What do do with relative's share portfolio following death

[JohnB]

So someone is liable for income tax/CGT until date of death, IHT is paid on the valuation at death, then the estate acts as an entity with income and CGT allowances (new baseline of date of death) until probate is granted, when the executor can distribute the monies according to the will?

So an executor needs to do a tax return for the deceased, IHT calculation, and estate tax return?

[supremetwo]

I never said there was one. The precise wording was:

You will not get IHT clearance from HMRC if you don't apply for "Probate".

I may be wrong but, as an executor a couple of times, involving complex valuation issues etc, I most certainly didn't wish to distribute without such a clearance.

That also wasn't the only point I raised.

Hi PD, yes I quite take your point and having been an executor myself several times, it certainly would not have been possible to act without probate nor would I have wanted to be exposed to argumentative relatives' complaints by not going through all the normal procedures. Still good luck to anyone who does go the non probate route, which I think is possible in some circumstances if the executor is willing not to have the legal protections that go with the probate process. If HMG try to reintroduce the £6,000 (initially £20,000) max probate fee, some may feel it is worth organising their affairs so that their intrepid executor may seek legally to avoid it.

Yes, like you I also thought that PD was originally saying that it was legally impossible to proceed with a DIY probate without this HMRC signoff. It turns out that it is more a matter of risk assessment on the part of the Executor. Some Executors are more cautious and others more aggressive.

Either way HMRC relies heavily on the valuation and computations done by the Executor anyway. It is not as if HMRC has the data to do otherwise, without a full investigation anyway. So in practice if a diligent Executor does a good job, HMRC will rubber stamp it nearly all of the time.

Like both of you I have been an Executor more than once. I have never waited for this signoff and would be comfortable acting in the suggested manner. Indeed my own estate planning includes such an approach.

HMRC have been increasing investigations into probate values.

Not rubber stamp - executor could be exposed to penalties.

https://www.gov.uk/hmrc-internal-manual ... /ihtm36081

You may consider seeking a penalty where following a chargeable event a taxpayer fails to deliver an account or corrective account that is due under IHTA84/S216 or IHTA/S217, IHTA84/S245 (1). I
n general the penalty provisions for failure to deliver an account are used in important cases only.
But if
the time limit (IHTM10803) for delivering the account has passed
an account has not yet been received, and
you have evidence to suggest that there is tax due ------

[Lootman]

Either way HMRC relies heavily on the valuation and computations done by the Executor anyway. It is not as if HMRC has the data to do otherwise, without a full investigation anyway. So in practice if a diligent Executor does a good job, HMRC will rubber stamp it nearly all of the time.

HMRC have been increasing investigations into probate values.

Not rubber stamp - executor could be exposed to penalties.

Yes, the Executor has to get his sums right and deliver them on a timely basis. I do not believe that I knowingly suggested otherwise.

But intrinsically it is not a difficult process to accurately determine the tax due if one is reasonable intelligent and diligent.

[supremetwo]

So someone is liable for income tax/CGT until date of death, IHT is paid on the valuation at death, then the estate acts as an entity with income and CGT allowances (new baseline of date of death) until probate is granted, when the executor can distribute the monies according to the will?

So an executor needs to do a tax return for the deceased, IHT calculation, and estate tax return?

Yes.

The IHT return is particularly complex due to the seven-year-rule on gifts as small as £3000 (HMRC does the actual calculation).

One hopes that this will be changed; there has certainly been much pressure on the Government to fulfil their election 'promises'.

It is not really off topic for anyone affected to consider adding to that pressure:-

https://www.gov.uk/government/publicati ... s-guidance
The Budget 2020 representations portal is now open.
HM Treasury is accepting representations until midnight on 7 February 2020, at which point the portal will be closed.
Submissions can also be made via Budget.Representations@hmtreasury.gov.uk.

