Inheritance tax - who pays when several heirs inherit?

CalJo99

Lots of points and issues raised, so thank you - will be absorbing and mulling.

On the point raised below:

'So are you trying to impose that your niece and nephew must (jointly?) actually continue to OWN the property?  That they can't say thank you, sell it, pay the IHT with some of the proceeds and share out what is left?  That level of controlling what happens after your death will be hard, and for how long must they continue to own it.'

That's a valid caveat, but I probably need to explain that they will not want to sell the second property, as they will see it as 'regaining it'.  It's a complicated situation (!), but the property is part of my brother's main property (the old family farm), and is a converted barn which my brother sold to his wife's sister way back when (who did the conversion to residential). A few years ago the SIL and her husband sold up, my bro wanted to rebuy it, but could not afford it (he and his wife still live in the main farmhouse). Nor could his children (my niece and nephew) either. Nor did they want it sold to 'strangers', so I stepped in, bought it simply to stop it passing out of the family completely. 

Ideally, my bro/his children would like to own it again, but they can't afford it. Since I will be leaving my own family home to my son, and since my son, were he to inherit the converted barn, would become liable for around £150k of IHT, I have started to think to 'cut my losses' so to speak and let the niece and nephew have it 'for free' when I peg out but ONLY if they pay the IHT (they'd effectively be buying it at slightly under half price, ie, the 40% of its value).

But, of course, they may not even be able to raise the £150k of IHT to reacquire the barn.

On the other hand, my son might not either be able to raise th £150k IHT without actually selling the barn on the open market. I guess he could, thinking about it, sell it to the niece and nephew for only £150k??

I'm sort of seeing whether it's possible to give everyone sort of what they might want, but as I say, my main fear is that I leave the barn to my niece and nephew, it incurs £150k of IHT on it, which they can't pay, so it's left to my son to cough up by selling the NRB 'my house' I'm leaving him, and the niece and nephew get off IHT free!!!

There is NO other spare money in my estate. 

To be honest, all the points and warnings that you are all collectively pointing out to me do seem to indicate that it's going to be very complicated, very iffy and very contentious all round. 

It's a hell of a mess the whole situation, but I think what bugs me most is that having stepped in to buy the damn barn conversion myself, to stop it going to strangers, I am now exposing my son to being whacked over the head with a monster IHT charge simply to inherit the damn place himself - whereas his cousins can't afford to do a thing. (They 'might' just be able to raise £150k by borrrowing on the main farmhouse they'll be inheriting in due course, but that isn't certain either.)

I'm afraid it's an example of the bitter adage - no good deed goes unpunished.

I will probably end up leaving the place to my son - and he can then offer it at market value to the niece and nephew, and if they can afford it they can buy it and it's theirs, and he will get enough money from the sale to pay the 40% IHT and keep the residual 60% for himself. If they can't afford to buy it from him, then he'll just have to sell it to strangers.

Or, of course, I could gift it to him ASAP (son is not yet a home owner, so no point gifting yet, or he'll be paying second home stamp duty when he buys his own house!) and see how long I live thereafter to minimise/cancel IHT. That is probably the most financially prudent option.


Now, didn't I tell you it was complicated?  Families, families, families....hey ho!!!!!

Main moral - if you own an old farm and barns, NEVER SELL ANY OF THE BARNS, not even to other family members, of you don't want the risk of them selling up to strangers!!!

Keep_pedalling

IHT planning is very difficult when virtually all your assets are tied up in property. 

sheramber

35har1old said:

Devongardener said:

Inheritance tax is paid from the estate before any funds  or property title is passed to beneficiaries.    It’s not paid by individual beneficiaries.

What happens if the estate is cash poor

Property has to be sold to cover it.  

Or, if you have several old masters you can negotiate  to pass ownership to the government to cover the cost.

user1977

sheramber said:

35har1old said:

Devongardener said:

Inheritance tax is paid from the estate before any funds  or property title is passed to beneficiaries.    It’s not paid by individual beneficiaries.

What happens if the estate is cash poor

Property has to be sold to cover it.  

And if you need probate before you can sell something, you can get a loan to pay the IHT.

Or (if you can't/don't want to liquidate sufficient assets immediately) you can pay the IHT in instalments - commonplace if the estate includes something like a business which the beneficiaries very much wish to retain.

CalJo99

And if you need probate before you can sell something, you can get a loan to pay the IHT.
**

But can you get a mortgage on property that is awaiting grant of probate?

My son will be facing, as I say, around £150k of IHT on the second property, which would be impossible to raise without mortgaging that property. (He will already have a mortgage on his own personal property!)

IHT may just have to be paid in installaments in respect of cash flow. I wonder how much the installments are likely to be?

I'm not surprised IHT is said to be the most hated tax in the UK.

user1977

CalJo99 said:

I'm not surprised IHT is said to be the most hated tax in the UK

Who said that? I very much doubt it's the case, given it only applies to a fairly small proportion of estates, and for most people is just something deducted from their windfall.

I would expect the "most hated tax" to be one of the ones which everybody pays on a regular basis and affects their cost of living.

Keep_pedalling

CalJo99 said:

And if you need probate before you can sell something, you can get a loan to pay the IHT.
**

But can you get a mortgage on property that is awaiting grant of probate?

My son will be facing, as I say, around £150k of IHT on the second property, which would be impossible to raise without mortgaging that property. (He will already have a mortgage on his own personal property!)

IHT may just have to be paid in installaments in respect of cash flow. I wonder how much the installments are likely to be?

It can be paid over 10 years so the first payment would be £15k

I'm not surprised IHT is said to be the most hated tax in the UK.

Not really I would rather tax the dead than the living, and unless, like you, you have everything tied up in illiquid assets it is not to difficult to avoid with good planning.

Do you think it fair to tax earned income more than an unearned inheritance?

Why not sell up and make gifts now? Yes you would probably have a CGT liability ( unless you sold your home and moved into the other one) but you sound asset rich but cash poor which is not a great position to be in in your latter years. Having more of your assets in cash would also allow you to 

Sea_Shell

I might be barking up the wrong tree here, but, I seem to have some vague recollection of there being some sort of exemption from IHT for farms.

Do they have to be working farms?

Have I imagined that? 😉

msb1234

Have you actually sat down with all parties to discuss this? If you’re assuming that they would want to keep either property but they’ve not actually said so, your problem could be one of your imagination. 

user1977

Sea_Shell said:

I might be barking up the wrong tree here, but, I seem to have some vague recollection of there being some sort of exemption from IHT for farms.

Do they have to be working farms?

Have I imagined that? 😉

No, there is agricultural relief:

https://www.gov.uk/guidance/agricultural-relief-on-inheritance-tax