Beneficiaries of a trust and the residual estate

[LaBelleSauvage123]

We have had the amazing news today that an old family friend who died recently has left us some money in their will. We received two letters from the solicitor: one saying that we were beneficiaries of a trust set up by our friend and would receive £10,000 and a second saying that we are beneficiaries of the residual estate. This is a considerable sum of money. The solicitors have included a sheet of figures showing how the total estate is made up, less funeral costs etc.
My question is - who pays the inheritance tax? Is this something that will already have been calculated and subtracted, or will that be done once the accounts are settled?

[Joe2019]

It depends what is said in the will as to whether it is free from tax.

[daisychain01]

Check back with the solicitor as they may have been assigned as the executors of the Will. IHT forms part of probate on that estate, so they will have to do all the legal disbursements for the deceased, including funeral costs, IHT etc.

[LaBelleSauvage123]

Yes we are planning to check on Monday - we didn’t get the letter until last night. I don’t think it says anything in the will about tax. Funeral expenses have been taken out of the residual estate amount. We are the only individual beneficiaries of the residual estate - 75% has been left to charity.

[daisychain01]

What tends to happen if the Will is written professionally, is that it states that tax must be deducted (according to whatever the current rate of IHT is at time of death), and only then will distribution of assets be made.

As it isn't stipulated, the tax burden would need to be apportioned amongst the beneficiaries, depending on whether the assets amount to over the IHT rate.

[daisychain01]

IHT threshold that should say.

[Collaborate]

IHT is taken from the residual estate unless the will states otherwise.

[BubblesBuddy]

This info from Money Saving Expert explains it. This is just part of the article. I suggest you read it all.

[BubblesBuddy]

The estate pays it and then the money they’d left is apportioned to beneficiaries. The beneficiaries don’t pay it.

[LaBelleSauvage123]

Our quarter portion is less than the IHT threshold - the other three quarters is going to three different charities. So would IHT be calculated on the total value or just on our share ( given that the rest is going to charity)?

[LaBelleSauvage123]

I’ve seen two different explanations online - one is that if you leave more than 10% of your estate to charity then IHT is 36% rather than 40; the second that charities don’t pay IHT ( in which case as our share is under the threshold we wouldn’t pay it either??).

[daisychain01]

You will only have to pay tax insofar as is applicable to the amount of your inheritance. If your personal share is under £325,000 then you personally pay zero. Any amount you inherit above that, you pay 36% tax on, because the lion's share of the estate, well over 10% has been donated to charity.

You don't qualify who you mean by "us". For tax purposes you need to consider your situation in isolation to other beneficiaries. If someone else has been named separately as a beneficiary (eg a sibling) then they have to settle their tax obligation themselves, according to what they were bequeathed.

[DistantVworp]

Amounts left to charity don't count towards the taxable value of the estate, so if the total estate that was not left to charity is below the threshold, there will be no IHT to pay. If above, then as PP have said, it will be payable based on the portion not left to charity.

[BubblesBuddy]

Yes, but the executor and solicitor dirts this out. The beneficiary doesn’t pay. The estate pays. So the OP gets what she’s given. Ask the solicitor about it?

[BubblesBuddy]

sorts this out!

[BubblesBuddy]

The Martin Lewis example is current and says that the estate will pay 36% on the residual money above the allowances applicable. The OP doesn’t have a separate pot of money from the estate for tax for IH tax purposes. The estate is one sum of money. Therefore the estate pays the tax, then divides up the money to the beneficiaries after tax is paid. If any tax is due of course. As in the example I gave.

[LaBelleSauvage123]

Thank you all - I think it sounds as if we will be exempt from IHT ( by ‘us’ I mean DH and I, who’ve been named as joint beneficiaries).

[Velveteenfruitbowl]

Just ask the solicitor. By the sounds of it there’s not IHT due. Sorry for your loss.

[LaBelleSauvage123]

Thank you - I’m aware these posts sound very materialistic and I haven’t talked about our friend at all, which feels wrong. We are so, so grateful for this though - without going into details it could be life-changing for one member of our family and I am in no doubt what a wonderful thing it was for our friend to do.