Inheritance Tax Query

shell18

Hi, if I inherit a house worth £475,000 and £320,000 is already paid off the mortgage and there is a mortgage of £155,000 on it, is inheritance tax owed by me on the £320,000 or the total property value of £475,000? Many thanks

p00hsticks

Inheritance Tax is paid by the estate, not the beneficiaries.

Whoever is the executor adds up all the estate's assets (including the £475k house), subtracts all the estate's debts (including the £155k mortgage) and the balance will determine whether IHT is due. 

Keep_pedalling

As above you don’t pay IHT the estate does. Whether IHT is payable depends on the total value of the estate, the marital status of the deceased and their relationship to you. An unmarried person with no children can leave £325k IHT free, someone with a children up to £500k and a widowed person double those amounts.

anselld

As a beneficiary you don't pay the inheritance tax, nor the mortgage.

The mortgage is an outstanding debt which the Executors must settle prior to distribution of any remaining assets.

Inheritance tax is likewise settled by the Execotors from the Estate prior to distribution.  The amount of IHT, if it is due, would be reduced by the debt of the outstanding mortgage but as a beneficiary that is not your woorry.  If you have been left the house in the Will and if there are sufficient other funds to settle the mortgage and IHT due then you will get the house unencumbered.

Albermarle

Although if you are the sole beneficiary of the estate, I presume you could ask the executor to sell it and get the money in cash ( maybe after some delay) .

shell18

p00hsticks said:

Inheritance Tax is paid by the estate, not the beneficiaries.

Whoever is the executor adds up all the estate's assets (including the £475k house), subtracts all the estate's debts (including the £155k mortgage) and the balance will determine whether IHT is due. 

I am executor and sole beneficiary and so I presumed the IHT will be my responsibility to sort and pay?

shell18

Albermarle said:

Although if you are the sole beneficiary of the estate, I presume you could ask the executor to sell it and get the money in cash ( maybe after some delay) .

I am executor and sole beneficiary

Albermarle

shell18 said:

Albermarle said:

Although if you are the sole beneficiary of the estate, I presume you could ask the executor to sell it and get the money in cash ( maybe after some delay) .

I am executor and sole beneficiary

OK , but from a legal point of view the two roles are separate, almost like you are two people at the same time.

Yorkie1

As others have said, you have two 'hats'.

The first is as executor of the estate. As others have said, it is your role to identify all the assets that the deceased had (property, savings, pension funds, etc.) and all their debts (mortgage, loans, fuel bills, tax etc). Pay the debts and then distribute the gifts according to the will. 

This is completely separate to you also being a beneficiary. So only once the estate has been wound up in your executor capacity, do you then distribute the remaining assets to yourself as beneficiary (ignoring any interim distributions).

Because the estate is a separate legal identity, if there aren't enough assets in the estate - even after selling the property, for example - to pay off the debts, the beneficiaries are not responsible for making good on the outstanding funds.  The people / organisations that are owed the debts just have to go short.