Our Dads estate and IHT implications

Rodders2409

Hi All,

Sadly my brilliant dad passed away last week, not unexpectedly at 90yrs, and true to his word has left everything as tidy as it can be in terms of the various process my brother and I need to work through.

We'd like to handle the probate application ourselves, as we did when mum passed away 5yrs ago, through the .GOV website etc. There's only my brother and I detailed as 50/50 beneficiaries and are Executors of the Will. Dad's will is quite simple with the following fairly accurate items and values.

Home - £450K
Cash - £17K
Premium Bonds - £34K
Prudential Bond - £170K.....Dad used this as a part of his pension by withdrawing 4% monthly, it appears to be an Equities investment product and not a Pension scheme. 
Chatels - £2K
Zero Charitable payments.

Could someone please give me a heads up as to if / what would be the IHT exposure on the total estate.

Many thanks.

 

Keep_pedalling

So a total estate of £673k less funeral expenses, although it is possible that the bond my not form part of his estate ( check the status of that with Prudential)

if you mother left all or the bulk of her estate to your father then the answer is going to be zero. Assuming she left everything to him then you can transfer her unused nil rate band (NRB) to his estate which covers £650k, but there is also 2x residential NRBs that can be used to take that up to £1M.

Using either residential NRBs will mean you have to file a full IHT return (IHT400 and the associated supplements).

shiraz99

As mentioned, check the status regarding the Prudential bond but you can run the Gov IHT estate valuation tool at any time without starting the probate application process so that will tell you if you have an IHT liability or not, I would suspect not. Don't forget to include any inherited NRB from your Mother.

Rodders2409

Thanks  Shiraz and KeepPedalling...

The Prudential product isn't a Pension scheme product so that is added to his estate.
Dad prepaid his Funeral package, even the 'deceased' notice in his local paper...kudos to the fella !

Yes, mum left everything to dad on her passing. 

So, theres no IHT liability but I'd like to understand the reasons...is it because dad gets his £325K allowance plus his additional NRB of £175K....then this is added to mums £375K (even though she passed away 5 yrs ago) PLUS her NRB of £175....making £1M of allowance?

However, I still need to complete the IHT 400 form and ensure mums NRB is added to dad's.

Keep_pedalling

Rodders2409 said:

Thanks  Shiraz and KeepPedalling...

The Prudential product isn't a Pension scheme product so that is added to his estate.
Dad prepaid his Funeral package, even the 'deceased' notice in his local paper...kudos to the fella !

Yes, mum left everything to dad on her passing. 

So, theres no IHT liability but I'd like to understand the reasons...is it because dad gets his £325K allowance plus his additional NRB of £175K....then this is added to mums £375K (even though she passed away 5 yrs ago) PLUS her NRB of £175....making £1M of allowance?

However, I still need to complete the IHT 400 form and ensure mums NRB is added to dad's.

Although it is not a pension, some types of bonds also fall out of the estate so unless you are certain it is worth double checking. 

Assuming it is you will need to use both sets of NRB and his RNRB and you will need to do a full IHT return.

Rodders2409

Cheers KeepPedalling,

OK, I'll get onto Prudential directly...I'm guessing they should know if its a product that's outside 'estate'...or is there a specific set of words I should use in my question to them?

Savvy_Sue

Rodders2409 said:

Cheers KeepPedalling,

OK, I'll get onto Prudential directly...I'm guessing they should know if its a product that's outside 'estate'...or is there a specific set of words I should use in my question to them?

With a pension, I know the words you're looking for are 'in trust' - so was an election made to pass the pension to someone 'in trust'. No idea if this would be the same, but probably 'in trust' comes into it somewhere, because it's that which allows the product to pass 'outside the estate'. The trustees of the pension company can choose not to follow the election that was made (although they usually do). 

And try asking for their bereavement department, rather than the first person to answer the phone ... 

shiraz99

Rodders2409 said:

Thanks  Shiraz and KeepPedalling...

The Prudential product isn't a Pension scheme product so that is added to his estate.
Dad prepaid his Funeral package, even the 'deceased' notice in his local paper...kudos to the fella !

Yes, mum left everything to dad on her passing. 

So, theres no IHT liability but I'd like to understand the reasons...is it because dad gets his £325K allowance plus his additional NRB of £175K....then this is added to mums £375K (even though she passed away 5 yrs ago) PLUS her NRB of £175....making £1M of allowance?

However, I still need to complete the IHT 400 form and ensure mums NRB is added to dad's.

You use your Dad's NRB and inherited NRB first, which gives you £650k. If the estate is less than this then it's classed as an excepted estate and exempt from IHT and no need to inform HMRC. When the value of the estate is higher than this then you can apply the residential NRB (and inherited RNRB should you need it) but you need to complete the IHT400 and related IHT form to do this.

Rodders2409

Thanks Shiraz,

There's a reasonable chance that the estate will reach £675K..... so if it does then we'll need to go the IHT400 route, which I'm hoping is straight forward.
Can I ask why the threshold for informing HMRC is below £675K  when Dads allowance is £325K+ £175K = £500K plus Mums NRB was £175K ...which we inherit making the total allowance £675K .....not £650K as you've mentioned.

Keep_pedalling

Rodders2409 said:

Thanks Shiraz,

There's a reasonable chance that the estate will reach £675K..... so if it does then we'll need to go the IHT400 route, which I'm hoping is straight forward.
Can I ask why the threshold for informing HMRC is below £675K  when Dads allowance is £325K+ £175K = £500K plus Mums NRB was £175K ...which we inherit making the total allowance £675K .....not £650K as you've mentioned.

If your father’s estate is below £650k then you can use his NRB plus her transferable NRB, neither Residential NRB will be required so no IHT return required. As soon as you need to use either residential NRB then you have to go down the IHT400 route.

PeteKDevon

Yes to all the advice given above BUT to hopefully help further this is all covered so so well on the gov.uk website if you search for 

 " Work out and apply the residence nil rate band for Inheritance Tax " 

Also the HMRC Probate / IHT contact centre is superb and even if the initial call handling person isn't able to answer more technical aspects they will pass you to an inspector specialising in that area who will.  Don't be afraid to get help and advice from the horses mouth. They are there to help and my experience as a Probate and Estate Management professional has borne that out 

Well done for exploring the self service approach and good luck with your application/s.