Probate: joint vs shared assets

[stewamax]

As expected (vie my earlier posts), I am now in ‘discussions’ with the Probate Registry...

For assessing estate value, the Probate Registry want the value of solely-owned assets, i.e. excluding any share of jointly-owned assets.
For IHT, HMRC want solely-owned assets plus a (usually 50%) share of shared assets.

A house owned in joint-tenancy or a bank account in joint names is clearly both, but what about furniture and the like acquired during the marriage: they are not jointly-owned (i.e. won’t automatically pass by survivorship to the spouse) but as ‘matrimonial assets’ are clearly shared.

Since the gross value of an estate for probate is the gross value for IHT minus jointly-owned assets, this would seem to leave a share of the value of furniture and so on within the probate gross value.
DAK if this is what is intended, or am I reading the Probate Registry’s definition of joint assets too strictly, when it really means any shared asset?

[Lootman]

In most cases a married couple will leave everything to each other. so for distribution of assets it does not matter if an asset is owned jointly or is shared. It goes to the surviving spouse.

And who else would want their bed or sofa anyway?

As for furniture it is included with chattel, which is typically given a very low valuation. That dining table you bought at John Lewis a decade ago is close to worthless at this point. Unless the house is full of antique furniture and fine art, a grand or two probably covers it all. Sometimes you cannot even get a charity to come and haul it away, in which case it may have a negative value.

[hiriskpaul]

You are overthinking this. Fill in the IHT400 as per the instructions. The amount that ends up on the Grant of Probate is of no relevance at all.

[stewamax]

You are overthinking this. Fill in the IHT400 as per the instructions. The amount that ends up on the Grant of Probate is of no relevance at all.

....except that the Probate Registry have queried the probate gross and net value I gave. They argue that I must submit an IHT400 in spite of the fact that HMRC's calculator shows that the estate has no IHT to pay (i.e. a nil 'net qualifying value') because I claim as a relief the full net value of the estate under 'assets passed to spouse or civil partner'.
To get the probate values, I have simply then deducted from this the deceased's half-share of jointly-held assets that pass by survivorship (house in joint-tenancy, and joint bank accounts) but not matrimonial joint (shared) assets (furniture, car, etc).

<peeve>
OK - I may indeed be overthinking this and I will just have to ring the Registry to see what their problem is. However, what peeves me slightly is that the IHT form notes are very clear about how joint assets should be treated: the IHT404 draws a clear distinction between joint assets that pass by survivorship and joint assets that can pass by Will, and even notes that assets that pass by survivorship "although they are included in the estate for the purpose of Inheritance Tax they are not included for the purpose of probate or Confirmation". The Probate instructions on the other hand merely ask for 'IHT gross value less joint assets', where the type of joint asset is unspecified (or it it is, I missed it!)
</peeve>

[hiriskpaul]

You are overthinking this. Fill in the IHT400 as per the instructions. The amount that ends up on the Grant of Probate is of no relevance at all.

....except that the Probate Registry have queried the probate gross and net value I gave. They argue that I must submit an IHT400 in spite of the fact that HMRC's calculator shows that the estate has no IHT to pay (i.e. a nil 'net qualifying value') because I claim as a relief the full net value of the estate under 'assets passed to spouse or civil partner'.
To get the probate values, I have simply then deducted from this the deceased's half-share of jointly-held assets that pass by survivorship (house in joint-tenancy, and joint bank accounts) but not matrimonial joint (shared) assets (furniture, car, etc).

<peeve>
OK - I may indeed be overthinking this and I will just have to ring the Registry to see what their problem is. However, what peeves me slightly is that the IHT form notes are very clear about how joint assets should be treated: the IHT404 draws a clear distinction between joint assets that pass by survivorship and joint assets that can pass by Will, and even notes that assets that pass by survivorship "although they are included in the estate for the purpose of Inheritance Tax they are not included for the purpose of probate or Confirmation". The Probate instructions on the other hand merely ask for 'IHT gross value less joint assets', where the type of joint asset is unspecified (or it it is, I missed it!)
</peeve>

That's interesting. I had not realised you had not filled in the IHT400. In the estate I have been administering everything is going to the surviving widow, but I still submitted an IHT400. Not sure why now, perhaps due to the size of the estate? It was very straightforward to do in any case as the affairs were in very good order and there was nothing weird going on. Just jointly held property, UK shares and interest income.

