IHT400 – nearly completed but with a few questions - maybe someone here can help?

2LeftFeet

Hi all

I thought it best to keep everything in one place rather than post multiple separate Qs…make a cuppa if you fancy diving in…

I wonder if anyone could help me with a few outstanding questions I have on the IHT400 (and associated schedules) to enable me to finalise submission to HMRC.

Brief synopsis of my late parent’s estate

-              Divorced, no NRB transferred
-              Estate value is ~£1.4M split roughly 50:50 between the residential property (sole occupier, RICS valued and now on market) and foreign (USA listed) shares all held in ISA
-              Gifting (to me) of £38.9k which is deducted from NRB
-              Pecuniary legacies totalling £90k left to 6 individuals
-              I inherit the residuary, including the property

Q1 – IHT403 – I have been fortunate to have benefited from regular gifting (normal expenditure out of income. No significant gifts made to others. I have summarised income (from tax returns) and carefully gone through 7 years bank statements (from 6 assorted bank accounts) to reconstruct expenditure appropriately, making a spreadsheet roughly the size of a cricket pitch in the process. (Despite my requests, record keeping was scant and it always assumed that I would go through the bank statements. Deep joy!) Even after gifting, there is typically at least £10k surplus each year. There was exceptional additional gifting one year which cannot be classed as normal expenditure out of income so I have declared a sum of £38.9k to account for that. Are HMRC likely to challenge the regular gifting, or ask to see evidence of a single transfer of this amount (transfers were made in multiple smaller payments)?

Q2 – IHT405 – the residential property is currently for sale. Box 11 column E asks “Price for fixtures, carpets and curtains, if included in the sale price” – how much should I put here? Carpets are in poor condition and curtains are ok but nothing special.  I had assumed they would be included in the sale so is £0 ok here?

Q3 – IHT407 – there is a slightly complicated debt owing on a vehicle they purchased and the contract for which was then rescinded following court action. The sum owed to my late parent is ~£42k and until the debt is paid, the vehicle remains in registered to my late parent. The solicitor acting on behalf of my late parent suggested I omit the vehicle from the estate as in his view there is little chance of recovering the money owed by the defendant.  Should I include the vehicle on IHT407 (its current value is ~£10k)? And should I include the debt owing – and if so, where is it reported?
And note to self - death and transfer of ownership needs reporting to DVLA too.

Q4 – IHT430 – to be or not to be…? I had been considering a deed of variation in place to give 10% of the estate to charity thereby reducing IHT from 40% to 36%.  Conceptually this makes sense, but IHT430 is rather impenetrable to my feeble mind and I am confused about the apparent inability to include the RNRB in the calculation (from the HMRC IHT manual: “The nil-rate band maximum is not increased by any residential nil-rate band (RNRB)”
The HMRC calculator indicates £111k as the 10% so I have rounded up to £120k as the charity donation. Then the figures appear to be:

	No charity gift	With charity gift
Taxable estate	£1,400,000	£1,280,000
NRB	£325,000	£325,000
Gifting	£38,900	£38,900
TNRB	£175,000	-
Charity gift	£0	£120,000
Taxable after gift	£938,900	£873,900
IHT rate	40%	36%
IHT payable	£375,560	£314,604
Net to other beneficiaries	£1,024,440	£965,396
IHT saved		£60,956
Effective cost of gift		£59,044

But when I complete IHT430 the IHT payable comes out at £357,804 so I assume I have misunderstood something…but I do not know what!
If the saving on IHT is going to be minimal, it doesn't seem worthwhile paying a solicitor to put  the deed of variation in place and completing IHT430. Would it be better for me as an additional rate taxpayer to make the same personal donation (over successive tax years) and recoup the personal tax relief?

Q5 – paying the IHT – I cannot pay 100% of the tax due immediately (and the broker holding the S+S ISA does not subscribe to the direct payment scheme), but there is £105k cash in the estate so let’s say £100k is available to pay IHT. I could also sell my £50k premium bonds and make a temporary loan to the estate but that still leaves a significant shortfall. Can I apply for Grant on Credit, or am I expected to fund the rest myself (eg from my own S+S ISAs…which is technically doable but not easy or ideal)? As soon as Grant of Probate is issued I can release funds from the S+S ISA and get the cash in a few days.

Q6 – informing beneficiaries and dealing with legacies to minors – I have verbally told the beneficiaries they have been left a legacy but need to confirm in writing. Is there a standard wording I should use?
Three of the beneficiaries are minors. The will states the legacy is to be “held in trust” until they reach the age of 23. Does this require a formal trust or can their parent look after the money?  One of the other beneficiaries is terminally ill so I was planning to pay their £15k legacy first out of estate cash (thereby eroding the amount available to pay IHT). Any comment here would be much appreciated.

That’s all for now. Thanks in advance to anyone who made it this far, and can help on any of these topics.

2LeftFeet

Can anyone help with any of these questions?
Should I start separate threads for the different topics?
The most over-whelming questions are about the calculation for the IHT430 reduced rate of IHT and what to do about the debt owing, which is unlikely to be recovered.
Thanks to anyone who can give an opinion.

