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Where Taxpayers and Advisers Meet

Benefit from another Estate years after probate

Pattrik
Posts:3
Joined:Wed Mar 27, 2024 6:38 pm
Benefit from another Estate years after probate

Postby Pattrik » Thu Mar 28, 2024 2:37 pm

I am an executor for the estate of someone who died in 2020. That estate reached the iht threshold and the relevant iht was paid and all other matters dealt with. The deceased was however a discretionary beneficiary in another estate which was subject of long running disputes, litigation and tax controversy. (At that point for more than 5 years). The administration was overseen by the courts and it was unclear if the estate was solvent. The potential benefit to the estate I am dealing with was highlighted to HMRC. IHT was not at that time paid or required to be paid on the potential benefit.
Some 4 years on it appears likely the benefit will in fact be paid. In the circumstances the disputed estate will have paid iht (ie the benefit is given free of tax). These funds will then potentially be subject again to iht on the recipient’s estate. The circumstances do not appear to give rise to relief from QSR or S141 and as such may be subject dual taxation within less than a year contrary to the ethos of the above. Any ideas ?

Pattrik
Posts:3
Joined:Wed Mar 27, 2024 6:38 pm

Re: Benefit from another Estate years after probate

Postby Pattrik » Mon Apr 01, 2024 1:14 pm

115 views but no replies. Perhaps as it is so unusual or I have worded it badly. In simple terms, an amount of money will come from an estate which has paid inheritance tax. The recipient estate having just received the money will then also pay iht at 40 % on that ‘tax free benefit’ .
Quick succession relief and s141 (two or more transactions) appear to have been created to prevent the same money being taxed twice in a short time. This scenario doesn’t appear to fit either to the letter. Perhaps someone has a different view or an alternative to put to HMRC ?

AGoodman
Posts:1745
Joined:Fri May 16, 2014 3:47 pm

Re: Benefit from another Estate years after probate

Postby AGoodman » Tue Apr 02, 2024 8:44 am

Why do you think it is subject to IHT in the 2020 estate? The taxable "estate" is the value of the estate immediately prior to the death. If the trustees of the other (discretionary) estate only exercised their discretionary powers to benefit the 2020 estate after 2020, the assets now being distributed were not part of the 2020 estate immediately prior to death.

On a practical note, it does also beg the question why/how the executors/trustees of the discretionary estate are exercising powers in favour of a beneficiary who is not alive at the time they are exercising the power. If, in fact, the 2020 estate was actually entitled to something in 2020 (rather than just being the object of a discretionary power) then there is unlikely to be anything that can be done. The gap is not "less than a year" if the deceased leaving the discretionary estate died more than 5 years prior to 2020.

pawncob
Posts:5099
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Benefit from another Estate years after probate

Postby pawncob » Tue Apr 02, 2024 9:44 am

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm22022
With a pinch of salt take what I say, but don't exceed your RDA

Pattrik
Posts:3
Joined:Wed Mar 27, 2024 6:38 pm

Re: Benefit from another Estate years after probate

Postby Pattrik » Tue Apr 02, 2024 6:17 pm

Thank you for the replies.
The money will be paid (hopefully) as it is subject of a Deed of Appointment. ( various terminology has been used throughout the administration of the first estate). Whether it was part of the 2nd estate at the date of death is not entirely clear as there was no access to it and certainly no guarantee it would or could in fact be paid. It was however I think technically an entitlement and therefore probably part of the estate for iht purposes.
It seems without specific relief it will be subject to iht. I have read the link provided and various other related documents but can’t find a definitive answer or similar scenario / stated case to refer to. Anymore offerings gratefully received.

AGoodman
Posts:1745
Joined:Fri May 16, 2014 3:47 pm

Re: Benefit from another Estate years after probate

Postby AGoodman » Wed Apr 03, 2024 10:13 am

If there was an entitlement then it would be an asset of the estate and subject to IHT. However, if there was uncertainty over the value and/or the entitlement itself, this could be reflected in the value.


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