How is Inheritance Tax applied to two beneficiaries?

Deisel_Weisel

The answer, no doubt, is found via Google. However, my mother passed away only on Saturday, and my mind is too mushed with grief, so excuse my laziness.  

My Father passed away 12 weeks ago. It’s been a very depressing 3 months. As far as I can tell, by reading Dads will myself, everything then passed to my Mother. Presumably, my next step is to take both my parents wills to a solicitor?

Total assets approximately:

£1m property

£250,000 of bank accounts/savings/investments

How is inheritance tax and the relating threshold applied? To each benefactor, or as a whole?

As each, on a 50/50 split between myself and my brother, that would be £625k gross each.

I initially calculated £625k, minus the IT threshold of £325k. Then 40% tax applied to the remaining £300k = £180k. So total left to each of us would be £505k.

But today, I was informed it’s applied as a whole. So £1.25m gross, minus £325k threshold. Then 40% tax applied to the remaining £900k = £540k. Leaving a total £865k, or £432,500 to each of us.

Which is it, please?  

HappyHarry

£1.25m estate

Less £1m in nil rate bands and residence nil rate bands.

Leaves £250k taxable at 40% which is £100k tax.

Distributable estate is £1.25m less £100k tax which is £1.15m

£1.15m divided by the two of you is £507,500 £575,000 each.


*edit - corrected 

GDB2222

As Harry says. 

No IHT on dad's estate as it all went to his wife.

Mum's estate has the benefit of dad's nil rate band and residence NRB, as well as her own. Assuming no prior gifts, that's a total of £1m NRB. 

Then 40% tax on the remainder. Then you and your bro each get half of what's left.

Try not to pay too much to the solicitor, so agree a fee structure you are happy with. I assume you are named as mum's executor?

Keep_pedalling

So sorry you are having to deal with the loss of both parents in such a short space of time. 

IHT is payed by the estate before distribution to any of the beneficiaries. Assuming you father left everything to your mother then his estate would have been exempt from IHT. You mother’s estate would then have an exemption of £500k made up of her NRB and residential NRB plus another £500k because any of his unused NRB is transferable to her estate. Based on your figures there will be a tax bill in the region of £100k.

Did both of your parents make wills and did your father leave everything to your mother?

bobster2

Sorry to hear you're having such a difficult time.

Were your parents married (or in a civil partnership)? You don't actually say in your post.

If they were - then it could be as simple as HappyHarry as written. But it could be slightly more complex.

If either of them gave gifts in the past 7 years, they might have used up some of their Nil Rate Band allowances.

Marmaduke123

I'm sorry for your loss, you've  been through a very difficult time.

There is no inheritance tax between spouses, so your father's nil rate band of £325k for IHT is unused, as is the  residence nil rate band of £175k. Both can be used in relation to your mother's estate, as well as her own allowances. They have to be applied for on the second death.

It sounds as if you haven't yet tackled your father's probate, understandable in the circumstances. If you decide to hand everything over to a solicitor do be aware that you will have to provide them with details of your parent's assets,  and that it will take a great deal longer than if you and your brother do it all yourselves.

There's a lot of guidance on here and elsewhere on line. Be careful to only read up to date information

RAS

Another one to suggest that unless the solicitors are executors, you and your brother give yourselves a couple of months off, but if clearing their home, have a large box or two into which you can dump anything official. We had one for official and one for sentimental.

Sort out house insurance. Then set up redirection to one house which will capture any incoming mail.

And set aside time to go through the official paperwork  and mail. You'll have to do this even if you appoint a solicitor to do probate, so you may as well do probate yourselves.

And you can always use a solicitor for advice on bits you can't sort yourselves or from advice here.

ljayljay

HappyHarry said:

£1.25m estate

Less £1m in nil rate bands and residence nil rate bands.

Leaves £250k taxable at 40% which is £100k tax.

Distributable estate is £1.25m less £100k tax which is £1.15m

£1.15m divided by the two of you is £507,500 each.

Condolences on losing both of your parents in such a short space of time.

I agree the calculation could be as simple as above if full NRB & RNRB are available. Although think there is a typo in the distribution £1.15m divided by two would give £575,000 each.

I recently sorted probate when my mother passed away & if you are the executor there are lots of knowledgeable people on here who will be able to help if you decide to do the same.

Savvy_Sue

I think we'd all say that the first step in dealing with the wills is to check who is the executor. If you have the original wills, and you / your brother / the pair of you / some other non-professional(s) are executors, you may not need to consult a solicitor, especially if you and your brother are on good terms and want to remain so. 

The speed with which you need to move depends on the £1m property - family home? Anyone still living in it? If not, take RAS's advice above. 

Huge condolences. Oh, and one other word of advice: if either of your parents was receiving care at home, or was in residential care, it may take a while for the final bill for this to turn up, so don't spend all the dosh too fast. And DWP is not known for the speed at which it confirms whether any pension / attendance allowance / any other benefit has been overpaid. So the final value of the estate may take a while to establish. 

macman

OP, my condolences. But I think you are missing the point here. IHT is paid by the estate, not by the beneficiaries of the estate. So there is a single IHT calculation (nothing for your father, as he passed it all to your mother). So, a single calculation based on your mother's estate of £1.25m, and you and your brother receive 50% each of the residual estate.
As others have said, if you are the executors, you can liquidate the estate yourselves if you wish to, but bear in mind that to obtain probate, you will need to submit form IHT400 and pay the IHT first, which can be done by realising some of the savings or investments.