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IHT Help Please

including wills and probate
WrenChasen
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IHT Help Please

#489217

Postby WrenChasen » March 25th, 2022, 6:34 pm

Last year I managed to obtain probate for a relative without any problems. Unfortunately, her husband's health has declined rapidly and it's possible I might have to put on my executor's hat again sooner rather than later. Two specific points are worrying me and I can't find a simple answer on the HMRC website (although that might be down to a comprehension problem on my part :? ).

1. The net value of estate was £325,380.92. There was an estate exemption of some £58,000 in respect of cash left to her husband. Question: Is that £58,000 (expressed in percentage terms) available to increase her husband's IHT allowance when the time comes?

2. They own(ed) their house as tenants in common. In order to value the house for probate purposes, I asked the husband to contact three estate agents for valuations and used an average of those valuations to arrive at a value for probate. However, I've since found out those valuations were only "drive by" and that no agent actually went into the house, which is in need of substantial renovation, including a complete rewire, and is probably very unlikely to sell at a figure anywhere near the average price I used based on those valuations (£540,000). My plan would be to market the property as a probate sale before applying for probate in order to arrive at an accurate figure.
Question: Having stated half the value of the house was £270k at the date of the first death, am I going to have problems with HMRC if I have to declare the other half as say, £240k on the second death?

Any help/advice you can offer would be much appreciated.

Gerry557
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Re: IHT Help Please

#489296

Postby Gerry557 » March 26th, 2022, 8:54 am

Assuming the 1st death resulted in the assets being transfered to the spouse, I think they can get their share of IHT transfered so £650k total.

The value of the house is the value sold on the open market, Any changes can be for various reasons, the market changes, normally upwards, the state of the house etc. You will have actual figures then which will be used, less expenses.

This also assumes you are not selling it to a "friend" at below market rates, which is probably against the law as executor anyway.

scrumpyjack
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Re: IHT Help Please

#489323

Postby scrumpyjack » March 26th, 2022, 10:53 am

As I understand it the value of the house will not affect IHT on the first death so a 'drive by valuation' should be fine. The surviving spouse inherits the deceased's 50% share and no tax arises. On the second death there will be IHT on the value at that point of the house subject to allowances (the unused part of the first death plus that of the second deceased plus any family home exemption allowance if applicable). HMRC will not be interested in the valuation of the first deceased's share as it will not have affected tax in any way. On the second death the house will presumably be sold and, optionally, you can substitute the sale value for the probate value if sold within 4 years of death and recalculate IHT on that basis. There is no CGT on death.

Gerry557
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Re: IHT Help Please

#489333

Postby Gerry557 » March 26th, 2022, 12:21 pm

Does the husband have remaining children or grandchildren that he could leave the house too. That would increase the IHT threshold to £1m

WrenChasen
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Re: IHT Help Please

#489722

Postby WrenChasen » March 28th, 2022, 11:10 am

Thank you very much for your responses.

To clarify, there are no children or grandchildren so no additional NRB is available. Am I right in thinking the total IHT allowance would be £383,000 (£325,000 NRB plus the £58,000 exempt payment to the husband from his wife's estate)?

My relative is 86 and realises it's probably too late to address the amount of IHT which will be payable on his estate. This worries him. My thinking is he can immediately reduce the liability by making use of his £3,000 annual gift allowance to benefit some younger family members. He hasn't made any gifts yet; I think he could write cheques to the value of £6,000 (using the one year carry forward allowance) this financial year, and then more gifts to the value of £3,000 after 6th April. Am I right?

I would really appreciate your help on this.

DrFfybes
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Re: IHT Help Please

#489725

Postby DrFfybes » March 28th, 2022, 11:29 am

Yes, tou are correct about £6k this year (this week!) and another £3k next week.

Also lots of gifts of £250 to different people this week and next week.

I would do direct BACS payment if available rather than cheques. There is no ambiguity about when the gift was made, especially if the cheque isn't cashed for a couple of weeks, although for these amounts I doubt they'd bother to check. Also with Bacs once the payee is set up then subsequent payments are simple.

Also look at gifts out of income, and if any of the beneficiaries make regular charitable donations then he could make them instead.

Paul

Gersemi
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Re: IHT Help Please

#489742

Postby Gersemi » March 28th, 2022, 1:19 pm

WrenChasen wrote:Thank you very much for your responses.

To clarify, there are no children or grandchildren so no additional NRB is available. Am I right in thinking the total IHT allowance would be £383,000 (£325,000 NRB plus the £58,000 exempt payment to the husband from his wife's estate)?

My relative is 86 and realises it's probably too late to address the amount of IHT which will be payable on his estate. This worries him. My thinking is he can immediately reduce the liability by making use of his £3,000 annual gift allowance to benefit some younger family members. He hasn't made any gifts yet; I think he could write cheques to the value of £6,000 (using the one year carry forward allowance) this financial year, and then more gifts to the value of £3,000 after 6th April. Am I right?

I would really appreciate your help on this.


I'm no expert, but I think the IHT allowance would be £325,000 + £325,000 - minus amounts from the first estate left to people other than the husband.
I think from the OP that is £325,380.92 - £58,000 = £267,380.92, so £350,000 - £267,380.92 = £57,619.08. But if the £267,380.92 was the half share of the house, that also went to the husband, then the full £325,000 is available to add to the husband's NRB, for a total of £650,000.

While he has left it a little late to make PETs, if he has spare assets he could still make gifts (over the £3000 and £250 allowances), after all he might live another 7 years.

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Re: IHT Help Please

#489745

Postby DrFfybes » March 28th, 2022, 1:44 pm

I may be missing something here, and Gersemi has also spotted it, who did the wife leave her half of the house to? Presumably the husband is still living in it?

The pertinent question is how much did she leave to people who were NOT her husband, or a charity? Was it really £267,380.92?

Paul

WrenChasen
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Re: IHT Help Please

#489883

Postby WrenChasen » March 28th, 2022, 11:04 pm

DrFfybes wrote:I may be missing something here, and Gersemi has also spotted it, who did the wife leave her half of the house to? Presumably the husband is still living in it?

The pertinent question is how much did she leave to people who were NOT her husband, or a charity? Was it really £267,380.92?



The wife's half share of the house was left to people other than the husband, with stipulation that he will have full use of it, including the right to sell it to downsize or pay for care home fees, until his death. (I can't remember the exact wording, but I think the bottom line is they're residual beneficiaries who haven't actually inherited anything, and won't until the death of the husband.

WrenChasen
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Re: IHT Help Please

#489886

Postby WrenChasen » March 28th, 2022, 11:30 pm

Gersemi wrote:
WrenChasen wrote:
While he has left it a little late to make PETs, if he has spare assets he could still make gifts (over the £3000 and £250 allowances), after all he might live another 7 years.


This is the nub of the problem; old habits die hard after a lifetime of watching the pennies. He could live for another seven years, and that would solve the problem - or at least part of it if he lives for a even a further four years to enable taper relief to start to kick in, but he has significant health problems and is very aware he could be on borrowed time. Now he's in a bit of a tizz worrying about IHT and kicking himself for not taking action to mitigate it before now.

My thoughts are that he could gift as much as he wants while he's still with us so at least the recipients will have the chance to thank him in person. IHT will be payable whatever he does; I'm just trying to find ways to legally lighten the final figure.


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