Now I'm worried (IHT)

[WrenChasen]

I've very recently been told I and one other are joint beneficiaries of an estate which will certainly attract IHT. My belief is the house will need to be sold to cover care home fees etc, but should this not be the case the IHT bill could be substantial.

I've been advised HMRC will demand payment of IHT before a property can be sold. Is that correct? As a rough calculation, we would be expected to find £250k which we would not be allowed to take from the estate.

Can anyone put my mind at rest, please?

[genou]

I've very recently been told I and one other are joint beneficiaries of an estate which will certainly attract IHT. My belief is the house will need to be sold to cover care home fees etc, but should this not be the case the IHT bill could be substantial.

I've been advised HMRC will demand payment of IHT before a property can be sold. Is that correct? As a rough calculation, we would be expected to find £250k which we would not be allowed to take from the estate.

Can anyone put my mind at rest, please?

IHT is not due before sale. You can pay IHT by instalments ( although you will incur interest ) on illiquid assets such as houses.

https://www.gov.uk/paying-inheritance-t ... nstalments

Whatever happens you will not be in a position where you are expected to pay tax on assets that you cannot realise.

[Clitheroekid]

I've very recently been told I and one other are joint beneficiaries of an estate which will certainly attract IHT. My belief is the house will need to be sold to cover care home fees etc, but should this not be the case the IHT bill could be substantial.

I've been advised HMRC will demand payment of IHT before a property can be sold. Is that correct? As a rough calculation, we would be expected to find £250k which we would not be allowed to take from the estate.

Can anyone put my mind at rest, please?

You say that you're beneficiaries - is that correct, or do you mean executors? I appreciate it may well be both.

If you're beneficiaries you should be celebrating, not worrying! IHT is simply not your problem. The executors will sort it all out, and all you have to do is await your no doubt substantial cheque.

If you're executors then it is more of a concern, though any concern that I felt in your shoes would be effectively soothed by the balm of the inheritance to come.

However, the first point to make is that here is no IHT due until 6 months after the date of death. In theory, therefore, you could sell the house and then pay the IHT. Unfortunately, in practical terms this doesn't work. In order to sell the house you need the Grant of Probate, and the government have very cleverly decreed that in order to get the Grant of Probate you have to pay the IHT first.

Again, though, in practical terms this shouldn't be a problem. The IHT that's specifically attributable to `real' property (i.e. land and buildings) can be paid in instalments over 10 years, so when you apply for the Grant you only have to pay the first instalment amounting to 10% of the total.

Admittedly, you do also have to pay the IHT that's attributable to the rest of the estate. However, you can arrange for this to be paid out of any bank / building society accounts comprised in the estate. They will release money from the account for this purpose even before the Grant of Probate is issued.

So stop fretting!

[supremetwo]

I've very recently been told I and one other are joint beneficiaries of an estate which will certainly attract IHT. My belief is the house will need to be sold to cover care home fees etc, but should this not be the case the IHT bill could be substantial.

I've been advised HMRC will demand payment of IHT before a property can be sold. Is that correct? As a rough calculation, we would be expected to find £250k which we would not be allowed to take from the estate.

Can anyone put my mind at rest, please?

Presume the care home fees are an already-incurred debt to the estate?
If so, there can be be no IHT on that debt (or any other debt), as it's the estate less debts that incur the tax.

The 'not be allowed to take from the estate' needs clarification.
If you have to find £250k tax, at 40%, this implies a taxable estate of £625k, and you will receive £187.5k for your half share.

[pompeygazza]

quite a good calculator here http://www.thisismoney.co.uk/money/news ... ility.html

to get a bill of 250k you would need assets of nearly a million, is this the case?

[WrenChasen]

Thank you all for your input and reassurance. I do appreciate it.

Having been told about this only last weekend, I'm still in shock and coming to terms with it - although your reassurance about IHT has taken some of the practical worries away.

The real issue for me is the sheer emotion of what's happening. I'm really struggling.

As someone who's always deplored people who greedily anticipate their inheritance to the point of planning their finances around it, I'm deeply uncomfortable with any discussions about wills and possible inheritance. Our benefactors are close relatives (not parents) who have significant health issues and have decided to put their affairs in order. They have even organised and paid for their funerals.

