IHT help

ladyholly

A relative recently died leaving me his house which will attract IHT. His money and investments are left to various charities. My solicitor has advised that the charities may not be prepared to wait until the house is sold for their money leaving me with the IHT to pay. I know this has to be paid before probate can be granted but I do not have the money to pay the IHT until the house is sold. What happens when you do not have the resources to pay. The IHT will be going on for  £100,000.

Keep_pedalling

That was a seriously flawed will, if the house had been sold before his death your bequest would have failed and you would have received nothing. The other problem as you have found is that all the liquid assets have been left to exempt charities so all the IHT falls on the illiquid asset. 

To be honest I am not sure if the IHT can be paid from the charities share as that in effect would be a loan. 

Normally where IHT payment depends on the sale of a property there is the option of paying by instalments which would mean raising 10% for the first instalment. 

What is the value of the house?

ladyholly

Thank you for your reply.
The probate valuation is between eight hundred and nine hundred thousand. There was no chance the property would be sold before his death as there were enough investments to cover any care needs. The house was built by his family early last century so in the family a long time.

poseidon1

ladyholly said:

A relative recently died leaving me his house which will attract IHT. His money and investments are left to various charities. My solicitor has advised that the charities may not be prepared to wait until the house is sold for their money leaving me with the IHT to pay. I know this has to be paid before probate can be granted but I do not have the money to pay the IHT until the house is sold. What happens when you do not have the resources to pay. The IHT will be going on for  £100,000.

Hmrc will permit you to pay the IHT over 10 years at 10% of the liability annually. However since interest is chargeable on the unpaid balance ( currently at 7.75%), this is no longer the cheap option it once was.

If I were in your  position, I would get a personal loan for the 1st instalment ( £10,000), and press for probate to be granted ASAP so that you can proceed to sell quickly. If you are lucky might be able to sell the property before next instalment due.

In passing absolutely agree with Keep_pedalling, your inheritance could have failed had the house sold before death. Badly drafted will.

buddy9

Another option could be the HMRC ‘grant on credit’ scheme where HMRC might allow postponement of the IHT payment.
https://www.gov.uk/guidance/applying-for-a-grant-on-credit-for-inheritance-tax

ladyholly

Thank you both for your replies. I will talk to the solicitor and see what he comes up with. I think he is trying to look at the worst case scenario but I am a worrier. I can actually cover the first instalment with a lot of juggling and hopefully the house will sell quickly if probate shift themselves. The problem with getting a loan is that we are pensioners with a small income so repayments would be hard in the short term even if we could get the loan in the first place.

Keep_pedalling

A short term loan is likely to be more expensive than HMRCs rate.

On another point have you considered the impact that this inheritance will have on your own IHT position? Assuming you are married home owners with children to inherit your estate, then between you you can leave £1M IHT free, but this will in all most certainly take you over that threshold, so you should consider a deed of variation to pass some of your inheritance on to your eventual beneficiaries now.

Anything gifted to others via a DoV is considered not to have ever been yours so will not be subject to the 7 year rule, but a DOV has to be made within 2 years of the testators death. 

ladyholly

Keep pedaling. Thank you for that. We intend to spend a fair bit on our house which we haven't been able to do but I will be consulting a solicitor asap to do our best that my dd  will have.  as small a liability as possible. 

Keep_pedalling

ladyholly said:

Keep pedaling. Thank you for that. We intend to spend a fair bit on our house which we haven't been able to do but I will be consulting a solicitor asap to do our best that my dd  will have.  as small a liability as possible. 

A solicitor may not be the best person to consult, an Independent Financial Advisor may be a better bet for inheritance planning. Good luck with the house improvements, we recently looked at doing a whole heap of stuff to our 1930’s semi that we had been in for 38 years, but once we realised how much disruption (as well as cost) was going to be involved we opted to move to a 6 year old bungalow instead. 

ladyholly

Thank you. I had just looked up reducing iht liability and realised a IFA is probably a better idea. I am not looking forward to the disruption but we like where we live. We have no road at the front of the house just a green area, ideal for the dog and the road at the back is only an access road for the houses. We have lovely neighbours., a reasonable bus route and sm nearby. We would have trouble finding all these in our town.

Keep_pedalling

You can always go away somewhere nice when the worst of it is happening.