I did have to register the estate for Trust and Estate Tax, despite all the income going to the widow. That was because the value of the estate was over £2.5m.

[Lootman]

In the estate I have been administering everything is going to the surviving widow, but I still submitted an IHT400. Not sure why now, perhaps due to the size of the estate? It was very straightforward to do in any case as the affairs were in very good order and there was nothing weird going on. Just jointly held property, UK shares and interest income.

I did have to register the estate for Trust and Estate Tax, despite all the income going to the widow. That was because the value of the estate was over £2.5m.

Although I dislike probate it can really help if you do it anyway and then later an issue arises. You can point to the probate approval by a third party.

That said I would still rather avoid it.

[stewamax]

I did have to register the estate for Trust and Estate Tax, despite all the income going to the widow. That was because the value of the estate was over £2.5m.

Yes. The one I am dealing with narrowly scrapes in under the £2.5m bar.

[stewamax]

After a phone call to the Registry and scrutiny of HMRC's IHT documentation, especially IHT421 (the paper version of online Probate submission) and IHT404 (NB page 6), the situation becomes clear. I have summarised it below for anyone in the same boat.

1. HMRC's online checker uses the term 'shared' assets. This encompasses both joint assets (a house in joint tenancy for example) and matrimonial assets. They can do this because IHT Gross Value includes both.

2. The Registry online submission uses the term 'joint' assets, but does not clarify what it means by a joint asset. And Probate Gross value is IHT Gross Value less joint assets. The IHT421 (OK, it is an HMRC form but is used to submit for Probate...) is clear that these joint assets are ONLY those that pass by survivorship.

So light finally dawns : since unlike IHT, Probate is only concerned with the value of what passes by Will (or Letters of Administration for intestacy), the asset value that must be deducted has to be for those assets that cannot pass by Will (i.e. pass by survivorship).


I mentioned in an earlier post that the Registry had queried the Gross and Net values on my submission, saying that I must submit an IHT400 to HMRC. However, since there no IHT to pay (the "Net Qualifying Value for IHT" was nil), HMRC's current online guidance states that "If there’s no Inheritance Tax to pay and the person died on or after 1 January 2022… you’ll need to report estimates of the estate’s value as part of your probate application. You do not need to also report it to HMRC."
Note also that for excepted estates - inter alia ones for which there is no IHT payable - there is a paper form NIPF7 that is a cut-down version of IHT421, but this is for Northern Ireland only and does not apply to GB.

[hiriskpaul]

So light finally dawns : since unlike IHT, Probate is only concerned with the value of what passes by Will (or Letters of Administration for intestacy), the asset value that must be deducted has to be for those assets that cannot pass by Will (i.e. pass by survivorship).

Well done for working that out. I remember at the time wondering what all the complexity was for.

I have just taken a look to see if I could have short-cut the IHT400 as everything went to the widow, but I could not because the gross value of the estate was more than £3m.

[jaizan]

HMRC's current online guidance states that "If there’s no Inheritance Tax to pay and the person died on or after 1 January 2022… you’ll need to report estimates of the estate’s value as part of your probate application. You do not need to also report it to HMRC."
Note also that for excepted estates - inter alia ones for which there is no IHT payable - there is a paper form NIPF7 that is a cut-down version of IHT421, but this is for Northern Ireland only and does not apply to GB.

I like that online guidance, but haven't found it. Also, the pages I'm looking at unfortunately contradict it.

I'm dealing with an estate where everything passes to the spouse, except for a modest sum passing to the descendents.
Since the value of the estate is far below £3m, I expect no inheritance tax is payable. I put figures into the HMRC calculator and it confirmed that.

