Sharing an inheritance and tax implications

Johnnyy_Boy

My partners step dad died a while ago and the property he had has now been sold. He didn't leave a will. Her sister has taken taken care of his finances and things are almost completed with everyone paid.

The question is, can the money left be shared between 3 people (two daughters and a grand child) without any tax implications. ie the money is with one sister and she will give to her sister and child. The value is under the inheritance tax threshold of 325k. Thanks

Savvy_Sue

There are no tax implications but there are legal niceties to consider.

It may be fine, but ...

What do the rules of intestacy say?

If they give a different division to the one proposed, is everyone happy?

Is anyone in receipt of means tested benefits?

Keep_pedalling

As he died intestate the money should be divided equally between between his children. His grandchild has no claim on a share unless she is the daughter of a child who predeceased her father. 

Assuming that is not the case then the GD can only relieve 1/3 of the estate if the entitled beneficiaries agree to give up some of their own inheritance. Is the GD an adult?

Twixty3

Are step children not recognised unless they have been adopted in intestacy rules ? 

Maybe he has other children that you are referring to. 

Johnnyy_Boy

Savvy_Sue said:

There are no tax implications but there are legal niceties to consider.

It may be fine, but ...

What do the rules of intestacy say?

If they give a different division to the one proposed, is everyone happy?

Is anyone in receipt of means tested benefits?

No one is on benefits at all

unforeseen

Twixty3 said:

Are step children not recognised unless they have been adopted in intestacy rules ? 

Correct, unless formally adopted by the deceased, step children do not fall into the intestacy rules. 

RAS

Johnnyy_Boy

If the two sisters you are referring to are step-children to the deceased, they inherit nothing unless there was a will. How did they get probate/administration?

Is the grand-child descended from one of the sisters, or a deceased half-sibling?

Johnnyy_Boy

RAS said:

Johnnyy_Boy

If the two sisters you are referring to are step-children to the deceased, they inherit nothing unless there was a will. How did they get probate/administration?

Is the grand-child descended from one of the sisters, or a deceased half-sibling?

One sister is from the deceased and she has the child, whilst the other is a step child.

it’s actually all very amicable. The sister has done probate and is willingly going to share with her child and step sister. The question is can she share that with the other two with no tax implications for anyone.

I probably didn’t explain it very well from the start. 

RAS

OK.  This is a basic response, others can explain in more detail.

The big question is not regarding tax but regarding the birth child. If she is on benefits or even seriously ill, then the issue of deprivation of assets is the biggy.

If the sister/administrator is not claiming benefits and does not intend to in the nearish future, then gifting is OK. The problem would be that if she is or has to claim benefits, then it will be assumed that she inherited the entirely of the estate, not just the portion she retained. And she will be prevented from receiving any support until such time as the whole sum is considered to have been spent (roughly the sum she's given away divided by the annual sum of the benefits to which she would have been entitled). Several years down the line and an unexpected problem would be viewed differently to one where she knew that her employment was under threat, for example.

Both the step-sister and grandchild would have to declare any gift if they receive benefits and the gift means they have more than the savings allowance.

If however the sister/administrator has health issues that might lead to her needing care in the near/middle future, then there is the further issue. Again, it is possible that she could be assumed to have the whole inheritance is it was felt that she'd given away the money to prevent it being used for care.

IHT remains payable on a gift for for 7 years. Here's a basic guide How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK (www.gov.uk)

So the step-child and grandchild might be wise to retain a portion of their gift for several years if there is any risk that the sister/Administrator's own estate would exceed the IHT limit.

Keep_pedalling

If claiming benefits or requiring care is not likely in the near future then I think it is safe to ignore the DOA thing.

If the sole beneficiary has assets in or nearing IHT territory then rather than make simple gifts it would be better to make a deed of variation as that avoids the money going into her estate avoiding having to rely on the 7 year rule.

getmore4less

RAS said:

IHT remains payable on a gift for for 7 years. Here's a basic guide How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK (www.gov.uk)

So the step-child and grandchild might be wise to retain a portion of their gift for several years if there is any risk that the sister/Administrator's own estate would exceed the IHT limit.

Any tax liability remains with the gifters estate unless very large gifts.

No need to for the recipients to retain  anything.