Does a beneficiary pay inheritance tax on a gift

[Whatalotofcrap]

Simple question - I have unexpectedly been left a few antiques and some money in my late Aunt's will. My cousin has also inherited a vintage motor car . We understand there will beIT to pay as her total estate exceeds the threshold, but will we be liable to pay IT on these gifts or will it be the estate?

[titchy]

The executors are responsible for paying IHT which comes out of the estate and should be sorted before the estate is distributed (if above IHT threshold of course). You don't need to pay anything.

[RedDaisyRed]

If the only things left were a car and antiques then the estate sells those and pays the state any IHT I suppose and you get the balance but I expect there is probably a lot more in the estate and you'll be fine.

Sometimes the specific legacies are the huge majority of the estate and the balancei s virtually zero. In that case I would imagine IHT is payable on the legacies as that is the entirety of the money left. I might be wrong though.

[Whatalotofcrap]

Thanks for your help both

[mumblechum1]

I'm a willwriter and normally express that type of gift as "free of tax" so just check the wording.

[Fizrim]

Sorry for your loss - Titchy has it, the inheritance tax is paid by the estate and not the beneficiary in my experience.

The estate may need to pay most of the inheritance tax before distributing anything! When we were dealing with an estate that incurred IT we had to borrow money to pay the taxman before we could even claim a bean off insurers and the like yes I am bitter, the only IT they would defer at the time was any due on the property of the deceased (this was over a decade ago still bitter )

[RedDaisyRed]

So what happens if someone gets a painting worth £20m tax free and the balance of the estate is tiny in comparison? Do they not then get the painting because the IHT on the whole estate is mostly 40% of the value of the painting?

[Whatalotofcrap]

So another question - if you were given a gift before the person died - no question of tax in Will- is the beneficiary liable to pay IT - it's given within the 7 yrs of death ?
What is the rule on property ? We understand it was valued at the time of death, but then since sold for below the value at death. The IT was calculated based on the value at death - surely this isn't correct ?

[Fizrim]

whatalot The estate (not the recipient) has to pay tax on monetary gifts given within 7 years of death if they are outside the normal gift limits of HMRC. May only be income tax rather than the higher rate of IT though. You are allowed to give a certain amount of money per year. The estate has to list all gifts on a form.

There is only a limited amount of time (or this was the case when we dealt with IT) to reclaim any paid on the basis of a higher valuation such as the house. We lost out because of this, not on property but on shares.

As for the question of the painting - if it was willed, then the executor is responsible for both the payment of IT and the requests in the will. And the IT generally has to be paid BEFORE the distribution of gifts so in that example, it may not be possible to pass the painting to the beneficiary as it would either have to be sold (to pay the IT bill) or the beneficiary could contribute.

[Whatalotofcrap]

Thanks Fizrim.

[Fizrim]

It is a while since I dealt with it - but we had to pay tax (I think it was income tax which is about half the rate of IT or was at the time!) on money that had been given to adult children as it was over the amount allowed by HMRC.

We had the shares valued for probate, paid the IT tax due and then the shares tanked! I think (again, at the time) you only had 12 months to claim any relief and we held on to the shares for longer than that in the hope that their value would rise.

It was very hard work, dealing with the IT side of things tbh. It was the wish of the deceased that solicitors were not involved - we kept to it as much as possible, one bank insisted we got a solicitor to deal with one part.

I think they allow payment in instalments now, but when we were stuck with it we had to get a loan to pay the IT tax due. I don't think we could even get probate before it was paid, I know we couldn't claim any insurance policies or suchlike.

[RedDaisyRed]

Fizm, thanks. That is what I bought as otherwise an estate which is only a £20m painting could get round IHT. So in fact some people may not actually get what they are left

Michael Winner's estate was an example of that - he left the properties he let about 5 ex lovers live in to those lovers but they were very heavily mortgaged and I think there might not have been enough from sale of his very nice but heavily mortgaged house to fund those specific bequests. I suppose sometimes the widow who is supposedly getting the huge residue ends up with very little once specific legacies are paid particularly ilf say at point of writing will a house was worth £10k so £10k was left to a sister and the house to a brother to be fair and then 50 eyars on the £10k house is worth £3m as many in Hampstead might be. Anyway another reason regularly to update wills.

We had to pay inheritance tax when my father died on what was given when our mother died about 3 years before that as he had not survived the 7 years.

[Whatalotofcrap]

Thanks all. I think I will make sure all my assets as far as possible will be given away and not named in my Will during my lifetime!

[Fizrim]

RedDaisy that's awful - usually transfers between husband and wife are tax-free (although this is not the case if you are not married). There might be a sliding scale, not sure about that now.

Now you mention it, I remember that was the case with Winner - he'd promised houses but I don't think they got them. HMRC comes first! He did seem to have a lot more debts than he'd admitted though!

[RedDaisyRed]

I am pretty sure that if a house has a mortgage then you pay stamp duty if it is then transferred into joint names. So often might not be worth bothering. Whay people can do though is go to the Land Registry website and register the spouse's right of occupation in the matrimonial home. That costs nothing or very little and means if your husband plans to remortgage and spend the equity on his mistress he cannot as a buyer will have to give you notice.

If there is no mortgage then spouses can indeed transfer as a gift the house into joint names without paying stamp duty land tax.

Here I found an example "Example
Paul owns a property worth £400,000 on which there is a mortgage of £300,000. He transfers a 50% interest to his wife, Caroline, who assumes liability for the mortgage jointly with Paul. Paul does not charge Caroline any additional consideration.

For stamp duty land tax purposes, the chargeable consideration for the transfer of the 50% share is £150,000 being 50% of the debt liability transferred. A land transaction return must be completed on Caroline’s behalf and she must pay stamp duty land tax at 1% - £1,500. "

[Fizrim]

Wow, didn't know that - although haven't dealt with a mortgaged property and IT tbh. Useful tip.