Inheritance tax because of one person

[Cookiemonstersnana15]

Mil died last week. The proceeds are split between DH and his 2 brothers.
It's come to light that mil had been giving the youngest son over £25k over the last 5 years. Mil was very secretive about her money which was her right.
This means IHT needs to be paid.
DH and one Bil have only received Christmas and birthday money (£50 per event)
Now to my question is the IHT spilt between the 3 as younger Bil won't or can't pay beforehand.

MIL should be able to inherit any unused nil rate band from FIL, so it's likely that there won't be any IHT to pay.

It isn't the youngest son's fault that his mother decided to give him money. It's upsetting for your husband, but it was her decision.

@Dibbydoos that's not accurate - if you click through at the bottom of the page you linked to where it says 'Read further guidance on when a gift counts towards the estate’s value', it says 'Gifts use up the £325,000 tax free allowance first. Any unused threshold left after this can be used by the estate of the person who died.' That means you only pay IHT on gifts you've already received if the person who's died has gifted more than £325k and used up all of their nil rate band.

@Cookiemonstersnana15 This is what your DH and his brothers need to do:

@Phleghm I quite agree it was up to her how she spent her money. It's just that this son did nothing for his mum.
Yet DH and the other brother were helping before she went in a home and visiting her as often as possible.
Younger son hadn't seen her since Christmas and lived 2 miles from the home.
Now he is saying any tax should be split between the 3.
I think it's best to get a solicitor but that is MY opinion not the brothers.

He's right, to a point. The estate pays the tax so the sum left to be split between them will be after the tax has been paid.

is the estate being split 33/33/33? The IHT will come out of the estate reducing each brothers share.

What she did with her money beforehand is irrelevant.

I would absolutely get a solicitor involved.

What is it you expect a solicitor to do? If your MIL had capacity, she is at liberty to give her money to whoever she wants, whatever they do for her.

If the younger bIL had sole power of attorney and was using that to gift money to himself, then you might have a case.

Is there a reason why you think your FIL's IHT allowance wouldn't pass to your MIL making the tax threshold £650k?

Exactly this. The total value of the estate is £315k + £125k. If the estate attracts IHT (not clear that it does if she inherited FIL's nil rate band) there will be a small amount of taper relief on the £50k gifted more than three years ago.

Whatever the resulting tax is (and it won't be lots, it's on the amount above the threshold, not the whole amount), it is paid from the residual value of the estate before the funds are distributed.

If the brothers then want to make a private arrangement to even things out, that's between them. But the younger BIL has no legal obligation to do so.

It would be the 2001 rate, which is £234-242k depending on what month he died, but still more than enough to cover this! Only way they couldn't transfer it is if they weren't married, or he used it all up (which seems unlikely).

What was he doing with £25k a year?? What a shit. I know it was her choice but I couldn’t take £25k a year from my parents knowing that my siblings weren’t getting anything.

Sorry, rereading, I see that she had all her faculties i.e. capacity.

In that case, you either think it was coercion/fraud, and go to the police (NB very difficult to prove, especially now MIL has died) or you assume she took her own decision, unfair as it might seem to be, and you need to work with that.

No it's not based on the monetary amount of the threshold. It's the percentage used or unused. If none of the nil rate band was used on first death in 2001, then 100% of the CURRENT nil rate band is available for the second death, so £325 plus £325 equals £650k.

https://www.gov.uk/guidance/transferring-unused-basic-threshold-for-inheritance-tax#:~:text=Rules%20for%20transferring%20unused%20basic%20threshold,-The%20basic%20tax&text=You%20can%20only%20transfer%20threshold,surviving%20spouse%20or%20civil%20partner

If FIL left all of his estate to MIL, and if MIL's estate plus the gifts are less than £500k, there is no IHT to pay.
If the estate plus gifts are > £500k, the residence nil-rate band(s) for MIL and FIL could be used.
Some of the gifts will also have taper relief too
I'd be very surprised if the estate has to pay any IHT

Why i said £500k in my post I have no idea.
Its £650k. (325k +325k)

a parent is allowed to gift each child 3k per year without incurring tax

Regular gifts out of income are also exempt from IHT, so if she had "excess" income, i.e. income she didn't need to use for living costs, etc., then it's possible that surplus could also be exempt from IHT. (Though probably unlikely given she was living in a care home as due to the cost, assuming not paid by council, would almost certainly be higher than her income, meaning ever decreasing savings etc). But it's still something to check out.

@user1497207191 good point! Yes, missed that bit about the percentage! Either way, it seems pretty unlikely FIL used enough of it, if any, for the remainder not to cover the extra £100k.

Inheritance tax isn’t payable on that amount?

You actually transfer the unused percentage, so if FIL used 0% of his NRB, MIL gets 100% of current value (£325k) as deemed to be transferred to her. A claim
needs to be made as FIL died pre 2007.

But DBIL is right - the estate pays the tax and then the net proceeds are distributed in accordance with the will. It doesn’t matter that DBIL had more in lifetime, DMIL could’ve fixed that in the Will if she’d wanted to, but it seems like she didn’t. It’s not for the brothers to fall out about, they can be angry at mum if they want - but it’s not DBIL fault the tax is shared, that’s just how it works.

A solicitor isn't going to be able to change anything and will just erode what is a fairly straightforward estate further. It was her right to give her money as she saw fit and what's left will be split as per her will/intestacy laws, after payment of any inheritance tax due.

As others have said though, there probably won't be any tax to pay because MIL inherits her husband's allowance.

Very common scenario unfortunately and causes no end of problems after the death of the donor parent.

Obviously a parent can do what they want with their money while they are alive (and after) but the repercussions can certainly last.

I would advise a parent in these circumstances to leave a letter with the Will saying the nature of the previous gifts - ie were they irrespective of any future inheritance or were they to be taken into account upon death and the donee sibling's gifts prior to the death taken into account when the estate was ultimately distributed. Can all be done with a properly executed codicil.

My mum gave my db 50k in the Covid lockdown to help him when he lost his income. I don’t resent it. My mum’s money, her choice.

i think you need to a) be really sure of your facts as to my mind it’s quite likely you still have no iht to pay once you sort out the various allowances and b) encourage your dh not to let this become a cause of seething resentment. Would his mum want that?

Were you MIL & FIL married? If so it’s quite possible/likely there’s no IHT to pay. I wouldn’t involve a solicitor, this isn’t complex.

No, but a solicitor can tell the beneficiaries the proper, full, facts about the IHT due, who gets what, etc etc., and more importantly check that the numbers are correct on the IHT return.

It sounds as if the brothers don't really understand what's going on, and could well end up arguing and making mistakes. Sometimes, you need someone like a solicitor to act as a kind of referee to stop the squabbling and half-baked opinions etc.

Me and my sister don't get on. Mother knows this, and despite either of us being perfectly capable of acting as her executors (I studied executorship and trust law as part of my professional qualification), she's appointed her solicitor to do it, just so that we don't fall out any more. She knows that it will cost a few thousand and accepts that as the path of least resistance. I had no wish to act as executor on my own as I know sister will dispute/argue about everything. I also wouldn't want to act as joint executor with her as we can't work together on anything. So, mother appointing the solicitor is a much better solution. Sister and I will get our share of her estate (if anything left after care home costs), no hassle, no arguments and minimal amount of contact between us. It's well worth the cost!!