was a gift of approx £8k a couple of years prior to his passing, so full NRB not available to transfer.  From what I can see, that means I have to complete the IHT400 form (instead of IHT205) along with the IHT402 to transfer unused NRB (and IHT436 for RNRB if it was needed).

Thanks again

Mal79

naedanger

mal79 said:

Thanks pphillips and naedanger. 

That is logical when I think about it - the intestacy rules being an attempt to fairly distribute an estate in absence of a will, and the inheritance tax rules covering the value of an estate over the £325k threshold not passing to the surviving spouse.  As the value of dad's estate was well under the limits set out intestacy rules, it all went to mum.

Looking at the IHT205 we did for dad, there was a gift of approx £8k a couple of years prior to his passing, so full NRB not available to transfer.  From what I can see, that means I have to complete the IHT400 form (instead of IHT205) along with the IHT402 to transfer unused NRB (and IHT436 for RNRB if it was needed).

Thanks again

Mal79

Was the gift all from your Dad or was it half from your Dad and half from your Mum? If it was the later then it may be under the annual allowance plus a carry forward allowance. Otherwise you do need to do the full IHT400 forms and schedules.

mal79

naedanger said:

mal79 said:

Thanks pphillips and naedanger. 

That is logical when I think about it - the intestacy rules being an attempt to fairly distribute an estate in absence of a will, and the inheritance tax rules covering the value of an estate over the £325k threshold not passing to the surviving spouse.  As the value of dad's estate was well under the limits set out intestacy rules, it all went to mum.

Looking at the IHT205 we did for dad, there was a gift of approx £8k a couple of years prior to his passing, so full NRB not available to transfer.  From what I can see, that means I have to complete the IHT400 form (instead of IHT205) along with the IHT402 to transfer unused NRB (and IHT436 for RNRB if it was needed).

Thanks again

Mal79

Was the gift all from your Dad or was it half from your Dad and half from your Mum? If it was the later then it may be under the annual allowance plus a carry forward allowance. Otherwise you do need to do the full IHT400 forms and schedules.

Gift was all from Dad, so looks like the IHT 400 forms and schedules.  I'm going through the forms and schedules now and they look fairly straightforward.  Quite thankful that my parents didn't have any complicated financial arrangements...

Thanks
Mal79

naedanger

mal79 said:

naedanger said:

mal79 said:

Thanks pphillips and naedanger. 

That is logical when I think about it - the intestacy rules being an attempt to fairly distribute an estate in absence of a will, and the inheritance tax rules covering the value of an estate over the £325k threshold not passing to the surviving spouse.  As the value of dad's estate was well under the limits set out intestacy rules, it all went to mum.

Looking at the IHT205 we did for dad, there was a gift of approx £8k a couple of years prior to his passing, so full NRB not available to transfer.  From what I can see, that means I have to complete the IHT400 form (instead of IHT205) along with the IHT402 to transfer unused NRB (and IHT436 for RNRB if it was needed).

Thanks again

Mal79

Was the gift all from your Dad or was it half from your Dad and half from your Mum? If it was the later then it may be under the annual allowance plus a carry forward allowance. Otherwise you do need to do the full IHT400 forms and schedules.

Gift was all from Dad, so looks like the IHT 400 forms and schedules.  I'm going through the forms and schedules now and they look fairly straightforward.  Quite thankful that my parents didn't have any complicated financial arrangements...

Thanks
Mal79

Yes, lots of pages but actually the number of figures you need to enter isn't nearly as bad as it might at first appear. Also when you know the estate is well under the IHT threshold it is easier since you can enter conservative estimates, e.g. for the value of personal possessions etc, without any adverse consequences.