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Where Taxpayers and Advisers Meet

Division of IHT

gs694
Posts:1
Joined:Mon Jul 24, 2017 11:00 am
Division of IHT

Postby gs694 » Mon Jul 24, 2017 11:09 am

Hi there

I am struggling to work out how inheritance tax should be split between beneficiaries of a will. My uncle has an estate worth £900,000. A property and assets (cars) worth £600,000 which he has left to my sister - she does not intent to sell these as the home has been in the family for years. Then £300,000 cash. The will leaves the cash in proportions to me, my sister and my 4 cousins in different amounts.

I am struggling to work out how the inheritance tax should be paid. I estimate that IHT on the whole estate would be £230k. Would this automatically come out of the cash amount left? And then the remainder (£70k) be split by the percentages stated in the will? Or will my sister inheriting the property and assets be liable for the proportion of IHT on that?

I hope that makes sense!

Thanks in advance for any replies.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Division of IHT

Postby maths » Tue Jul 25, 2017 2:51 pm

Assuming the will makes no reference to the payment of IHT then it would be treated as an expense of the estate and deductible from residue. The residuary beneficiary(ies) thus suffer(s) the IHT charge.To the extent that the residue is insufficient then any excess IHT is borne by the various specific gifts.

If as seems to be the case the whole of the estate is given away by way of specific gifts eg property plus cars 600k; 300k cash all of which is specifically gifted then each beneficiary will bear an appropriate % of the IHT.

If uncle has one nil rate band (325k) and a residence nil rate band (RNRB: 100k) then IHT is 40% of [900k - 425k] ie 190k.
In fact it may be that two RNRBs are available (of 200k).

IHT then borne as follows:

600/900 x 190k = 126,667

300/900 x 190k = 63,333 [itself pro -rated amongst the individual beneficiaries receiving the 300k]

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Division of IHT

Postby AGoodman » Wed Aug 09, 2017 10:54 am

Sorry to disagree but it doesn't sound like the RNRB applies here as the property is not passing to descendants.

It sounds like Uncle was unmarried and so has just one nil rate band, hence IHT of £230,000.

Also I fear that this:

"The will leaves the cash in proportions to me, my sister and my 4 cousins in different amounts. "

sounds like a residuary gift in several shares (it will be clearer from the will). If correct, then, as maths says first, all of the tax will be paid from the residue, not the property or cars, leaving just £70,000 to be shared out.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Division of IHT

Postby maths » Wed Aug 09, 2017 9:15 pm

AG is of course correct that the RNRB only applies if a residence is left to lineal descendants.

As to the £300k cash it will be clear form the wording of the will whether the £300k is a gift of residue in unequal shares or general legacies.

Whether uncle was married or not will determine the amount of any nil rate band(s).


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