Then we get onto matters of reporting. Firstly is it an excepted estate ?

From HMRC (link below)
"An estate is usually an excepted estate if any of the following apply:

1 its value is below the current Inheritance Tax threshold
2 the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
3 the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity and the estate is worth less than £3 million (search the charity register for registered UK charities)
4 the deceased was living permanently outside the UK (a ‘foreign domiciliary’) when they died and the value of their UK assets is under £150,000"

This doesn't comply with any of the above. Leaving a modest sum to the descendents means not meeting criteria #3

Therefore this is not an "excepted estate".
We then appear to be required to provide accurate valuations, so getting surveyors out to value land at great expense. All for an estate which will be a long way off being subject to inheritance tax, since almost all of it passes to the spouse.

That is according to the information on the link below, which says, if we're not an "excepted estate", a IHT400 is required.

Further advice is welcome !

Source: https://www.gov.uk/valuing-estate-of-so ... -of-estate

[genou]

....
Therefore this is not an "excepted estate".
We then appear to be required to provide accurate valuations, so getting surveyors out to value land at great expense. All for an estate which will be a long way off being subject to inheritance tax, since almost all of it passes to the spouse.

Nah - get a couple of Estate Agent valuations ( given your numbers I take it we aren't discussing landed estates ).

If you are correct that there's a large leeway before tax would be payable, use their numbers on the IHT400. If you are far away from any chance of HMRC getting any tax, you will be left alone. If they do query you, you have valuations, which may not be surveyor accurate, but should be sufficient to see them off the field.

[Lootman]

....Therefore this is not an "excepted estate".

We then appear to be required to provide accurate valuations, so getting surveyors out to value land at great expense. All for an estate which will be a long way off being subject to inheritance tax, since almost all of it passes to the spouse.

Nah - get a couple of Estate Agent valuations (given your numbers I take it we aren't discussing landed estates ).

If you are correct that there's a large leeway before tax would be payable, use their numbers on the IHT400. If you are far away from any chance of HMRC getting any tax, you will be left alone. If they do query you, you have valuations, which may not be surveyor accurate, but should be sufficient to see them off the field.

Yes, I would generally take the view that if you know that no IHT is due, then there is little downside to not reporting the numbers at all.

As for getting valuations that may not be necessary if you are selling the deceasded's house anyway. Just use the actual sale price (net).

[scrumpyjack]

Nah - get a couple of Estate Agent valuations (given your numbers I take it we aren't discussing landed estates ).

If you are correct that there's a large leeway before tax would be payable, use their numbers on the IHT400. If you are far away from any chance of HMRC getting any tax, you will be left alone. If they do query you, you have valuations, which may not be surveyor accurate, but should be sufficient to see them off the field.

Yes, I would generally take the view that if you know that no IHT is due, then there is little downside to not reporting the numbers at all.

As for getting valuations that may not be necessary if you are selling the deceasded's house anyway. Just use the actual sale price (net).

The penalty for omissions on the IHT400 is a percentage of the tax due on the omissions. If no tax, there cannot be any penalties!

[jaizan]

Thank you for the advice.

Having looked into this againtoday, the HMRC Inheritance Tax Manual slightly contradicts the HMRC pages I was looking at yesterday and makes FAR more sense.
This one has no requirement for everything to pass to the spouse.

https://www.gov.uk/hmrc-internal-manual ... /ihtm06013

[gryffron]

Having looked into this againtoday, the HMRC Inheritance Tax Manual slightly contradicts the HMRC pages I was looking at yesterday and makes FAR more sense.
This one has no requirement for everything to pass to the spouse.
https://www.gov.uk/hmrc-internal-manual ... /ihtm06013

Be careful. There's an awful lot of out-of-date information on this issue out there on the web. I had a similar problem last year. The rules were changed (simplified) in Jan 2022 and not all web pages have caught up with the changes. As you have seen, even some gov pages are out of date!

Gryff