Spouse inheritance tax exemption

bella21

A random question about inheritance tax.

Spouse passed away and left a DIY will that basically requested that all beneficiaries receive equal shares of their estate including their spouse.

Does the spouse receive a slightly higher amount based on the spousal tax exemption rule or should it be equal after tax has been paid so they receive the exact same amount. 

Solicitor believes based on the badly written will that the spouse can't receive the tax free proportion and they will get the same as all beneficiaries. This is solely based on cash not property. 

Spouse believes that their share should have been calculated first then the rest have been calculated for inheritance tax.

Any help would be appreciated.

Savvy_Sue

It would be unwise to disagree with a qualified solicitor who has seen the will, badly written or not. 

And it may depend on the exact wording.

If the estate is to be shared equally, how does the surviving spouse think their share should be calculated?
 

Keep_pedalling

I agree with the spouse, she should receive her inheritance IHT free as anything left to a spouse is covered by spousal exemption. The same would apply if a charity received a share of an estate. 

What is the relationship of the testator the spouse and the other beneficiaries?

theoretica

I once saw an article discussing exactly this point with bequests left to charities - the author seemed to say it could be calculated either way.

It seems much simpler to calculate if the estate is split and then inheritance tax worked out.

Of course, with less going to the spouse, more would be in the taxable bracket and there would be less to share overall. 

sheramber

How do you work out the spouse's share when no amount is stated except "the same amount as the other beneficiaries."  Is that before inheritance tax or after?

It cannot be a fraction of the estate before inheritance tax is deducted based on the number of beneficiaries,  as then their share is not the same as that of the other beneficiaries.

Keep_pedalling

sheramber said:

How do you work out the spouse's share when no amount is stated except "the same amount as the other beneficiaries."  Is that before inheritance tax or after?

It cannot be a fraction of the estate before inheritance tax is deducted based on the number of beneficiaries,  as then their share is not the same as that of the other beneficiaries.

Their share is the same it’s just that hers is not subject to IHT and theirs is. If the spouse gets less of the distribution then the amount covered by spousal exemption is also less so more IHT will need paid and this makes calculating how much each would get and how much tax is due exceedingly complicated.

Depending on the relationship between the spouse and the other beneficiaries then a deed of variation may be appropriate and the use of an immediate post-death interest may actually reduce IHT. If the executor follows the solicitors advice I would not be surprised if the spouse did not challenge it, solicitors are not tax experts.

Unfortunately the testator was an idiot to do a DIY will and has left a potential financial mess behind them.

hedgewitchery

Keep_pedalling said:

Depending on the relationship between the spouse and the other beneficiaries then a deed of variation may be appropriate and the use of an immediate post-death interest may actually reduce IHT. If the executor follows the solicitors advice I would not be surprised if the spouse did not challenge it, solicitors are not tax experts.

Unfortunately the testator was an idiot to do a DIY will and has left a potential financial mess behind them.

Genuine question - if solicitors aren't tax experts, would an "official" will drawn up beforehand have accounted for this scenario any better? Do solicitors routinely consult external experts prior to offering advice on how to apportion an estate most advantageously, or do they just have general knowledge of the sorts of pitfalls to avoid?

AskAsk

hedgewitchery said:

Keep_pedalling said:

Depending on the relationship between the spouse and the other beneficiaries then a deed of variation may be appropriate and the use of an immediate post-death interest may actually reduce IHT. If the executor follows the solicitors advice I would not be surprised if the spouse did not challenge it, solicitors are not tax experts.

Unfortunately the testator was an idiot to do a DIY will and has left a potential financial mess behind them.

Genuine question - if solicitors aren't tax experts, would an "official" will drawn up beforehand have accounted for this scenario any better? Do solicitors routinely consult external experts prior to offering advice on how to apportion an estate most advantageously, or do they just have general knowledge of the sorts of pitfalls to avoid?

solicitors do not advise on tax and often have very little knowledge of tax implications, and the little they know, they will not blurt out as they do not have professional indemnity to advise on tax.  "official" just means it will be recognised in law and so will be less likely to be successfully disputed.

Savvy_Sue

hedgewitchery said:

Keep_pedalling said:

Depending on the relationship between the spouse and the other beneficiaries then a deed of variation may be appropriate and the use of an immediate post-death interest may actually reduce IHT. If the executor follows the solicitors advice I would not be surprised if the spouse did not challenge it, solicitors are not tax experts.

Unfortunately the testator was an idiot to do a DIY will and has left a potential financial mess behind them.

Genuine question - if solicitors aren't tax experts, would an "official" will drawn up beforehand have accounted for this scenario any better? Do solicitors routinely consult external experts prior to offering advice on how to apportion an estate most advantageously, or do they just have general knowledge of the sorts of pitfalls to avoid?

One would hope that a solicitor would have been able to explain why "divide my money equally between these people" was going to be a difficult instruction to follow, because of the recursive nature of allowing for anything passing to the spouse to be free of IHT. 

Plus I'm fairly sure our solicitor would have referred us to an IFA or tax specialist if our estate had been either complicated or subject to IHT. As it happens, we consulted a STEP qualified accountant about the implications of a parent's will: it's not just for solicitors. 

We might do better with a worked example. So, how many beneficiaries? How much money? Is it all cash, or is there a house involved?