Calculating IHT/Probate value on death of remaining spouse. Gifts from surplus income.

lohr500

Sorry for asking this question as I suspect it has already been answered in previous posts, but I am struggling to find a concise answer.

My dad passed away in November, leaving all his estate to my mum. The IHT/Probate calculation was relatively straightforward as the estate fell into the "Excepted" category.

However he did gift £79,000 from surplus income over the 5 years preceding his death. This was duly included in the online .Gov IHT calculator.

As one of the executors, in agreement with the other executors, I decided to take a DIY approach to the Probate, rather than incurring the cost and delays from engaging professionals.  

Although we all very much wish mum a long life (she is now 89) we have to face the reality that she won't be with us for ever. So I would like to get my head around the IHT/Probate implications on her passing whist the process and data is still fresh in my mind. 

The estate value on her passing is likely to exceed £1M.

I am unclear on how dad's gifting from surplus income and his NRB/RNRB allowance carry forward to my mum and how much of dad's transferrable NRB/RNRB have been used so far.

Using the input and results from dad's IHT/Probate calculation, can I calculate how much NRB can be carried across to my mum?

The online IHT calculator only allows a maximum of £325,000 to be included fr NRB, so where does any RNRB value get added and would that be the full £175k allowance?

The IHT calculator said dad's "Net Qualifying Estate Value for IHT" was £75,064. I can see this was based on the £79,000 gifting less £3,936 debts owed by the estate. Does this mean we have nominally "used" £75,064 of his £325k NRB

As the £79,000 was gifts from surplus income, in a previous post I added, @Keep_pedalling very kindly explained that an IHT403 form would need to be completed on my mum's death to get IHT relief on this. 

Hoping the questions make sense and any replies would be appreciated. If I can take a DIY approach to IHT/Probate when my mum passes it would be preferable to employing expensive professionals.

Thanks.

Keep_pedalling

Gifts from excess income do not affect the transferable NRB so the full amounts should be available for your mother’s estate. You will only need to complete IHT403 for her estate if she has made non-exempt gifts or gifts from excess income. You only really need his gifting records in the unlikely event that HMRC challenge the amount of transferable NRB available.

Her estate will be a little more complex as you will need to do a full IHT return, but you should still be able to do this without the help of professionals. 

lohr500

Keep_pedalling said:

Gifts from excess income do not affect the transferable NRB so the full amounts should be available for your mother’s estate. You will only need to complete IHT403 for her estate if she has made non-exempt gifts or gifts from excess income. You only really need his gifting records in the unlikely event that HMRC challenge the amount of transferable NRB available.

Her estate will be a little more complex as you will need to do a full IHT return, but you should still be able to do this without the help of professionals. 

Thanks again. Understood. 

poseidon1

OP an interesting aspect of your threads on the subject of your father's utilisation of the gifts out of income exemption is that the care and attention he has evidently devoted to this excercise, was never in the end presented to or accepted by HMRC, because an IHT 400/403 was never lodged.

You used the fast track 'excepted estate' route to probate.

As a result, HMRC's  outcome of the net qualifying estate of £75k is the figure that would be liable to IHT but for your father's £325k NRB. Therefore as far as HMRC is concerned at this time, £75k of your father's NRB has been utilised,

The risk you face when the time comes to claim transference to your mother of your father's full NRB, is HMRC have already recorded £75K having been used because there has been no agreement with regard to the gift out of surplus income exemption. 

It seems to me, it maybe prudent to contact HMRC now ( rather than after your mother's death)  to ascertain if you would be able to overturn HMRCs current finding by  way of voluntary submission of the IHT 403 (without the accompanying IHT 400). 

Your example does rather flag an issue with utilising the excepted estate process for probate, when the gifts out of surplus income exemption is desired to be claimed. All discussions on this forum concerning this exemption pre-suppose executors will formally claim it via IHT 403 for the deceased concerned, in order to obtain HMRC formal agreement thereto.

In the meantime, and for your information best acquaint yourself with all the elements that go into making a successful gifts out of surplus income exemption claim,  and especially what actually constitutes the definition of income per article below - 

https://techzone.aberdeenadviser.com/public/iht-est-plan/gifts-out-of-surplus-income

I would be concerned with having to try and claim the exemption retrospectively to restore your father's full NRB, many years after probate had already been granted for the deceased estate concerned.

lohr500

@poseidon1 Thanks for your comments.

It is an interesting issue and one that I discussed in a previous post.

At the time @Keep_pedalling suggested that an IH402 form would need completing at the time of my mum's passing to retrospectively claim the gifting from surplus income value declared on my dad's IHT calculation.

https://forums.moneysavingexpert.com/discussion/6639499/iht400-iht403-gifts-from-surplus-income-help-please

My dad kept meticulous records to demonstrate how the gifts came from surplus income and he even filled out an IHT403 form with his calculated figures in anticipation of us needing them. So thankfully the detail is available.

I'm not sure now whether to contact HMRC or just keep the records safe and submit an IHT402 form along with the other forms when my mother passes away.

When the time comes, looking at IHT402 I could populate box 10 with £0 and add a comment in Box 22 to cover the previously declared £79k of gifts, stating that these gifts came from surplus income. If HMRC then ask for proof I can supply the required detail. 

poseidon1

lohr500 said:

@poseidon1 Thanks for your comments.

It is an interesting issue and one that I discussed in a previous post.

At the time @Keep_pedalling suggested that an IH402 form would need completing at the time of my mum's passing to retrospectively claim the gifting from surplus income value declared on my dad's IHT calculation.

https://forums.moneysavingexpert.com/discussion/6639499/iht400-iht403-gifts-from-surplus-income-help-please

My dad kept meticulous records to demonstrate how the gifts came from surplus income and he even filled out an IHT403 form with his calculated figures in anticipation of us needing them. So thankfully the detail is available.

I'm not sure now whether to contact HMRC or just keep the records safe and submit an IHT402 form along with the other forms when my mother passes away.

When the time comes, looking at IHT402 I could populate box 10 with £0 and add a comment in Box 22 to cover the previously declared £79k of gifts, stating that these gifts came from surplus income. If HMRC then ask for proof I can supply the required detail. 

I note everything that has been said.

However the problem with the gifts out of surplus income exemption is that they are not automatically or objectively exempt at the time when made. The exemption only arises in actuality once HMRC agree all conditions and criteria have been met. Your father may or may not have understood the qualifying conditions when completing the IHT403.  It's why I sent you the link, you need to review his record keeping and how he interpreted the various conditions of the relief.

Leaving the IHT 403 agreement process until after your mother's death, risks HMRC later failing to accept the IHT 403 submissions in whole or in part, with the family having proceeded with any future IHT planning for mother, on the assumption that your father's transferable NRB is intact.

Not something I would risk professionally, but at least the sum of £75k ( if not ultimately accepted) is relatively modest.

lohr500

I've just spoken with the HMRC IHT helpline and explained the situation.

The advisor indicated that an IHT402 form should be used when my mother passes away.

He suggested that box 10 on the IHT402 form which shows the "Total chargeable value of gifts and other transfers of value made in the 7 years before the date of death" for the spouse who died first should EXCLUDE the gifts from dad's surplus income.

Then in box 22 enter details of dad's surplus income gifts totalling £79,000. 

I've no idea if this is sound advice but I think it's what I will follow. 

Hopefully I won't need to provide an update to this thread for a long time as I want my mum to be with us for as long as possible. 

And as you mention @poseidon1 , the value isn't massive in the scale of things.