Inheirtance Tax on large estate and no will

getmore4less

Marcon said:

Bolt1234 said:

I have told them they MUST do a will to resolve all of this but somehow people seem to think that as long as its in your head somehow all your wishes will come to pass

They clearly aren't listening and there is no 'must' about it if they don't want to. Disappointing that everyone seems to have focussed on the tax position and not considered that the absence of a will means there were never any guardianship arrangements in place for the children - one of whom is still under age.

Instead of faffing and fuming about tax, point that out to them and see if they care enough about the child to make a will.

Guardian arrangements can be be made outside a will, only come into play on second death.

Mickey666

Keep_pedalling said:

Mickey666 said:

Keep_pedalling said:

Mickey666 said:

Given there is no will then the intestacy rules will apply.

This means the first £270k goes to the spouse.
Then 50% of the remainder goes to the spouse.
Then the remaining 50% is divided by between the children.

Spousal inheritance is not subject to IHT and does not use up any of the deceased's IHT allowance.

So the issue is the children's inheritance for which £500k is allowable before IHT.  Anything over that will be subject to IHT.

So by my reckoning, if the estate is worth exactly £2m then the spouse will receive £270k + (50% of £2m-£270k) =  £1135k free of any IHT.

The children will share £865k, of which £500k will be free of IHT, leaving £365k liable to IHT, which at 40% will be £146k

So the children will receive a total of £865k - £146k = £719k or £359,500 each.

Assuming my calcs are correct and the parents are happy with that outcome then I suppose they don't NEED to write a will because the intestacy rules are a form of 'default' will, and the executor will have no choice but to implement that outcome.

There will likely be practical complications arising from the house value, however, because if the children's share of the estate cannot be paid without selling the house then it would mean the children gain partial ownership, which could give rise to further complications.

One final thought, about which I'm not so clear.  The £500k IHT allowance is comprised of £325k plus an additional £175k because the house is being left to the children (even under the intestacy rules).   

However, I'm not clear about whether than means the PHYSICAL house or just the VALUE of the house.  If the estate sells the house before distribution, is the £175k IHT allowance lost?

I don't know the answer but the implications are clear.


But they should definitely write a will.  I'd have thought that anyone with a £2m-ish estate can afford a few £100 to ensure that things are properly distributed as they wish.

There are some complications to those figures. It is likely that the family home is owned as joint tenants, so the house will pass to the surviving spouse and will not count as part of the inheritable estate. The survivor therefore get the house + £270k + 50% of the remainder. In those circumstances the residential NRB would not be usable, so IHT would only an issue on the first death if the amount going to the children exceeds £325k, so if the house makes up more than half of their net worth then IHT on the first death is unlikely.

One thing I'm not entirely sure about is the £175k residential NRB for IHT calculations.  Is this only valid if the PHYSICAL property is passed on to the children or can it be sold by the estate and the proceeds distributed to the children and still qualify for the additional £175k NRB?

The house does not have to actually pass to the children, it can even be sold before death to move into care or more suitable accommodation.

But surely if the house is sold before death to pay for care home fees then there is no home to pass on and so the additional £175k IHT allowance would not apply?

getmore4less

Mickey666 said:

Keep_pedalling said:

Mickey666 said:

Keep_pedalling said:

Mickey666 said:

Given there is no will then the intestacy rules will apply.

This means the first £270k goes to the spouse.
Then 50% of the remainder goes to the spouse.
Then the remaining 50% is divided by between the children.

Spousal inheritance is not subject to IHT and does not use up any of the deceased's IHT allowance.

So the issue is the children's inheritance for which £500k is allowable before IHT.  Anything over that will be subject to IHT.

So by my reckoning, if the estate is worth exactly £2m then the spouse will receive £270k + (50% of £2m-£270k) =  £1135k free of any IHT.

The children will share £865k, of which £500k will be free of IHT, leaving £365k liable to IHT, which at 40% will be £146k

So the children will receive a total of £865k - £146k = £719k or £359,500 each.

Assuming my calcs are correct and the parents are happy with that outcome then I suppose they don't NEED to write a will because the intestacy rules are a form of 'default' will, and the executor will have no choice but to implement that outcome.

There will likely be practical complications arising from the house value, however, because if the children's share of the estate cannot be paid without selling the house then it would mean the children gain partial ownership, which could give rise to further complications.

One final thought, about which I'm not so clear.  The £500k IHT allowance is comprised of £325k plus an additional £175k because the house is being left to the children (even under the intestacy rules).   

However, I'm not clear about whether than means the PHYSICAL house or just the VALUE of the house.  If the estate sells the house before distribution, is the £175k IHT allowance lost?

I don't know the answer but the implications are clear.


But they should definitely write a will.  I'd have thought that anyone with a £2m-ish estate can afford a few £100 to ensure that things are properly distributed as they wish.

