IHT question: lower value = more residue?

[Gilgongo]

In the name of financial planning (ahem), my sister and I wanted to get a rough idea of the inheritance we might expect when our mum dies (using a guess of the value of Mum's estate today, which seems perhaps just over £2M).

But along the way, from what I could tell - we should hope for a big stock/asset crash (like 20% wiped off the current value) on her death, the effect of which paradoxically would mean more passing to the beneficiaries of the will. Can that be right? I note that a crash of 50% does in fact decease the residue though.

Could this be because the estate is over £2M, and my late father has a Nil Rate Band Discretionary Trust in his will, which is treated as a debt to the Trust under IHT, and therefore part of her substantial "deductible liabilities"? Or am I just wrong?

The "formula" I'm using is:

Current estate value = £2M-ish

IHT Values:
Value of all property
Stock & Shares
Value of money
Chattels
Total value of gifts in 7 years

So Gross value = Total of IHT Values

Deductible Liabilities:
Debts (credit cards, outstanding bills)
Funeral costs
Dad's NRB Discretionary Trust (a debt the estate owes to the trust)

Qualifying Transfers:
Octopus IHT (investments in an IHT-exempt share scheme)
Charitable legacies

So Net Qualifying Value = Gross value - Deductible liabilities - Qualifying transfers

Nil Rated Bands:
Mum's unused allowance (less all gifts in 7 years, which doesn't leave much)
Dad's inherited allowance
Residence NRB (estimated)

So IHT = 40% of Net Qualifying Value less the total of Nil Rated Bands

So Residue = Gross value - IHT

[Charlottesquare]

In the name of financial planning (ahem), my sister and I wanted to get a rough idea of the inheritance we might expect when our mum dies (using a guess of the value of Mum's estate today, which seems perhaps just over £2M).

But along the way, from what I could tell - we should hope for a big stock/asset crash (like 20% wiped off the current value) on her death, the effect of which paradoxically would mean more passing to the beneficiaries of the will. Can that be right? I note that a crash of 50% does in fact decease the residue though.

Could this be because the estate is over £2M, and my late father has a Nil Rate Band Discretionary Trust in his will, which is treated as a debt to the Trust under IHT, and therefore part of her substantial "deductible liabilities"? Or am I just wrong?

The "formula" I'm using is:

Current estate value = £2M-ish

IHT Values:
Value of all property
Stock & Shares
Value of money
Chattels
Total value of gifts in 7 years

So Gross value = Total of IHT Values

Deductible Liabilities:
Debts (credit cards, outstanding bills)
Funeral costs
Dad's NRB Discretionary Trust (a debt the estate owes to the trust)

Qualifying Transfers:
Octopus IHT (investments in an IHT-exempt share scheme)
Charitable legacies

So Net Qualifying Value = Gross value - Deductible liabilities - Qualifying transfers

Nil Rated Bands:
Mum's unused allowance (less all gifts in 7 years, which doesn't leave much)
Dad's inherited allowance
Residence NRB (estimated)

So IHT = 40% of Net Qualifying Value less the total of Nil Rated Bands

So Residue = Gross value - IHT

Observations

You cannot deduct the Octopus IHT fund (Presume AIM shares) unless it is already included in the Stocks and Shares, is it, to do so would be a double count?

Also the gifts made within last seven years need considered re when made within the seven years as to IHT rates re each. Also need to check who is liable for any IHT, the estate or the donee.

Does Dad actually have any inherited allowance left given the Trust he created on his death, surely that used at least part of his NRB at the time?

[Gilgongo]

You cannot deduct the Octopus IHT fund (Presume AIM shares) unless it is already included in the Stocks and Shares, is it, to do so would be a double count?

Ah good spot! Will amend that.

Also the gifts made within last seven years need considered re when made within the seven years as to IHT rates re each. Also need to check who is liable for any IHT, the estate or the donee.

Hm. Yes, that's potentially complicated. They were all made in the last two years though. And while one was big enough to mean taper relief will be in effect that's not going to taper for another three years almost. BTW I assume the estate will pay the IHT on them but I know that might not have to be the case.

Does Dad actually have any inherited allowance left given the Trust he created on his death, surely that used at least part of his NRB at the time?

Good question! I must admit I wasn't sure how the NRBDT actually worked, but perhaps the clue is in the name? So he put his NRB into the trust as opposed to passing it to his wife?

Still, even with those amends, if I put in a 20% reduction to the assets in the estate, I get a higher residue. I'm starting to doubt my sanity. Or at least my maths.

[Gilgongo]

Ah, it was my maths.

I'd applied the theoretical asset price crash to the values of the property, stocks etc. but hadn't applied it to the actual worth of the estate from which the residue was being derived. All now returned to sanity.

Good thing I posted though as we might not have noticed those issues @Charlottesquare pointed out!