Inheritance Tax Questions.

[gryffron]

My dad died last month. I am the only child and and executor for his estate. First time I've had to deal with this. Maybe the clever Fools here can help me with a few things that are confusing me.
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Section 1 "Excepted Estate"
His first wife/my mum died in 2016. She had only small savings left entirely to dad. So AUIU dad has +100% transferred Nil Rate Band +100% transferred Residential NRB.
Several govt websites discuss this in detail.

If his estate is an "excepted estate" then I can submit the much simpler paperwork.
Several govt websites discuss this in detail too. But some say "less than £325k" & some say "if no tax is payable".

Q1) What I can't find is how these two combine. If his distributable estate is >£325k but <£650k (which is looking likely), so no IHT is actually payable, is it an "excepted estate" or not?
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Section 2 "Will Trust" taxation
Dad remarried. His new will leaves his property "on trust". I understand this creates a "Will Trust". Trustees, myself and cousin. Beneficiary of the trust is stepmum, who can live in the house until she dies/remarries/voluntarily gives up the right. At which point the house passes to me.
Q2) How does this work for IHT tax? Who is the recipient of the property for dad's IHT purposes?
a) Myself. Uses his 200% RNRB. No problem.
b) Stepmum. Spousal transfer. Leaves her 200% RNRB for use if she dies? What if she gives it up? What is the tax situation then? PET? Will it ultimately come from HER NRB or RNRB?
c) The trust itself treated separately like a Ltd company. Taxable, no RNRB?
d) Myself and cousin. Half RNRB to me. Half taxable to her?
e) Or do we have to keep the estate open as long as the trust persists?
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Each of the distributable estate and the property are between 100% and 200% of the respective Nil Rate Bands.

Thanks for any advice.

Gryff

[DrFfybes]

Regarding point 1

If the Estate is over £325k but no tax is payable, you still end up filling in IHT400 as you need to claim the transferrable NRB (IHT402?) and the Residential NRB (IHT435 - that one I do know )
I was told those form could only be used in conjunction with IHT400 (makes sense, they all start with a "4").

Paul

[gryffron]

If the Estate is over £325k but no tax is payable, you still end up filling in IHT400 as you need to claim the transferrable NRB (IHT402?) and the Residential NRB (IHT435 - that one I do know )

Thanks Paul
When did you do this?
Because:
https://www.gov.uk/valuing-estate-of-so ... -of-estate
Says

When to send full details of the estate’s value even if no tax is due:
...
died on or before 31 December 2021 and had inherited part of the Inheritance Tax threshold from a previous spouse or civil partner

Which implies that is no longer the case.

Gryff

[DrFfybes]

If the Estate is over £325k but no tax is payable, you still end up filling in IHT400 as you need to claim the transferrable NRB (IHT402?) and the Residential NRB (IHT435 - that one I do know )

Thanks Paul
When did you do this?
Because:
https://www.gov.uk/valuing-estate-of-so ... -of-estate
Says

When to send full details of the estate’s value even if no tax is due:
...
died on or before 31 December 2021 and had inherited part of the Inheritance Tax threshold from a previous spouse or civil partner

Which implies that is no longer the case.

Gryff

Aha - I did mine Dec 2021 - didn't know it had changed (to be honest I hadn't looked since). It looks like the transferrable NRB doesn't need IHT400, but didn't see anything about if you need to use the RNRB. IHT400 wasn't as onerous as I thought, a lot of it was just ignored.

The Trusts might complicate yours as well.

Paul

[eisman]

In response to Gryffon's detailed queries:

Section 2 "Will Trust" taxation
Dad remarried. His new will leaves his property "on trust". I understand this creates a "Will Trust". Trustees, myself and cousin. Beneficiary of the trust is stepmum, who can live in the house until she dies/remarries/voluntarily gives up the right. At which point the house passes to me.
Q2) How does this work for IHT tax? Who is the recipient of the property for dad's IHT purposes?
a) Myself. Uses his 200% RNRB. No problem.
b) Stepmum. Spousal transfer. Leaves her 200% RNRB for use if she dies? What if she gives it up? What is the tax situation then? PET? Will it ultimately come from HER NRB or RNRB?
c) The trust itself treated separately like a Ltd company. Taxable, no RNRB?
d) Myself and cousin. Half RNRB to me. Half taxable to her?
e) Or do we have to keep the estate open as long as the trust persists?

The trust query seems only in relation to the house, although Gryffon later states:

Each of the distributable estate and the property are between 100% and 200% of the respective Nil Rate Bands.

I have assumed that it is only the house that is left on trust.

Q2. The value of the property left on trust for the surviving spouse will form part of the estate of the surviving spouse for IHT purposes, as an 'interest in possession' trust. Although most property settled on trust after 22 March 2006 becomes 'relevant property' (including interest in possession trusts, but not bare trusts), this is one of the exceptions known as an 'immediate post death interest'. See:
https://www.gov.uk/hmrc-internal-manual ... /ihtm16061

If the stepmum vacates the property before death (e.g. on remarriage) such that Gryffon and his cousin take ownership, she will be deemed to have made a Potentially Exempt Transfer of the value of the house at that time. If she survives seven years from that date, the value transferred will not be liable to IHT. If she fails to survive for seven years, the value will reduce her available NRB (including her late husband's unused NRB).
Unfortunately, I fear no RNRB will be available on her estate as the house is not being left to a direct descendant.

