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Where Taxpayers and Advisers Meet

IHT Payment

Another1
Posts:27
Joined:Sun Apr 04, 2021 12:17 pm
IHT Payment

Postby Another1 » Sat Jan 08, 2022 6:07 pm

Scenario:

Mirror wills with equally divided estate …Residence =£210k + Investments =£360k = Total =£570k.
ie each spouse with estate = £570k (joint estate = £1140k)…Tenants in Common.

Will instructs Benificieries to receive a total of £140k at first death….with remainder going to surviving spouse.

1. Am I correct in thinking that on first death there would be no IHT due,and IHT allowance passed to surviving spouse would be reduced by £140k to £360k?….allowance available for surviving spouse is now £860k….no PETS.
2. The estate value becomes £1140k - £140k = £1000k….and If second death occurs soon after with the estate distributed to a number of beneficiaries.,this distribution cannot take place until IHT of (£1000k-£860k)x0.4 = £56k has been paid…Is this correct?
3. If £56k is correct, does this come from estate?,leaving £944k to be distributed?..ignoring expenses and no PETS.

AGoodman
Posts:1420
Joined:Fri May 16, 2014 3:47 pm

Re: IHT Payment

Postby AGoodman » Mon Jan 10, 2022 4:23 pm

1. Mostly correct. There wouldn't be any tax to pay. The survivor would inherit a nil rate band of (325-140)/325*100 = 57% of the nil rate band at the time the survivor dies plus 100% of the additional (residential) nil rate band. This would be £360k if the survivor died under the current rules, but would be higher if the nil rate band is ever increased again (it has been frozen for a loooong time).

2. Not entirely. Strictly speaking the bar is on obtaining probate although that would effectively prevent most distributions. Tax on land can be paid in 10 instalments and only the first instalment has to be paid to obtain probate so the sum payable to obtain probate would be lower than £56k.

3. Yes, the tax is paid by the estate. Others can step in and help (by e.g. lending the sum to the estate) if they wish.

Another1
Posts:27
Joined:Sun Apr 04, 2021 12:17 pm

Re: IHT Payment

Postby Another1 » Mon Jan 10, 2022 5:12 pm

Thank you AGoodman..

When you say 1.Mostly correct….Do you mean correct …unless NRB were to increase..

Wrt.2…Are you saying £56k needs to be paid to HMRC as I suggest,but to obtain probate in first instance,and not necessarily full amount…

Wrt.3…If second death followed soon after first death ,the Beneficiaries would have their £140k to help lend to estate as you suggest ..by Others.
If second death occurred some years after first,but was known beforehand due to illness,presumably the fatally ill surviving spouse could make gifts to family to enable them to have funds for pending IHT?..is this acceptable?

Do you agree about the numbers (£k) being correct?

maths
Posts:8430
Joined:Wed Aug 06, 2008 3:25 pm

Re: IHT Payment

Postby maths » Tue Jan 11, 2022 1:31 am

On the first death no IHT.

On second death surviving spouse has their own NRB increased by 57% giving 510,250 (due to transfer from first spouse). RNRB of 175k plus TRNRB of 175k gives 350k (assuming children inherit the house).

Total allowances 860,250 against an estate of 570k plus [570k - 140k] ie 1,000,000. IHT on second death 40% x [1,000,000 - 860,250] = 139,750 x40% = 55,900.

Another1
Posts:27
Joined:Sun Apr 04, 2021 12:17 pm

Re: IHT Payment

Postby Another1 » Tue Jan 11, 2022 3:11 pm

Thank you maths..

Wrt 3.para two….would this be ok?

AGoodman
Posts:1420
Joined:Fri May 16, 2014 3:47 pm

Re: IHT Payment

Postby AGoodman » Fri Jan 14, 2022 2:06 pm

Yes - of course they can make a lifetime gift to family to enable them to pay tax (or for any other reason).

Also, £56k sounds correct for the total IHT but the full amount wouldn't have to be paid immediately (due to the instalment option on land)


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