Inheritance Tax Forms & Calculating Spousal Exemption

D2023

Hello, please can anyone help?

I am working my way through IHT400. I have drafted IHT404 for jointly owned properties, IHT406 for bank accounts, IHT407 for personal possessions, IHT411 for listed shares, IHT417 for foreign assets and IHT421 for the probate summary.

It is for an intestate death and so my understanding is that £270,000, the personal possessions (IHT407) and half of the remaining estate go to the surviving spouse and the other remaining half to the children.

I have added all the assets, minused the total liabilities and then calculated how much is to go to the spouse (approx £573,000) and how much is to go the children (approx £302,000).

I then calculated these amounts as percentages of the total estate i.e. 65% to spouse and 35% to the children, and have used these percentages to calculate the spousal exemption on IHT404, IHT417 and Box 92 on IHT400. Is this correct or can anyone suggest how to calculate the spousal exemption?

My brain is frazzled, any help will be much appreciated.

Keep_pedalling

You need to take a step back here as with the numbers you have given there should be no need to complete a an IHT return as no IHT is due and you don’t need to claim the RNRB.

Also, although jointly owned assets from part his estate for IHT purposes they don’t form an inheritable part of his estate. If any of the properties were held as joint tenants then ownership automatically passes to the survivor and you don’t include that asset in any intestacy calculations. 

Even if any of the properties are held as tenants in common it might be better if the children made a deed of variation to pass the whole estate to their mother (assuming the spouse is their mother) if she is reliant on income from the second property. This would also avoid any CGT liabilities when these properties eventually sold.

buddy9

Keep_pedalling said:

You need to take a step back here as with the numbers you have given there should be no need to complete a an IHT return

so long as the assets outwith the UK do not exceed £100,000.

D2023

Thank you for your replies. As buddy9 pointed out, the assets outside the UK do exceed £100,000, hence the need for the IHT400.

One property is owned as tenants in common between the spouses and the other is owned as joint tenants between the parents and children. Keep_pedalling, please can you clarify what you mean by not including the joint tenants property in the calculation?

Can a deed of variation be used in this case if the children are to automatically inherit part of the property owned as joint tenants?

Keep_pedalling

D2023 said:

Thank you for your replies. As buddy9 pointed out, the assets outside the UK do exceed £100,000, hence the need for the IHT400.

One property is owned as tenants in common between the spouses and the other is owned as joint tenants between the parents and children. Keep_pedalling, please can you clarify what you mean by not including the joint tenants property in the calculation?

Can a deed of variation be used in this case if the children are to automatically inherit part of the property owned as joint tenants?

Sorry I missed the bit about non UK assets.

Properties held as JT are not subject to to the laws of intestacy as the surviving owners automatically own 100% of the property. I don’t think a DoV can be applied to a property held as JT. 

Do you know why this was done as it could lead to an IHT issue for the parents if they are predeceased by a child. This is also probably what is causing the difficulties in what is covered by spousal exemption, 

D2023

No worries Keep_pedalling, I didn't mention it in my first post.

Yeh, that is what I thought, so I don't know how to proceed.

I am not sure why it was done.

Keep_pedalling

D2023 said:

No worries Keep_pedalling, I didn't mention it in my first post.

Yeh, that is what I thought, so I don't know how to proceed.

I am not sure why it was done.

Thinking about it, it should be reasonable simple. If 2 parents and 2 children hold a property worth £360k as JT and one parent dies then each of the survivors effectively inherits £30k and £30k of that will be subject to spousal exemption.

D2023

I see what you mean, but how would the spousal exemption be calculated for the other assets?

Keep_pedalling

D2023 said:

I see what you mean, but how would the spousal exemption be calculated for the other assets?

Everything she inherits from her husband will be exempt, so if he had £500k in sole assets then £270 + (230/2)k would be exempt unless a DoV was made. What is the value of the marital home? 

D2023

The forms don't really allow the exemption to be applied that simply, for example it asks how much exemption applies to the foreign assets separately, how much applies to the jointly owned assets separately and how much applies to solely owned assets in the UK

Keep_pedalling

D2023 said:

The forms don't really allow the exemption to be applied that simply, for example it asks how much exemption applies to the foreign assets separately, how much applies to the jointly owned assets separately and how much applies to solely owned assets in the UK

I see where you are coming from,  you could apportion it anyway you wish, for instance if she wants 100% ownership of the marital home then the bulk could apply to that it does not need to be applied as a percentage of all assets.