Help with probate/gifts please

[Roseypig]

My ex husband passed away last year. We have 2 daughters - an adult (19) and a child (13). He had a terminal disease so got his mortgage paid off from a life insurance policy and eldest daughter now lives in the house. She moved in just before he became ill and then cared for him until the end.

He got a lump sum from his work pension last year and split it between the kids, the eldest has invested it in premium bonds, the youngest is in trust until she's 21.

He had made a will but unfortunately it wasn't completed and signed before he died (sooner than he expected).

My eldest DD is trying to apply for probate and I'm trying to help her. The estate is worth around £230k including the £100k lump sum he shared between them and the house and contents. He had no debts and no other assets.

I've started looking into it and I think that because he gave the children the lump sums they will have to pay tax on them? I think we have to declare them as gifts. Whereas if he had left the money in his account it would have been shared between them with no tax to pay?, Is that right?

The youngest's money is in a trust until she's 21 so I'm not sure how any tax would be paid? I'm a bit confused with it. Wondered if anyone had been in this situation before? Thanks

You add the gifts back into the estate to determine whether there is any IHT to pay. In this case, the total estate is below the IHT threshold so there will be no IHT to pay. The children will not have to pay any tax.

There will be no tax to pay as the total estate, including the gifts, is less than the IHT threshold.

Agree Roseypig. There shouldn't be any inheritance tax at all to pay on this - and, if you're in doubt, HMRC run a lovely informative inheritance tax helpline. Give them a call.

Just out of interest, is the eldest DD intending on living in the house for the foreseeable? If so, this could cause issue when the house comes to be sold, particularly for the younger DD. If it increases in value, she will have to pay capital gains tax on the difference between the value when their DF died and when it sells. This could be quite significant.

Thank you for your help, that's really helped.

Eldest DD is in her first year at Uni (in home city) and plans to stay in the house for the next 4 years at least. I had no idea about capital gains tax so thank you for pointing that out.