Siblings and inheritance

[UtterlyUnimaginativeUsername]

5 siblings inherit a house. Sibling A wants to buy it. Siblings B, C and D agree to sell it to them at 60% of the market value 'to minimise the tax burden'. Sibling E isn't consulted at all, just told that this is what's happening. Sibling E's solicitor says it doesn't have to be a unanimous decision. The executor is happy to go along with it all for a quiet life.

Is there any course of action available to Sibling E that will make a difference?

Surely if one owner says no, then it cannot be sold? What was solicitor E's justification for this?

I'd be hacked off if I were E.
Not so much the forced sale but not getting full value from it.

They should have consulted.

But what is the actual financial loss to E? Is there merit in the argument that it minimises the tax liability? It will also save on estate agent fees etc.

Or does E wish to purchase it themselves?

If the siblings are in a position to sell, the inheritance has already passed to them, and the executor's views are irrelevant.

HMRC's views, however, are very relevant. This is potentially tax evasion - needs tax advice as, even if it's treated as a gift, there are potential tax implications..

Whole situation sounds very odd. Why are B, C and D giving up 40% of their inheritance to A?

But what is the actual financial loss to E? Is there merit in the argument that it minimises the tax liability? It will also save on estate agent fees etc.

If my share of the house is worth 100k on the open market, and I give it to you for 60k, I have lost 40k.

Also, tax will probably be payable anyway.

It hasn't passed to the siblings, the executor is waiting for them to instruct him on what to do with it. He will see it to A for the lower price.

The price is calculated to allow them not to pay inheritance tax on their shares. However, if they got market value, they would only pay tax on the difference, so it would be a net increase, by tens of thousands each.

As far as I understand it, A should have a massive tax bill if it went through as planned?

I agree that it's odd. Apparently E is the only one who cares how much they actually get.

HMRC will take the market value of the house rather than the actual sold price - they know that people do this to attempt to avoid tax bills!!!

E can refuse to see their share of the house, in which case the rest of the house is unsellable.

There needs to be an independent valuation - E can ask an estate agent to do a desktop valuation - and then A will have to pay their siblings 4/5 of that valuation. The sale costs will come out of everyone’s share, A will have to pay their own purchasing costs. Of course, B, C and D can opt to sell their share for less, but E can, and should get 20% of the market value of the property. The executor is obliged to obtain the best price for the property for ALL the beneficiaries.

Inheritance tax has to be paid before probate is granted though. For probate, the house has to be properly valued. Are you thinking of Capital Gains tax?

Okay. I didn't realise that was how inheritance tax works. Maybe I'm misunderstanding the whole process here? My (inexperienced) understanding was that the house would be sold, and inheritance tax paid on the shares when they were handed over.

The executor is obliged to obtain the best price for the property for ALL the beneficiaries.

This.

And, as the estate has not yet been distributed, Inheritance Tax is presumably still to be paid (unless under the threshold) and - as @Soontobe60says , it will be payable on the market price. HMRC may accept quotations from estate agents, but may ask the District Valuer to determine the market value.

Do B, C and D understand that they are losing 40% of their inheritance? Are you sure that A isn't promising them some sort of backhander? - That is even more likely to be tax evasion!

IHT is paybe on the estate not by the share each recipient gets. IHT is due on the independent valuation of the house not what it sells as. An executor has no real say in anything. I don't know about E having no say - however that doesn't have any relevance to IHT or CHT. You all need to sit down with a lawyer and ask all the questions. Looks lime your siblings only have half the information they need.

Yes this. And if the house sells for more than the probate value then you pay more IHT as it is re-calculated. If you pay less at the market value then the IHT is recalculated.

HMRC are pretty aware of side deals done to minimise IHT and (mostly) have covered those possibilities.

My DH's aunt died right at the start of covid. Probate took fucking ages. In the meantime the value of her property went up nearly 40%. You can be sure that HMRC came knocking.

It's very difficult for one of the family to object, but 60% of the value is just ridiculous. What would stop that buyer from selling up a year later?

I would not find it difficult to object to my siblings giving away 40% of my inheritance without my permission!

The executor needs to be very careful and he/she could get themselves in hot water by not following the best interests of ALL the beneficiaries. It should be sold a full market value. If it is A's idea then they are taking the piss.

This is crazy.

Say the house is worth 500k
Each person should end up with 100k.

Selling to A at 60% means

B-E end up with 60k each (240k total)
So A ends up with a house worth 500k having paid out 240k.
they have effectively got 260k inheritance compared with siblings 60k!

Individual beneficiaries don’t pay tax on what they receive

the value of the estate is assessed for probate and that value is used for the inheritance tax calculation and the estate pays the tax (or not) based on that value, then distributes the money.

the property will be assessed based on an independent valuation (though estate agents will give a valuation for probate purposes in writing if asked, and that may well be less than marketing value).

Who is the executor? Why would they be advantaging A over the other 4 siblings to this extent?

Well dodgy

How much is the house worth? And the estate itself? Do the figures add up from a tax point of view? I can't see how they would. I agree that if this is a deal done to dodge tax, the HMRC will be on to it, and tax on the full value could then be due plus penalties.
If I were E I would put in writing to the executor and their solicitor that I didn't agree to the sale at such an undervalue because it is FRAUD. I would then see if I could register some sort of caveat at the Land Registry which would at least cause the potential buyer to slow down. I would remind the Executor and their solicitor of the duty to get the best possible price, and I might even get a valuation done myself so that there is a record. I would tell them that if they went ahead with the sale at such an undervalue I would be calling the HMRC myself and possibly the police. Because it is fraud.

However if the house and the rest of the estate are less than the IHT threshold, the fraud aspect is not so relevant.
If that were the case, I think I would point out that I would be holding them personally liable for the shortfall of my share, if I felt that they had not even tried to get a reasonable price, let alone the best possible price.

I suspect siblings b-d might change their minds once they realise they will still have to pay inheritance tax despite selling the house at a reduced rate

Seems very odd on the part of the Executor - do they know how to do this? Are they trying to do it on their own or are they working with a solicitor. You can't just sell a property for 60% of it's value to avoid tax
Estate value £325k gets an uplift to £500k if there is a house that is being left to direct beneficiaries (spouse/children), anything over the £500k will be subject to IHT & the current rate for this is 40% but you are only charged the 40% on the amount over £500k.
If there has been a delay between the person passing & the sale, the property can also become subject to CGT.
A friend of mine has this situation as there was a charge on the property for care home fees (there was a tenant in the property & no evictions throughout COVID) & they have had to get a full Chartered Surveyor report confirming the value of the property when the person passed away so that the tax can be calculated........

When siblings and I inherited late father''s estate, house was valued for probate by estate agent, a letter was attached to probate forms confirming value. IHT was paid before house was sold and estate distributed.

Sounds like A is trying to pull a fast one. Why would all the other siblings want to gift A extra inheritance?