[JohnB]

" gifts small as £3000" OT, but the exemptions are £3000 in gifts in total, then £250 per person to those who did not get the £3000.

So if you give £3k to one person, and £1k to 3 others, there is IHT due on 3*£750

And I don't think a government with a big majority will take those submissions into account.

If I died tomorrow, without submitting my 18/19 tax return, and it took until July to get probate presumably the executor is liable to do 18/19, 19/20 and 20/21 tax returns. Do they do 2 returns for 19/20, one for me, one for the estate, each for a partial year?

[PinkDalek]

" gifts small as £3000" OT, but the exemptions are £3000 in gifts in total, then £250 per person to those who did not get the £3000.

So if you give £3k to one person, and £1k to 3 others, there is IHT due on 3*£750 ...

Maybe you should start a new thread for your questions but, sorry to say, that’s wrong. The small gifts exemption of £250 is not available if gifts to the same individual in the same tax year exceed £250. It isn’t treated as an allowance.

[Chrysalis]

" gifts small as £3000" OT, but the exemptions are £3000 in gifts in total, then £250 per person to those who did not get the £3000.

So if you give £3k to one person, and £1k to 3 others, there is IHT due on 3*£750

And I don't think a government with a big majority will take those submissions into account.

If I died tomorrow, without submitting my 18/19 tax return, and it took until July to get probate presumably the executor is liable to do 18/19, 19/20 and 20/21 tax returns. Do they do 2 returns for 19/20, one for me, one for the estate, each for a partial year?

I believe so. My relative died on 5 April, we needed to do his tax return for that tax year, and an estate tax return for the following tax year. Probate was granted in October iirc and distributions finalised within that tax year. So I don’t have experience of what happens with partial years, but in principle I think you are right. Maybe they would accept one return for the estate bridging the two tax years, I don’t know.

[fca2019]

@longtermyieldman the process is you register the death, then call the investment providers informing them. At that point the account will be locked.

You then send them the death certificate and request a valuation and for the certificate to be returned.

Small estates or where all assets are jointly owned don't require probate.

Before probate you/solicitor will complete an IHT return. They will need the estate valuation, inc house valuations first. So you'll need letters back from all investment providers.

The solicitor will file the IHT return with hmrc, the pay the tax owed before probate. If insufficient funds then pay stage payments.

Solicitor applies for probate, receive back after several weeks. You can then collect the assets, i.e. sell investments and distribute.

[scrumpyjack]

So someone is liable for income tax/CGT until date of death, IHT is paid on the valuation at death, then the estate acts as an entity with income and CGT allowances (new baseline of date of death) until probate is granted, when the executor can distribute the monies according to the will?

So an executor needs to do a tax return for the deceased, IHT calculation, and estate tax return?

No, not quite. The date of probate has no effect on the income tax/cgt position.

In the tax year of death, one return is completed for the period up to the date of death. Any tax liability for that period is include as a liability in completing the IHT return and the IHT payable. The deceased has a full year's personal allowances for this period.

A separate return is completed in respect of the period from the date of death to the following 5th April. There is no income tax personal allowance but there is a CGT allowance. The rates of tax are
Savings income – 20%
Dividends – 7.5%
Rents from property – 20%

Further returns are submitted for each tax year thereafter until the 'administration period' is over (which is basically when the executor decides the estate admin is finally complete). But these lower tax rates and CGT allowance are only applicable for up to 2 full tax years.

Probate has no affect on any of the above.

All this is rather drifting off topic!

[Lootman]

@longtermyieldman the process is you register the death, then call the investment providers informing them. At that point the account will be locked.

You then send them the death certificate and request a valuation and for the certificate to be returned.

Small estates or where all assets are jointly owned don't require probate.

Before probate you/solicitor will complete an IHT return. They will need the estate valuation, inc house valuations first. So you'll need letters back from all investment providers.

The solicitor will file the IHT return with hmrc, the pay the tax owed before probate. If insufficient funds then pay stage payments.