Keep_pedalling

Some answers,

Q1. As there would seem that your parent could have gifted significantly more from surplus income I think it high;y unlikely there will be a challenge.

Q2. I would put that down as zero.

Q3. Is this vehicle actually in your possession?

Q4. Not sure on that one

Q5. You have the option of paying by instalments.

Q6. There is no standard wording. What is the exact wording on the clauses for the bequests to minors? Very often the age clause is nothing but an unenforcible wish as creating trusts for adults is expensive and a total PINTA?

2LeftFeet

https://forums.moneysavingexpert.com/discussion/comment/82062011#Comment_82062011

Thanks!

Answers to Q1 and Q2 are helpful.

To Q3, the vehicle was already SORN’d and being stored. Not in my possession as such, but known to exist and in known safe location. Need to get the V5 swapped over (when I find the paperwork).

Hoping someone can clarify Q4 and whether I can use RNRB for calculation of estate at 36%

Q5, yes to installments, thanks

Q6, the exact wording is “…I give (free of all taxes and transfer costs) the following legacies: £xxx to each of the children of XXX of XXX who survive me for a period of at least 3 months after my death”
And then in the codicil to the will the sum is increased and the age limit stipulated: “any monies as might be inherited by her children are bequeathed to her daughters [named child] and [named child]. Such inheritance shall be held in trust until each achieves the age of 23 years.”
And the second similar clause in the codicil applying to a third minor: “xxxx currently lives at yyy and has a daughter zzz. Any legacy that she or any siblings of hers might received shall be held in trust until each achieves the age of 23 years”
Then a clause stating an uplift to the sum left to each minor: “The legacies created by clauses xxx and yyyy are hereby increased to £15k.”
So - is this an enforceable request or the as-mentioned PINTA? And if it creates an absolute requirement to create a trust for each legacy, whose responsibility is - mine as executor or the parent? Do I need to get solicitor opinion on this?

Thanks again
2LF

Savvy_Sue

I know it costs £25, but you could apply online for a replacement V5 if that's easier than finding the original.

But if you do that, and the original turns up before the replacement arrives, the original is useless. Replacement shouldn't take long to arrive.

Keep_pedalling

In order to make that age limitation enforceable the will / codicil would either have to specify that the money had to be placed in a discretionary trust or to include a clause that state that the children have to survive until their 23rd birthday with alternative beneficiaries named if they died before their 23rd birthday.

This does not seem to be the case here so they are still entitled to their inheritances once they reach the age of 18, and the money held in a bare trust until they reach that age. Was that codacil drawn up by a solicitor?

poseidon1

The legacies in favour of minors are unfortunate in that unless STEP standard provisions were imported as a rider to the will :

1. There appears to be no overt provision in the will allowing you as executor/trustee to delegate trusteeship of the trust funds to the respective parents.
2. The minors do not appear to have an absolute right to either capital or income of the trust funds unless they survive to age 23.
3. The will is silent as to what happens to a minor's contingent legacy if they die before age 23. There is no indication their legacy devolve to the surviving minors, so in absence of anything to the contrary the legacy fails and falls back into estate residue, of which you are the sole beneficiary.

In consequence of the above you are faced with the unfortunate task of holding as trustee the £15k for each child until each vesting age.

You then need to find an appropriate interest bearing account to generate a return on their cash (no easy task). Since the children do not have any entitlements until vesting age the accumulated income is liable to trust tax at 45% ( not basic rate). The trust must be registered on the trust register.

However, since you are the ultimate beneficiary if any legacy fails, you could after seeking advice from a solicitor and discussion with the relevant parents, consider executing a deed of variation which:

1. Eliminates your potential rights to the legacies as ultimate residuary beneficiary.
2. Grants each child an absolute right to all income during their minority.
3. Accelerates their capital entitlement to age 18 ( rather than 23), and if death before that age their legacy falls into their personal estates.

Varying the legacies in this way would then create effective bare trusts, avoid trust tax at 45% and reduce by 5 years the trust period for each legacy.

Obviously, all this would be directly contrary to the deceased's express wishes.

However, it is my distinct impression that solicitors fail to explain to testators the tax and administrative baggage which come with these contingent legacies, and I suspect if this were explained most sensible testators would drop the contingent survival requirement especially for such small legacies.

2LeftFeet

https://forums.moneysavingexpert.com/discussion/comment/82063464#Comment_82063464

Thanks - I am not sure if the codicil was drawn up by a solicitor (the main will definitely was). I suspect the codicil was not, in an effort to save money…without maybe enough thought about the downstream consequences.

2LeftFeet

https://forums.moneysavingexpert.com/discussion/comment/82063655#Comment_82063655

Thanks poseidon1 - helpful comments here.

The main will has 2 pages of additional clauses at the end of the will which look like standard provisions to my untrained eye. This includes a clause “to pay any money to which a beneficiary under 18 is entitled to his parent or guardian or to the beneficiary himself once he has attained 16 and to rely on the receipt then given by the parent or guardian or the minor himself”
So I am hoping this will not prove to be a massive trust-associated pain, or need the provision of a deed of variation (but this could be a helpful fall-back).