Question about Inheritance Tax

Littlereggie

Hi,

My dad passed away in 2015 leaving a house and savings to my mum.  My mum who is now in her 80s has got terminal cancer. I am the executor of the estate. What is the total of assets my mum is allowed including house and savings before the estate will need to pay inheritance tax.  Her total assets is approx £730,000.

What forms would I need to complete, regarding probate and inheritance tax. Where can I find these forms please? Just trying to get some information and advice. Many thanks

jlfrs01

Everything you need to know is in this link:

https://www.gov.uk/inheritance-tax

I believe your late father's allowance could be joined to your mother's for a total of £650k, so 40% IHT would technically be due on the balance (subject to any debtors, epxenses, etc). Please note the rules around any "gifts" financial or otherwise.

Given the size of the Estate I'd recommend you bring in an experience Probate Lawyer, there's a lot of things to consider here beyond form-filling which you as a lay-person aren't likely to know. These include things like a Public Notice giving any possible claimants on the Estate xAmount of time to come forward, plus handling the Estate funds. If you have LPA status, this will cease the minute your mother passes and you will no longer have any access to Bank Accounts, etc. Estate Accounts may also be required and based on my own experience, these can be complex.

Another reason for having a Solicitor handle the Finances is around Tax Liability. I made the mistake of cashing in an Investment Bond which belonged to my late father, I completed the paperwork and the funds were sent to me which I subsequently sent onto my Solicitor. The Company set out a "Taxable Event" certificate to HMRC who in turn mounted an investigation into my financial affairs, it was a very worrying time and I had to prove these monies formed part of the Estate with copies of all forms and correspondance. Had my Solicitor done this, no certificate would have been forthcoming.

poppystar

There is a house property involved so you will also be able to claim residential nil rate band and the transferred one from your father. If the house is worth more £350k or more you can add that to the £650k before inheritance tax is due.

If it is just house and savings then there is no reason at all why you can’t do probate yourself. Likely also to be quicker and certainly cheaper than employing a solicitor to apply. Get all the assets listed and valued - house, savings accounts etc - so you know what you are dealing with then you can decide whether to go ahead yourself. At that point you have done most of the hard work anyway! Plenty of us have experience of this and so anything you are unsure about can be run passed people here. 

My thoughts at this difficult time.

HillStreetBlues

I thought  there would be no IHT  as father would pass on his and mothers will be £500,000 with house, if none of his had been used.

Keep_pedalling

Even though it is unlikely that IHT will be payable you will have to do a full IHT return using IHT400 plus several supplementary sheets. If you work through IHT400 it should become clear which ones are required.

https://www.gov.uk/government/publications/inheritance-tax-inheritance-tax-account-iht400

Using a solicitor will add costs and  almost certainly take longer so avoid if possible, there are plen. Ty. Of posters on here w ho can answer any questions you have.

Littlereggie

thank you all for your comments and help. It seems that the inheritance tax needs to be sorted before I can apply for probate according to the gov website. Is this correct. Also mums property is worth about 190,000 currently so she wouldn’t qualify for the nil rate residential band. 

Littlereggie

I have another question. Mum has a prudential bond worth £75,000 that goes to me on her death. My name is on the paperwork, if this comes under a trust in any way is it still included in the inheritance tax calculations? Any advice would be gratefully received.

RAS

Littlereggie said:

thank you all for your comments and help. It seems that the inheritance tax needs to be sorted before I can apply for probate according to the gov website. Is this correct. Also mums property is worth about 190,000 currently so she wouldn’t qualify for the nil rate residential band. 

If dad left everything to mum, she inherits his IHT allowance, so £650k combined, AND an shared allowance for the house up to £350k, so possibly £1m. It's only a possible issue if the house is/was worth less than £80k.

Littlereggie

I don’t understand what these three mean?

on the IHT400 form it says 

Residence nil rate band

29 a. Do you want to use the residence nil rate band?

Use Schedule.   ІНТ435

No

Yes

29 b

Transfer of unused residence nil rate band

Do you want to transfer any unused residence nil rate band from the deceased's spouse or civil partner who die before them?

29c

No

Yes

Use Schedule.  ІНТ436

Transfer of unused nil rate band

Do you want to transfer any unused nil rate band from the deceased's spouse or civil partner who died before them?

No

Yes

Use Schedule.  IHT402

Could someone please explain as these forms seem very complicated and I’m worn out as it is.

poppystar

It means those are the forms you need to fill in. 

IHT435 if you want to use your mother’s Residential nil rate band 
IHT436 for the residential nil rate band from your father
IHT402 if you want to use your father’s transferred nil rate band.

maybe easier if you give a rough estimate of the value if the property versus other assets.

Your mother will have an allowance of £325k
Your father an allowance of £325k carried over to your mother
= £650k before tax. (IHT402)

depending on the value of the house you can add some residential allowance - if the value of the house is £350k or over the IHT435 will then give you an additional £175k and the same with IHT436 another £175k

total then of £1m before tax becomes an issue.

if the house is worth less than £350k the residential allowance available will also be less. 

Hope that helps. 

Littlereggie

So my parents had a property worth £260,000 and in 2017 my mum downsized and moved to a smaller property now worth £190,000. How does this impact my late fathers nil rate band? Would it still give me £175k on his nil rate band IHT436? As my mother has purchased a property of lower value would this affect her residential nil rate band IHT 435 of £175k? The total value of the estate is roughly £730,000.