Inheritance tax question - IHT payment on account

mrodent33

Me and my sister are both executors for our father, died June 2022. Our mother died March 2019.

The total gross estate value is likely to be about £1,300,000 including parental gifts over the 7 years before June 2022. The value of our father's retirement home flat lease is in fact only about £300k of that (lease to be surrendered, not sold on open market).

Both our parents died homeowners, so I believe the "nil-rate residence allowance" applies to my mother as well as my father. In March 2019 it was only £150k, not £175k,  however, so I believe the allowance will be £975k.

My sister and I have been losing confidence in our solicitor for some time, one reason I am posing this question here. This solicitor never bothered to tell us that IHT is payable within 6 months of death and after that incurs interest. I found this out a few days ago, and also found that it is possible to make "payments on account", i.e. in anticipation of a fairly hefty IHT bill. Today our solicitor told my sister that in fact the IHT is deducted automatically when the funds from accounts, etc. are realised, so my sister seems a bit dubious about making payments on account ("might complicate things"!).

I have had experience of what HMRC considers to be "fair" interest rates, so intend to pay about £30k out of my own funds as soon as I receive the reference number enabling me to do so. At the rate things are going it could easily be 3 more months before things start to move on the probate front.

Things are also slightly complicated by the fact that my sister is to get a slightly higher percentage of the estate than me.

Does anyone have any experience of people doing this? If I do it on my own and my sister decides to pay nothing on account, will HMRC be able to understand how to allocate the final IHT bill between us? (i.e. the problem being that apparently the IHT is levied on the estate, not on the beneficiaries).

Keep_pedalling

Payment of IHT by instalments is for estates where there are not enough liquid assets to pay the tax due, which does not seem to apply here.

Did you father own a more valuable house before moving to his retirement property? It does not matter what property you mother held, it is your father’s ownership that is important. If he downsized from a property that sold for £350k or more them the estate can claim both RNRB allowances in full. You mention parental gifts, so as far as you the standard transferable NRB this will need to be reduced to reflect any non excerpt gifts she made in the last 7 years of her life and and bequests not made to her husband, charities or political parties.

mrodent33

Thanks very much. Yes, he downsized from a house in 2019 which sold for over £350k. Thanks for that point of clarification: good news.

Thanks too for the comment about my mother's gifts: I don't think there's any issue there.

My idea of paying "on account" certainly seems to be an option offered by HMRC: "If you will not know how much Inheritance Tax the estate owes by the time the payment is due, a payment on account can help you avoid some of the interest."  My back of an envelope calculation suggests that the estate is incurring approx. £700 a month on what will be a 120k IHT bill, if HMRC are charging 7% p.a.. Given that I have some funds to mitigate that it would seem to make sense ...