The rest of the estate can be distributed once 'ascertained', any liabilities paid, and the trustees have received the house. I am not a lawyer, but I believe this can be effected by a 'deed of assent' from the Executor into the Trustees' names.

Eisman

[Dod101]

Frankly, I do not know why people are not prepared to pay a modest sum and get proper legal advice. This sounds like a simple enough estate but the trust aspect needs to be properly documented. I too could give answers but I am only a bod on the internet. Get proper legal advice. It will not cost a fortune and the estate will be paying anyway!

Dod

[mutantpoodle]

many solicitors charge 3-4% of the estate value for the 'service'....almost definitely PLUS VAT

and...they send you the forms to complete, so you answer all the questions anyway

I accept that if you cannot understand a question they are there to assist (at the cost)

[DrFfybes]

many solicitors charge 3-4% of the estate value for the 'service'....almost definitely PLUS VAT

and...they send you the forms to complete, so you answer all the questions anyway

I accept that if you cannot understand a question they are there to assist (at the cost)

Many also do a "flat fee". On 3 occasions our family have collated the full list of assets and accounts so the solicitor knew how many companies they were dealing with, and quoted on that. One was for mt father, the first one I'd had to deal with. The others were my in-laws as they had Trusts set up in their wills from before the transferrable NRB.

We are going back 5 and 13 years or so now, but costs were circa £2-3k, as the Wills were pretty straightforwards "sell and split to the family" once the Trusts were dealt with. In all cases their was no house to sell or value, but the Estates were quite large so percentage wise the fees were a fraction of 1%.

Paul

[Dod101]

many solicitors charge 3-4% of the estate value for the 'service'....almost definitely PLUS VAT

and...they send you the forms to complete, so you answer all the questions anyway

I accept that if you cannot understand a question they are there to assist (at the cost)

I know, but as DrFfybes says, not all do. For a very long time now solicitors in Scotland anyway, have had to produce some sort of estimate of costs before work proceeds. Sometimes that is not meaningful if it is open ended sort of business, but this sounds like a fairly discreet task(s). Never be afraid of challenging them, such as if they want to charge a percentage of the estate (although that need not be any more expensive than by the hour) The point is to keep your feet on the ground and remember that you are the one paying. These days, solicitors are just another business. I almost always challenge their costs, but once they are agreed, I pay immediately.

Dod

[Adamski]

Hi Gryff, I'm not a lawyer, and agree with Dod you need legal advice.. but for my two penneth, I expect you'd lose the RNRB as property not left to children or grandchildren. So dont be surprised if the value of the estate in total is over £650k (£325k x 2) you'd pay inheritance tax. Cheers, Adam

[gryffron]

Ok, so first @Dod101

Frankly, I do not know why people are not prepared to pay a modest sum and get proper legal advice.

I am. But as I said, 2 weeks ago I knew nothing about this. I always find it really helps to understand something about the problem and possible solutions before talking to an expert. Otherwise they baffle you with their answers. And you don't have time during an expensive consultation to do any further research. I've learnt so much from the 2 Fool sites but there's always more to know.

I had tried to search on the internet beforehand, but everything I could find about trusts seems to refer to trusts setup before death, which is not my issue.

Gryff

[Dod101]

Ok, so first @Dod101

Frankly, I do not know why people are not prepared to pay a modest sum and get proper legal advice.

I am. But as I said, 2 weeks ago I knew nothing about this. I always find it really helps to understand something about the problem and possible solutions before talking to an expert. Otherwise they baffle you with their answers. And you don't have time during an expensive consultation to do any further research. I've learnt so much from the 2 Fool sites but there's always more to know.

I had tried to search on the internet beforehand, but everything I could find about trusts seems to refer to trusts setup before death, which is not my issue.

Gryff

OK. Good idea and I completely understand that. I was not intending to be in the least critical

Dod

[gryffron]

And now, just in case anyone finds this thread on google, I'll present the answers I have obtained to my own questions.

1) The up-to-date rules on whether an estate is "excepted" or not I have found here: https://www.gov.uk/valuing-estate-of-so ... 600e2a2b7a

2) My solicitor confirms pretty much what Eisman wrote. She even used the term "interest in possession" with which I was previously unfamilar.
Stepmum is the beneficial recipient of the house for tax purposes - Spousal transfer.
If she gives it up, it becomes a PET from her. She will then have no RNRB because her estate has no property.
If she lives there until she dies, then RNRB categorically is available to step-children. https://www.gov.uk/guidance/inheritance ... -rate-band

Thanks to those who offered their advice. It certainly helped me to understand it all before the solicitor could baffle me with jargon

Gryff