There will, I hope, be a lot of water under the bridge before any of this comes to pass. Care home fees are not an issue at the moment, but it's comforting to know we would be able to afford a decent place or home nursing if that's what's needed.

The IHT calculator (thank you, Pompeygazza) returns an IHT liability of over £400k at least. To get to that figure I put in known assets - the house, shares and cash. For emotional reasons, I can't bring myself to even try and calculate the value of the house contents.

Neither the other beneficiary or I are executors. I have an awful feeling my relatives may have appointed their bank and/or solicitor. The bank is a bad option because I understand they are a law unto themselves additionally their fees will be extortionate...and I worry about using a solicitor because I have had two bad experiences with lawyers - one who was jailed for Legal Aid fraud whilst acting for me, and my late father's solicitor who attempted to charge double his original quotation for winding up my father's estate.

(At this point, thank you, CK, for restoring my faith in the legal profession.)

Thank you all once again.

[chas49]

I think it's also worth pointing out - since you have explained that this is a potential inheritance as the testators are still living - that any possible IHT issue could be some way off.

You suggest that there's some possibility of the house being sold in the future to pay for care. Unappealing as that may be, this would reduce the size of the estate and therefore the IHT as well.

So I think the main message is there's nothing to worry about right now as far as IHT is concerned. Whether your relatives can do anything to tax plan and reduce the potential IHT bill is a separate question.

[PaulBullet]

Are they the ones who told you that you are inheriting?

If they are then you could suggest that you help them get there affairs in order,

firstly suggest that the main heirs are the executors.

Then if you are the executor you can help them organise things.

It may sound horrible, but they will be very worried about sorting things out and they will be wanting help I am sure. If they are feeling that they are dying then they will want people to get certain things like rings and keepsakes and having someone whom they trust as an executor will mean that you can put in place things like a "letter of wishes" to despose of things that generally have no value but are extremely important emotionally.

Paul

[Dod1010]

Clitheroekid has produced an excellent picture of the scene from a legal point of view. All you need to worry about is the size of your inheritance. it is actually none of your business to be blunt, who they have appointed as Executors, nor need you worry about IHT. It is not your problem to fund it. You are merely a (presumably grateful) beneficiary. In these circumstances it is as well not to be counting any chickens as those who give can take away again.

Contrary to what has been said I would be very careful about interfering in the affairs of your potential benefactors, but only you will be able to judge if they would appreciate your help or not. They might tell you to go away. Emotions, money and potential inheritance can be a very potent mix.

Best just to relax and wish the benefactors a long and happy life. If they ask for help of course give it.

[Lootman]

firstly suggest that the main heirs are the executors.

Yes, as a rule of thumb I think that's usually the best idea. The ideal executor is the main beneficiary who, typically is a child of the deceased or the next-of-kin. As such, you have a direct interest in the process being quick and efficient, and will be in the best position to furnish the information needed for probate without relying on others.

I've been an executor three times. Two of those occasions were for my parents, where the process was simple because I already had a POA to act for them and so was familiar with their finances. The third time for my uncle who chose me because he knew that his children would fight about it, and that was a lot more tricky.

In this case I'd work hardest at getting the bank removed as an executor. No good can come of that.

[Clitheroekid]

I have an awful feeling my relatives may have appointed their bank and/or solicitor. The bank is a bad option because I understand they are a law unto themselves additionally their fees will be extortionate...and I worry about using a solicitor because I have had two bad experiences with lawyers - one who was jailed for Legal Aid fraud whilst acting for me, and my late father's solicitor who attempted to charge double his original quotation for winding up my father's estate.

I would very strongly recommend that despite your understandable reluctance to get involved you do try to dissuade them from appointing a bank. Virtually nobody has the faintest idea just how extortionate their fees are for dealing with an estate, as the clause in the Will appointing them simply says they can charge their fees in accordance with their scale of charges or something similar, and nobody that I've ever dealt with in this situation has actually asked to see the scale of fees.

But when I say `extortionate' I mean extortionate. On an estate of the size you're talking about their charges could easily amount to £40,000 or more, probably 5 to 10 times what a solicitor would charge for this size of estate.

