Probate - IHT Threshold

sunrise89

Hi.

First time applying for probate.

In short my father who sadly passed was a sole owner of his house. Estate worth approx 380k that's mainly the house but includes car and nominal savings. The house has been left to direct descendants.

Anyway. Probate are now requesting for more information because his estate is above IHT threshold of 325k

We are not because Residence Nil Rate Band applies (Left to descendants as said), that is 175k on top of 325k meaning no Inheritance Tax until over 500k.

Probate are asking are we applying for previously deceased spouse unused nil rate band, which we are not, so they say we need to fill in IHT400 and get a reference number to send to them.

However, HMRC IHT calculator for our figures state No Inheritance Tax to pay as explained because of NRB and RNRB.

IHT400 form also states;

"Before completing this form, have you checked you need to? You can do this by using the Inheritance Tax Checker Tool”

And

“You do not need to apply for a reference number if there is no Inheritance Tax to pay.”

So I've replied to probate on email (calling is hard work) about this but nothing as yet, what I'm asking for is if anyone's got experience and reckons I'll have to do IHT400 anyway? Even tho apparently I don't!?

I can't understand why they can't apply their own rules, they have the will for Christs sake, clearly states it house going to descendants.

HM courts say one thing and Customs revenue say another. I feel like I'm in no man's land but don't want to do IHT400 needlessly when it should be an "excepted" estate.

Thanks

Brie

can't help but the people on the probate board might be able to….I'll move this over there if you don't mind.

Deaths, funerals & probate — MoneySavingExpert Forum

poseidon1

The probate application process does a poor job of explaining that if an estate has to claim the residence nil rate band to avoid IHT, it will always be burdened with having to complete an IHT 400 together with supplentary IHT 435 for the residence nil rate band.

This is an unfortunate consequence of introducing the residence nil rate band in the first place, rather than allowing the basic £325K NRB to increase with inflation as originally envisioned.

If there is a predeceased spouse from whom a transferable £325k NRB can be claimed instead , that is a preferable approach to sidestep having to provide full estate details via IHT 400 for estates that breach the basic £325K NRB.

EDIT

See article below on misconceptions around excepted estates and the residence nil rate band -

https://www.pmw.co.uk/excepted-estates-rules/#:~:text=Lifetime%20gifts%20made%20within%20the,and%20what%20is%20required%20instead

sunrise89

Apologies for chucking it on the wrong forum at first. Didn't see a probate one!

Thank you Poseidon, I must admit I already had admitted defeat even though it seems hideously needless and you're right it doesn't ask anything of the sort regarding RNRB on the application or make any reference to it.

If like myself you carried out that inheritance tax calculator and it states none to pay you'd assume probate would imitate the outcome.

Oh well.

They want more admin they're going to get more admin.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81881568#Comment_81881568

HMRC have a very long way to go to properly modernise and rationalise a probate and IHT compliance process that was originally designed to be only navigated by professional practitioners on behalf of their clients.

Their attempts to improve accessibility/clarity for the increasing stream of DIY members of the public like yourself, leaves a lot to be desired.

SadCodeMan

In case it helps. The bit that the HMRC form is talking about when they say:

“You do not need to apply for a reference number if there is no Inheritance Tax to pay.”

Is about a reference number that would be needed to allow you to pay any IHT if it was due.

You don't need to apply for that because (as you say) no IHT to pay. So at least that is one piece of admin less to do…

You can just complete the IHT forms and send them off. About 4 weeks (or so) later they will reply with a code you need to provide to HMCTS (probate people) to show that you have submitted the IHT400 etc and to give them the 'link' to the details.

Sooz1966

https://forums.moneysavingexpert.com/discussion/6655024/probate-iht-threshold

Hi @sunrise89

We're in exactly the same position; it's infuriating. I've rechecked our Probate application form (we used the online embedded one on gov.uk) as I was sure we hadn't answered a question about whether we were using unused allowances or not. Sure enough, it doesn't actually ask unlike the PAP1 form which you use if you're going to post it - this goes into a lot more detail and would have alerted us to the need to do iht400 forms if we'd have used it instead.

The online form seems more concerned about the physical condition of the will than anything else. It's all very odd. But our stack of IHT forms are done now so just waiting on the mythical code and hoping probate deal with it quickly after we've sent it on...we've just received the bill for the funeral, a month's care home fees, a demand to repay 6 weeks disability benefits paid when dad was in hospital and a note from HMRC promising to get in touch shortly re outstanding tax on his savings interest. Happy days...

Savvy_Sue

Can the funeral bill be settled direct from one of the deceased bank accounts?

The care home and benefits can be told nicely that you're awaiting probate before paying.

sunrise89

Thanks all for posting with info. Do appreciate that. Hope you get yours sorted out Sooz.

I received a response from Probate reiterating I need to complete IHT400 unless the spouse claim etc. I admitted defeat in my stubbornness of I know better than the system 🤣.

Anyway IHT400 sent off with all relevant schedules which included the claim for RNRB, fingers crossed that all goes smoothly.

It's all a bit of a pickle tho, married but separated and lived in the same house but left spouse nothing. She (Mum) is not contesting anything. Will puts the house into an "Immediate Post Death" trust where she has a right to reside and we can't sell it where his sons me and bro are ultimate beneficiary's. I'm the trustee.

Once I've got probate my plan is to see a conveyancing solicitor to sort the title deeds on the house. Then from a letter I've recently received about the estate I'll need to register this trust.lnas well. All fun and games but feel like I'm on top of things.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81893334#Comment_81893334

You say your mother ( although separated from father ) was still married to him and has been given a lifetime right to occupy the property via the IPDI trust, with you and siblings then getting the house on her death.

It would have made sense if you had led with that very important information in your first post since you are completely wrong about the nil rate bands available in this scenario.

Firstly since your mother has a lifetime right of occupation to the house and still married to your father at his death, this constitutes an exempt transfer of the house to your mother for IHT purposes. So as far as the house is concerned none of your father's £325k nil rate was used. HMRC does not explain this in their probate guidance you are expected to know this, or take professional advice as to what an IPDI means if you don't.

Secondly, because your mother's right of occupation takes precedent, your father's residence nil rate band does not come into play until after your mother's death ie there has been no transfer of the beneficial ownership of the house to direct descendents at this point. Therefore, you had no basis to claim it at the present time.

The upshot of all the above is since your father's remaining assets gifted to you and siblings was well under £325k , it looks as if the estate would have met the criteria for an excepted estate rendering an IHT 400 unnecessary.

Be that as it may, what you have already submitted is clearly in error and you should retrieve it , cancel ASAP , and see if you can refile on an excepted estate basis.

One last point despite you mother never having owned this house, on her death you will have both parent's residence nil rate bands available up to a total of £350k depending on the house value at her death ( this assumes your father's sons are deemed to be your mother's step children).

In addition to this, your mother's £325k NRB will be available together with the unused balance of your father's.

All this as a direct result of your parents remaining married.

In passing perhaps you could provide the exact (redacted) wording of the clause relating to your mother's occupation rights to ensure there are no other aspects of this trust you should be aware of (eg downsizing provisions, house maintenance and insurance requirements, etc).