There are some complications to those figures. It is likely that the family home is owned as joint tenants, so the house will pass to the surviving spouse and will not count as part of the inheritable estate. The survivor therefore get the house + £270k + 50% of the remainder. In those circumstances the residential NRB would not be usable, so IHT would only an issue on the first death if the amount going to the children exceeds £325k, so if the house makes up more than half of their net worth then IHT on the first death is unlikely.

One thing I'm not entirely sure about is the £175k residential NRB for IHT calculations.  Is this only valid if the PHYSICAL property is passed on to the children or can it be sold by the estate and the proceeds distributed to the children and still qualify for the additional £175k NRB?

The house does not have to actually pass to the children, it can even be sold before death to move into care or more suitable accommodation.

But surely if the house is sold before death to pay for care home fees then there is no home to pass on and so the additional £175k IHT allowance would not apply?

You need to familiarise yourself with the downsizing rules with residential nil rate bands.



A good read of the full HMRC manual is probably worth doing.

the RNRB starts here


https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46000

Bolt1234

Get - that manual is almost unreadable.  I find the only way to find answers to specific questions is to look at my question and either post on a forum like this or if urgent speak to a solicitor.  Reading that manual will confuse people and the average person in the street will be even more confused. 

I had a query about my Father moving into a care home and selling his house.  Would it still be eligible for the additional allowance as he would no longer own when he passed.  I called HMRC and they were very helpful. That is all I wanted to know at this time.

Mickey666

Bolt1234 said:

Get - that manual is almost unreadable.  I find the only way to find answers to specific questions is to look at my question and either post on a forum like this or if urgent speak to a solicitor.  Reading that manual will confuse people and the average person in the street will be even more confused. 

I had a query about my Father moving into a care home and selling his house.  Would it still be eligible for the additional allowance as he would no longer own when he passed.  I called HMRC and they were very helpful. That is all I wanted to know at this time.

. . . don't leave us in suspense!  What was the answer?

getmore4less

Bolt1234 said:

Get - that manual is almost unreadable.  I find the only way to find answers to specific questions is to look at my question and either post on a forum like this or if urgent speak to a solicitor.  Reading that manual will confuse people and the average person in the street will be even more confused. 

I had a query about my Father moving into a care home and selling his house.  Would it still be eligible for the additional allowance as he would no longer own when he passed.  I called HMRC and they were very helpful. That is all I wanted to know at this time.

For people like Mickey666 who is trying to answer questions on a forum they need to have a greater understanding of the subject or where to find the relevant information.

Bolt1234

The answer is yes.  He would still be eligble.  The house was sold recently.  

Bolt1234

He has left his money to his three children and his estate is not worth more than £2m overall.  It might not be relevant shortly as we have shares in Triple Point to mitigate the inheirtance tax bill when the time comes which includes the money from the  sale of the house.   He only needs to have those shares for 2 years.   Not ideal but he had made no arrangements at all and yes we did take financial advice. 

Mickey666

getmore4less said:

Bolt1234 said:

Get - that manual is almost unreadable.  I find the only way to find answers to specific questions is to look at my question and either post on a forum like this or if urgent speak to a solicitor.  Reading that manual will confuse people and the average person in the street will be even more confused. 

I had a query about my Father moving into a care home and selling his house.  Would it still be eligible for the additional allowance as he would no longer own when he passed.  I called HMRC and they were very helpful. That is all I wanted to know at this time.

For people like Mickey666 who is trying to answer questions on a forum they need to have a greater understanding of the subject or where to find the relevant information.

If I had a greater understanding of the subject or where to find the relevant information then I wouldn't need to ask the question on a forum!

If everyone here shared your view then we might as well shut the forum down now.

getmore4less

Mickey666 said:

getmore4less said:

Bolt1234 said:

Get - that manual is almost unreadable.  I find the only way to find answers to specific questions is to look at my question and either post on a forum like this or if urgent speak to a solicitor.  Reading that manual will confuse people and the average person in the street will be even more confused. 

I had a query about my Father moving into a care home and selling his house.  Would it still be eligible for the additional allowance as he would no longer own when he passed.  I called HMRC and they were very helpful. That is all I wanted to know at this time.

For people like Mickey666 who is trying to answer questions on a forum they need to have a greater understanding of the subject or where to find the relevant information.

If I had a greater understanding of the subject or where to find the relevant information then I wouldn't need to ask the question on a forum!

If everyone here shared your view then we might as well shut the forum down now.

Trying to answer peoples question is when the problems start as it is very easy to get somethings wrong as what applies in one situation may not apply in other new ones.

eg. The rules around the transferable RNRB are often a cause for confusion as some people think the first  deceased had to have relevant property and/or close inheritors.