Paying IHT

Insurance policies if you have parents….1 per parent, uncle, grandparent, aunt, sibling…

How when you don’t own it and probate hasn’t been granted to give you the authority to act on behalf of the estate?

Indeed, which is why some financial planning is required and typically the earlier the planning starts the less the overall cost.

as you say, most people look to minimise the cost of their life insurance to pay off the mortgage should they die before it is paid off. There is the option to combine or separately take out life insurance typically in a couple to pay out on the death of the second to die exactly to pay off any IHT. It depends on lots of things, including the policy being written in trust to ensure it’s outside of the estate and of sufficient value to cover any future IHT charge.

lots to change over that timescale too

Im so sorry to hear that.

It all sounds so unnecessarily complicated at a time where you really need more understanding from others.

Ah yes, I see what you mean. If my H2 dies first he will have his nrb on his assets to use for his children and I will keep my £650/£1m to use for my estate.
Complicated.

This is why probate properties often sell well under valuation. The property we sold went for almost half the original probate value because we had to get rid of it. Couldn't afford the installments or the cost of upkeep. There was definitely no ridiculous asking price but the market was in a slump. It took two years to sell even with all the price reductions.

I think 6 months isn't long enough. I think HMRC should allow 2 years from date of death before they start charging interest.

@ChildFreeAndOhSoHappythat only works if you do NOT benefit from the gift. I can’t sign over my house to my child and still live in it - I’m benefiting from the asset so it is still counted as part of the estate. Otherwise everyone would sign it over.
In my case one child is at uni and one child is working but paid just over minimum wage. Could they get a loan based on future assets? Yes, but interest on beneficiary loans are about 25%.
But it make no sense requiring IHT to be paid BEFORE that asset is realised - it creates a catch-22 situation. It is supposed to be the estate paying the tax after all, not the beneficiaries The tax should be tied to the sale, much like how capital gains tax is required within X days of a sale. Even if a house sold on the first day on the market it may still take some months to complete, and getting the probate is often the delay so there needs to be some facility of granting the probate or allowing the sale with taxes owing rather than paid out before.
I suppose the HMRC thinks of they don’t get their money till the house is sold and they grant probate so the house CAN be sold, the beneficiaries could just delay selling the house, as the executors are often the beneficiaries. It is still the estate selling the house, so why not just let it be sold? It is still reasonable to set some sort of deadline. So I would suggest granting probate or allowing the property to be sold, but any liquid assets in the estate used to pay whatever amount owing if available. Then on the sale of the property the HMRC automatically gets the remaining amount, much like how the estate agent and mortgage providers gets their share distributed by the solicitor. The deadline should be 18 months from death to pay, with interest accruing from 12 months after death. That should be long enough to sell most houses. But the ability to realise the asset the tax is based on seems reasonable and just and plain common sense.

@C152 The ten annual installments I mentioned above are already an option for those who do not wish to sell the house. And I do think there should be some disincentive to leaving it on the market for years at a ridiculous asking price.

@Unilaterallyinsane I guess it's all relative, but I don't consider owning a property/having assets worth the IHT threshold of £325k (or £500k if the deceased leaves their estate to their children or grandchildren) having "all that money". Again, it's all situational, but pretty much every property in London is worth more than that. It doesn't mean the single parents working p-t minimum wage jobs and living in small, one bedroom flats are loaded.

@waitingforpost I fundamentally disagree with paying IHT and I resent more the way HMRC uses everything related to death as a revenue raising exercise. No interest should be paid at all. If all the IHT is wrapped up in a property, HMRC should simply put something like a lien on the property, ensuring they are paid first once it sells. (No doubt rules would have to be put in place for some form of time limit/way to pay IHT if those inheriting don't wish to sell the property - 6 momths is far too short - but if it's up for sale, it's not the seller's fault if there's little interest or the ridiculous, unnecessary bureaucracy involved in buying/selling property in the UK holds things up.)

It's absolute theft. Luckily, my inheritance is not in the UK and I won't have to deal with the UK bs, but I think the smartest thing to do would be to sign over your property and assets to your children (if you plan to give it to them, of course, not if you don't) in your 60s and just have an agreement with them that you can access it till you die. That or use a trust, though I dont know much about trusts in the UK since I have no dependents.