Solicitor applies for probate, receive back after several weeks. You can then collect the assets, i.e. sell investments and distribute.

That is certainly one way to do it, and might even be called the traditional approach. But it is not the only way. For a start you assume a solicitor is involved and that is not necessary nor, in my view, desirable unless the estate is particularly complex or riddled with potential conflicts and challenges.

The OP made no mention of property to be sold.

The OP wishes to take some steps post-death that will reduce risk, and either facilitate an easier probate or avoid it altogether. It has already been shown that is within the powers and rights of an Executor.

Also note that the idea that IHT has to be paid before probate is often not possible, since it is the funds in the estate that pay the IHT and they may not be released before a Grant of Probate is issued, in those cases where a Grant is needed anyway. So in practice IHT often isn't paid until later.

[PinkDalek]

Returning to this, in view of your recent mention that the OP hasn't stated that (other) property is owned.

In this case the estate is about £600,000 and, assuming a nil-rate band of £325,000, then on the face of it £275,000 is taxable at 40%, meaning a £110,000 tax liability (excluding any income tax return that might be needed).

Yes, your £110,000 is close to the OP's "I think about £100k" but we've no idea how that was calculated.

There's no mention of a late Grandfather (as a spouse) but without more detail from the OP, we don't even know if he/she is aware of Inheritance Tax: claim to transfer unused nil rate band (IHT402) https://www.gov.uk/government/publications/inheritance-tax-claim-to-transfer-unused-nil-rate-band-iht402 nor the available amount.

It may be the Grandmother's Estate would benefit from two 'nil rate bands' (ignoring any potential greater bands for property if one exists), depending on whether or not there was a first spouse, when he died etc etc, and that has already been included in the OP's calculations.

We are therefore guessing as to what is in the Grandmother's estate for IHT calculation purposes at the moment. It would be great to hear that the OP isn't aware of the potential to claim to transfer an unused or part unused nil rate band and potentially reducing the IHT liability to about nil.

Given the length of this thread and the many diversions, the OP may miss this post!

[AJC5001]

Also note that the idea that IHT has to be paid before probate is often not possible, since it is the funds in the estate that pay the IHT and they may not be released before a Grant of Probate is issued, in those cases where a Grant is needed anyway. So in practice IHT often isn't paid until later.

Are you sure? I was under the impression that if the administrator was unable to pay the full IHT from available estate assets (NS&I accounts and possibly Bank/ Building Society accounts not needing probate) then the administrator may need the borrow the balance due.

In some cases, (e.g. property, businesses) the IHT may be paid in instalments https://www.gov.uk/paying-inheritance-tax/yearly-instalments

Adrian

[PinkDalek]

Are you sure? I was under the impression that if the administrator was unable to pay the full IHT from available estate assets (NS&I accounts and possibly Bank/ Building Society accounts not needing probate) then the administrator may need the borrow the balance due.

In some cases, (e.g. property, businesses) the IHT may be paid in instalments https://www.gov.uk/paying-inheritance-tax/yearly-instalments

Correct, see the link I provided on page 2 of the thread:

Inheritance Tax and the grant

You must pay any Inheritance Tax and interest that is due before you can get a grant. This means you will have to pay all of the tax not being paid by instalments and you may also need to pay some of the tax that is being paid by instalments if you are paying after the date that tax is due. Tax on certain assets may be paid by 10 annual instalments. ...

From page 7
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/730319/IHT400_Notes_0618_online.pdf

[Lootman]

Also note that the idea that IHT has to be paid before probate is often not possible, since it is the funds in the estate that pay the IHT and they may not be released before a Grant of Probate is issued, in those cases where a Grant is needed anyway. So in practice IHT often isn't paid until later.

Are you sure? I was under the impression that if the administrator was unable to pay the full IHT from available estate assets (NS&I accounts and possibly Bank/ Building Society accounts not needing probate) then the administrator may need the borrow the balance due.

