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Where Taxpayers and Advisers Meet

IHT, one problem now and one to come:-(

mlaver4711
Posts:4
Joined:Mon Nov 01, 2021 7:48 pm
IHT, one problem now and one to come:-(

Postby mlaver4711 » Tue Nov 02, 2021 1:51 pm

Hello,

I am currently doing the tax returns for 20/21 and I have just realised that there may be a possible problem with UK IHT. The situation is this: my wife had an uncle in France who died last year. He left her around 26000EUR (on which she duly paid French IHT). The full value of his estate was ~250TEUR and I *think* (but then I may be utterly and totally wrong :lol: ) that the 26,000EUR does not attract any IHT here in UK?!

The other thing is basically the same situation but it's not her uncle but her mother who sadly is poorly and... :cry: Anyway, here the situation is different in so much as her mother's estate (all is located in France) will be above 400TEUR and my wife is the only child, actually the only surviving member of family. Assuming it's 450TEUR, assuming my mother-in-law leaves all to my wife and assuming the EUR exchange rate is 1.2 (just so that I can create a spreadsheet to be prepared), is my understanding correct that this would basically attract British IHT of ((450,000/1.2)-325,000)*40%?

Additionally my wife will of course have to pay French IHT which we have good idea about, having just gone through the whole process :D . Secondary question is whether she can part or all of this payment use as offset against British IHT?

Thanks for any hints, explanations or pointers to further information. Cheers Mick

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: IHT, one problem now and one to come:-(

Postby Lambs » Tue Nov 02, 2021 9:10 pm

M,

IHT in the UK is normally paid by the Estate, to the extent that any UK IHT is actually due. For relatives who have been born, raised and passed away outside the UK, it seems unlikely that there will be any UK IHT exposure on their Estate (assuming that there are no assets actually in the UK). I realise that it is different in many European countries, where it is the donee who has to account for IHT but usually in the UK, the inheritor is deemed to have received NET of any IHT due.

Clearly, you are already aware of the likelihood of exposure to French IHT on French Estates.

Kind regards,

Lambs

iwmtaxadvisor
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Joined:Wed Sep 09, 2020 5:12 pm
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Re: IHT, one problem now and one to come:-(

Postby iwmtaxadvisor » Wed Nov 03, 2021 9:13 am

Hello Mick, cross border is one of those tax situations where one might genuinely and usefully seek help. Having said that, you might come to the conclusion that you can do nothing and still comply. Doing nothing may not be the best planning action though on the basis that UK IHT tax rates will probably increase.

> The full value of his estate was ~250TEUR and I *think* (but then I may be utterly and totally wrong :lol: ) that the 26,000EUR does not attract any IHT here in UK?!

Sure, that makes sense. Yet it would help to know what kind of asset was transferred since situs is relevant to how the UK France Estate DTT determines which country has a 'bite'. You may want to ask the French for a certificate of tax paid, and ... well, you know how the French can be with forms. See
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm27174

> is my understanding correct that this would basically attract British IHT of ((450,000/1.2)-325,000)*40%?

No, I think from what you've said so far, there's no UK IHT due. IHT is levied on the transferor normally, as Lambs says.

> Additionally my wife will of course have to pay French IHT which we have good idea about, having just gone through the whole process :D . Secondary question is whether she can part or all of this payment use as offset against British IHT?

So this is where your wife inherits from her mother. You're going to have to read through the France UK Estate DTT Convention and apply the rules about situs first to determine where each asset is first taxed, but assuming as you say it would all be taxed in France, no UK IHT would be due (2021).

The planning question you're not asking is whether you'd want your wife to receive title to (non property) assets in the UK if she is not a UK domicile.
Robert Warren
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mlaver4711
Posts:4
Joined:Mon Nov 01, 2021 7:48 pm

Re: IHT, one problem now and one to come:-(

Postby mlaver4711 » Wed Nov 03, 2021 1:51 pm

Thanks for answering, much appreciated.
IHT in the UK is normally paid by the Estate, to the extent that any UK IHT is actually due. For relatives who have been born, raised and passed away outside the UK, it seems unlikely that there will be any UK IHT exposure on their Estate (assuming that there are no assets actually in the UK). I realise that it is different in many European countries, where it is the donee who has to account for IHT but usually in the UK, the inheritor is deemed to have received NET of any IHT due.
So... such an inheritance transfer (of 26,000EUR in this case) would attract no IHT at all here? If so, how about other taxes, like income or GC tax?
> The full value of his estate was ~250TEUR and I *think* (but then I may be utterly and totally wrong :lol: ) that the 26,000EUR does not attract any IHT here in UK?!

Sure, that makes sense. Yet it would help to know what kind of asset was transferred since situs is relevant to how the UK France Estate DTT determines which country has a 'bite'.
Ok, to clarify. The inheritance in the uncle's case was just money in a bank account and this money never entered the UK.
The planning question you're not asking is whether you'd want your wife to receive title to (non property) assets in the UK if she is not a UK domicile.
She is resident in the UK for ~25 years, so I assume she has now what's called deemed domicile?

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: IHT, one problem now and one to come:-(

Postby Lambs » Wed Nov 03, 2021 7:56 pm

"IHT in the UK is normally paid by the Estate, to the extent that any UK IHT is actually due. For relatives who have been born, raised and passed away outside the UK, it seems unlikely that there will be any UK IHT exposure on their Estate (assuming that there are no assets actually in the UK). I realise that it is different in many European countries, where it is the donee who has to account for IHT but usually in the UK, the inheritor is deemed to have received NET of any IHT due."

"So... such an inheritance transfer (of 26,000EUR in this case) would attract no IHT at all here? If so, how about other taxes, like income or GC tax?"

M,

Funds from an Estate are not income per UK tax law (unless it is income that has arisen TO the Estate WHILE in administration)

CGT does not typically arise on assets held in the Estate, with a few rare exceptions.

It may seem strange to you - foreign, even - that there is no UK tax to consider on an overseas Estate but do bear in mind:

UK IHT taxes the Estate, not the recipient/beneficiary of the Estate. The recipient is assumed to have had their funds or assets taxed already, in the Estate, by the time they receive it/them.

It is a foreign Estate, so will not be subject to UK IHT (save potentially for UK-situs assets, if there be any) but as it is a foreign Estate, it will be subject to foreign capital/inheritance taxes primarily, anyway.

I trust this is useful.

Regards,

Lambs

mlaver4711
Posts:4
Joined:Mon Nov 01, 2021 7:48 pm

Re: IHT, one problem now and one to come:-(

Postby mlaver4711 » Thu Nov 04, 2021 11:47 am

Thank you v much, Lambs, for that clarification.

As to the second case, my wife's mother: the same reasoning applies there as of today (things may change), I think. So to clarify this situation a bit: we're looking at ~450TEUR of which ~350TEUR is a flat in France. The rest (probably somewhat less than 100TEUR) is savings or investments (shares and investment funds). The house should be OK, as this stays in France, no matter what. But how about transferring money to the UK that was part of the inheritance? If that attracts a tax payment, could my wife put this into a French bank account and just use it when she is in France, so no inherited money is ever transmitted to the UK?

Sorry for pestering you again... I just want to make sure I have understood the position correctly. Cheers Mick

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: IHT, one problem now and one to come:-(

Postby Lambs » Thu Nov 04, 2021 7:39 pm

M,

For the amounts involved, and the level of reassurance you appear to seek, I would recommend you engage the services of a competent professional tax adviser here in the UK.

Regards,

Lambs


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