With regard to appointing a solicitor as executor I would obviously have to declare an interest! However, I do agree that in most cases simply appointing the main beneficiaries is fine, on the basis that if they need legal advice they can contact a solicitor of their own choice on an `as and when needed ' basis.

But please, PLEASE do your best to prevent them becoming victims of the insatiable greed of the banks.

[Gengulphus]

For emotional reasons, I can't bring myself to even try and calculate the value of the house contents.

You may be glad to know there's probably no point trying, because house contents are valued for IHT purposes at what they can be sold for reasonably reliably and swiftly, not what it would cost to replace them. For things like furniture, that means what they can be sold for at auction, which will be well down on its new price in the shops; for everyday things like bedding, kitchen equipment, video cassettes, crockery, clothing, etc, it means nothing.

Obviously there are exceptions where items do have significant sale value - valuable paintings and other antiques, for example - but unless the people concerned collect such items, the total value of the house contents for IHT purposes is likely to be only a small percentage of the value of the house itself (I think it came to about 1-2% in the case of my mother's estate, for example). When the time comes, get a valuer to comes in and value the house contents - but for IHT planning purposes, don't bother: you might just as well try to plan for small percentage changes in house values, the sort of difference that just a few months difference in the date of death might make!

Also, again there may be exceptions, but by and large any items with significant sale values aren't all that likely to be the ones that are particularly important emotionally. E.g. for me, the child's plate and mug that were 'mine' when I was maybe 5 years old, and the red and gold 'for best' plates when I was a bit older were particularly memorable emotionally when crockery was shared out - but neither had any value for IHT purposes. There was some more valuable stuff that they acquired when I was older and they were more wealthy, that did have some financial value for IHT purposes (though we're still only talking tens of pounds for a few dozen items and a few hundred pounds for a very few items) - and they leave me cold emotionally...

Gengulphus

[chris]

You suggest that there's some possibility of the house being sold in the future to pay for care. Unappealing as that may be, this would reduce the size of the estate and therefore the IHT as well.

It may not be the case if the house is worth a substantial amount. With the coming changes of IHT rules regarding property, there are additional family home allowances of £100k for each of them, which is transferrable, on the property. This rises to £175k in 2020. Therefore if the estate is large, it would be better to have a property in the estate, even if this means downsizing to release capital. If only 1 needed care and they didn't want to rely on the local council (I don't think they can be forced to sell if one of them is living there - but I am not sure) then downsizing to release additional funds to pay for better care would be a better option.

If they do not have a property, this £200k - rising to £350k allowance would not apply and so the IHT would be greater.

Chris

[Lootman]

With the coming changes of IHT rules regarding property, there are additional family home allowances of £100k for each of them, which is transferrable, on the property. This rises to £175k in 2020. Therefore if the estate is large, it would be better to have a property in the estate, even if this means downsizing to release capital.

If they do not have a property, this £200k - rising to £350k allowance would not apply and so the IHT would be greater.

Yes, the government really messed this up, condemning older people to remain in their homes and/or not sell them, even if no longer suitable, in order to help shelter their estate from IHT.

It really would have been so much better and simpler to just raise the nil-rate band to 500K a person and leave it at that. Or preferably a million a person but that's just wishful thinking of course.

[chris]

One more thing that it may be as well to do - sorry, I am giving you more things to think about, is that with talk of care homes, it is really important to get them to sort out a power of attorney. This has been mentioned in passing in one of the replies, but the consequences of them both losing capacity / ability to sort out financial affairs and not having a POA is extremely worrying. Apparently it takes 6 months or more to sort it out if they have not prepared a document and for the filing fee plus solicitors costs (if you don't want to do it yourself), it could reduce an enormous amount of hassle. With the size of the estate, it is strange that whoever was preparing their will (if it was done recently) has not pointed them towards this.

They could appoint the 2 beneficiaries as joint 'attorneys' and it only needs to be registered if they lose capacity but if it is in place, the relatively short time to enact it to allow you to pay bills and organise things on their behalf is going to really help ensure they continue to receive the best care and it will also save you (and them) a lot of major hassles.