In some cases, (e.g. property, businesses) the IHT may be paid in instalments https://www.gov.uk/paying-inheritance-tax/yearly-instalments

Well no, I'm not sure. But regardless of what the rules say, as a purely practical matter many Executors or Administrators will lack the funds to pay the inheritance tax due themselves. So it becomes a Catch-22 situation: I can't get the Grant until I pay the tax. I can't pay the tax until I have the funds. And I can't get the funds until I get the Grant.

Presumably that is why an instalment scheme is available, which is essentially HMRC lending you the money so that you can give it straight back to them. Maybe banks will make loans in these situations, but that won't be cheap and will come with a whole lot of delays, form-filling and due diligence on their part.

I imagine this comes up a lot since the biggest part of an estate is often a house, which requires the Grant to sell. I have to believe that HMRC are willing to be flexible in these situations. But of course it is also yet another reason why it is desirable to not need the Grant at all, at least for the cash-equivalent assets.

[Gersemi]

According to The Money Advice Service, inheritance tax has to be paid by the end of the sixth month after the person's death, or else interest will be charged. The executors can choose to pay the tax on certain assets such as property by instalment over ten years, but interest will be charged. Once the asset is sold the remaining tax must be paid.

https://www.moneyadviceservice.org.uk/e ... itance-tax

[Longtermyieldman]

Returning to this, in view of your recent mention that the OP hasn't stated that (other) property is owned.

In this case the estate is about £600,000 and, assuming a nil-rate band of £325,000, then on the face of it £275,000 is taxable at 40%, meaning a £110,000 tax liability (excluding any income tax return that might be needed).

Yes, your £110,000 is close to the OP's "I think about £100k" but we've no idea how that was calculated.

There's no mention of a late Grandfather (as a spouse) but without more detail from the OP, we don't even know if he/she is aware of Inheritance Tax: claim to transfer unused nil rate band (IHT402) https://www.gov.uk/government/publications/inheritance-tax-claim-to-transfer-unused-nil-rate-band-iht402 nor the available amount.

It may be the Grandmother's Estate would benefit from two 'nil rate bands' (ignoring any potential greater bands for property if one exists), depending on whether or not there was a first spouse, when he died etc etc, and that has already been included in the OP's calculations.

We are therefore guessing as to what is in the Grandmother's estate for IHT calculation purposes at the moment. It would be great to hear that the OP isn't aware of the potential to claim to transfer an unused or part unused nil rate band and potentially reducing the IHT liability to about nil.

Given the length of this thread and the many diversions, the OP may miss this post!

Thanks - I've been away from the forum for a while because, as expected, my grandmother has now passed away.

Her husband, my grandfather, died 39 years ago, leaving everything to her (a bungalow and a share portfolio). I don't know the value back in the day but assume no IHT was payable as I believe inheritance between spouses has always been exempt from IHT.

So would the IHT threshold for my grandmother be doubled? If so there will be no IHT due as her estate is about £575k of shares (tonight's closing price) and £15k or a little more in a bank account.

If there's no IHT it may be possible to avoid the hoop-jumping involved in probate.

[JohnB]

She will get a double allowance, so 2*350 and 2*125 extra towards the house = £950k

[swill453]

She will get a double allowance, so 2*350 and 2*125 extra towards the house = £950k

Shouldn't it be 2x325 plus 2x150 (making the same £950k)?

Scott.

[Longtermyieldman]

She will get a double allowance, so 2*350 and 2*125 extra towards the house = £950k

Is this definitely right? My grandfather died 39 years ago. I'm guessing the IHT limit was much lower back then. Also, the main home exemption/separate limit is a recent thing, I believe. Can we really apply today's limits to his estate? And would there be only one exemption for a home, on the basis we sold my grandmother's flat five years ago when she moved into a care home.

[JohnB]

Its double the allowance as of the date of the second person's death.