Charity Donations and Inheritance Tax

Perdusys1955

I am one of 6 benefiiciaries in a will, where the estate is divided equally between 3 family members and 3 charities in equal shares.

Am I right in thinking that the estate will not attract IHT becuase the deceased, ( my relative) was a widow without any children, and has her husbands NRB plus the three charities? The estate is estimated to be in the region on £700K gross. Does the 50% bequest to charity have any bearing?

katejo

When I did my will, I only got a small reduction in inheritance tax by committing 20% to charities. No partner involved. I think it was 37% instead of 40%.

DRS1

If you leave 10% or more of your estate to charity the IHT rate is reduced from 40% to 36%.

Also whatever you leave to charity is exempt from IHT.

So the OP may be right that there is no IHT due on the estate even though it exceeds the deceased's NRB (and her husbands NRB).

Hopefully there is a firm of solicitors looking after the estate who can do the sums.

DRS1

I recalled that there was a reason why you might want to avoid splitting the residue of your estate between individuals and charities. It is all to do with "grossing up" and hopefully should not affect the OP if there is no IHT due. But in case there is (and so you know why you'd want solicitors looking after the estate) I attach an article on the subject

Inheritance Tax (IHT) - Grossing Up (Re Benham v Re Ratcliffe)?

Keep_pedalling

The entire bequest to the charities is exempt from IHT, and assuming that she inherited everything from her husband there are £650k of exemptions from the two NRBs more than enough to cover the bequests to relatives so there will be no IHT to pay.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81881966#Comment_81881966

It is 36%, and you only need to give 10% of the net estate to qualify for the reduction. The net estate is after debts and any nil rate bands available.

In any case in the OPs case they have given so much away to charity that they are not liable for IHT anyway, so the above rule is not relevant.

Perdusys1955

Thanks for your helpful answers. If I understand correctly, the bequests to the charities are exempt from IHT, and that means that only the family bequests totalling around £350K would be liable to IHT, but these are covered by the NRB from both relatives as they were husband and wife.

Do we complete the normal IHT form, or is there a specific one needed to cover these circumstances?

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81889717#Comment_81889717

Are you now saying you are an executor as well as one of the beneficiaries?

Is there no solicitor in the background able to assist?

Handling an estate where charities are substantial residuary beneficiaries requires a high degree of diligence and the ability to ultimately produce very accurate estate distribution accounts in a format acceptable to charities.

I suspect from the questions you are asking here this would be a challenging task for you, and something you should likely delegate to an appropriate professional.

In the meantime the following guidance gives you an idea of the estate administration obligations where charities have a substantial stake in the outcome -

https://legacymanagement.org.uk/wp-content/uploads/The-administration-of-a-charitable-estate-for-professional-executors-1.pdf

Perdusys1955

The charities have been very helpful in offering assistance, we are expecting the named executors to renounce in our favour. Of the family beneficiaries, there is a reasonable amount of experience with applying for probate and distributing estate funds, although not with charitable beneficiaries. We also have experience of producing accounts, and with the help of the charities this shouldn't be a problem. We are aware that a high degree of diligense is required in estate accounting, and not just for charitable beneficiaries.

We haven't had to pay IHT, and therefore the questions to double check the information we have.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81890103#Comment_81890103

Only thing I would add, is if any estate income arises that eventually ends up being taxed, don't overlook producing the estate forms R185 for the charities to recover any income tax paid at estate level.

They will also expect the Income Account part of the formal estate distibution accounts to reconcile back to the R185 figures. Of course the non charitable beneficiaries will also require their R185s in this scenario for personal tax compliance purposes.

Perdusys1955

https://forums.moneysavingexpert.com/discussion/comment/81890557#Comment_81890557

Thanks, she will have rental income for a few months so there will definitely be estate income, and I note your comments regarding the R185. I have spoken to HMRC, and I understand the Estate Administration required for taxable income.

However, I am confused about whether we need to apply for Letters of Administration first though, I seem to have conflicting advice. Gov.UK helpline told me we need to do a Form PA1P, and send it in with the deed of renunciation. That appears to be a straight to Probate form, naming the replacement executors when sent in with the Deed of Renunciation and the original will and death certificate. Though it obviously does not mention the deed we have from the previous executors.

Other advice tells me to use the online system, but I am not a named executor and cannot answer the question correctly, a "No" answer tells me I need to apply on Form PA1P and send it by post. Can anyone confirm we do indeed need to do a paper and post application?