If sold within 4 years you can claim loss on sale relief. www.gov.uk/government/publications/inheritance-tax-claim-for-relief-loss-on-sale-of-land-iht38

This isn’t quite correct. With the right planning if you have been widowed then it is possible to get over the £1m allowance. Eg H1 + W. H1 dies. W inherits H1’s Nil rate band and residence nil rate band (NRB). she remarries. If their wills are planned so that if H2 dies first, his NRB is ‘used’ on gift to children or trust, when W dies she can still claim her own NRB and that inherited from H1. If W dies first she needs to ‘use’ her NRB and that inherited from H1. Then when H2 dies he can use his own. So it is possible to get 3x NRBs or even 4 if both have been previously widowed. Quite specific circumstances and high values involved but it is possible.

I don't get this - what if the houses sells for less and you end up paying tax on the original estimate?

This is good advice, my relative appointed a very expensive solicitor, they charged £75,000 in expenses and put a charge on the property to make sure that they were paid. This was years ago as well!

I wonder how long HMRC take to refund if you overpay

They took 6 months to repay us.

They took four months for us. House sold for less than probate value at the end of March. We had overpaid in September last year and we received the refund in July, four months after the forms went in. I chased quite a bit. We did get some interest.

That’s a shame. We’ve set it up with DS as one of the trustees, so should have no problem. The policy is index-linked, and while no-one can predict the future, it seems that the years of mega house price inflation are behind us.

I think we’ve done what we can to protect DS’ position in a cost-effective way, based on all the information we had at the time. You can only do your best. I’m hoping to be in a position to give him a chunk of our assets while we’re still young enough to live the seven years after. But who knows what future tax policy holds? IHT brought in record amounts last year, apparently- can’t see any chancellor wanting to give that up soon.

It all seems back to front to me.

So you're paying IHT on an estate value that hasn't been realised yet? Essentially going off a house valuation that could end up being under or over. Under more likely at the moment I wold guess.

I wonder how long HMRC take to refund if you overpay 🤔

I agree with you OP. It isn’t enough time.

Also it can be difficult for the executor as there is money to pay out, not just on tax, but eg on household bills that suddenly need to be paid and what if you don’t have the money. Just because the estate is large, doesn’t mean you are going to get lots of money as there could be a lot of beneficiaries.

No you don't get extra to pass on. I've remarried and my estate is large at the moment so I will have my late husband's £500k plus mine but if my current husband dies and leaves me his money then no I don't get another £500k to use. I discussed this with my solicitor when making my will

If this is just a hypothetical question OP, book in with a good financial advisor as there are legal ways to avoid paying inheritance tax but they do need to be set up quite far in advance.

I personally consider it daylight robbery. I've earned very single penny (and been taxed on most of it) to pay for my house, so I'm going make damned sure my kids won't pay a penny of inheritance tax. My parents have provisions put in place so that I won't have to either. But if you absolutely do have to then I agree the 6 months limit should start either after probate or after the house sale - anything else is just crazy.

DM had one of these. She (or her adviser who I blame more) set it up with herself as the only trustee so we still needed probate to access it . Due to House price inflation it was a relatively small proportion of the bill in the end.

I think it is really interesting how so may people believe that only estates valued at £1 million and over pay IHT. Whereas many people with estates valued at £325000 pay.

Almost as if the government were trying to make us believe that only the super rich pay.

One tip I would give anyone whose parent is likely to leave an estate falling into IHT territory, is to keep cash and investment balances below £25k-£30k (check with the institutions). They will often agree to release these funds to the executors before probate if the executors sign liability forms. This can be very useful not just for paying IHT, but for running a property prior to sale. We were able to get funds from several banks, NS&I and investment funds because the balances were just below the cut-offs.

Worth checking. Don't be tempted to consolidate everything into one or two accounts, which we almost made the mistake of doing. It is time-consuming to wade through all the forms, which all ask for different things, but getting the cash earlier can take some of the stress out of it.