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?

Individual beneficiaries don’t pay tax on what they receive

That’s true of IHT. However, large gifts are taxable in many circumstances. Siblings B, C and D are effectively gifting A 40% of the stake they receive post-IHT. Sibling A may therefore find herself paying CGT on the 40% gift from each sibling meaning that, as a family, they actually incur more tax on the estate than if all siblings kept their fair share. As a tax dodge, it’s not very efficient!

I don't know why they're happy gifting it to A. E is reluctant to get legal advice because that would be 'grabby'.

@UtterlyUnimaginativeUsername E is not being grabby getting legal advice, they are making sure the estate is correctly administered by the executor and that IHT and CGI are correctly paid.

Pretty sure IHT will be calculated based on market value on date of death.
As its property IHT it can be paid over ten years, with interest,unless sold.
When a property is sold, if its lower than original value, an IHT adjustment can be applied for but...I BET... the lower sale value has to be due to a change in market value not an undervalue to a connected party.
HMRC are well aware of connected parties and undervalues and most tax legislation adjusts for it by ignoring sales value and replacing with market value.

It can be sold under the rules of partition. And could cost everyone especially E, who would have to pay the total cost for 1 side. A,B,C, & D could share the costs for the other side. A is also probably taking the home "as is" so no costs to make it habitable.

What are E's plans for the house if it's not sold to A?

The idea would be to sell it on open market. It's already habitable.

But capital gains tax will be payable if A receives assets from the other siblings at lower than the true value. A would therefore be ill-advised to take any action against E, as A's only hope of avoiding CGT is to hope that HMRC don't find out. But the transfer of ownership will have to be recorded in the Land Registry, so it is highly likely that the HMRC will know.

The whole thing is mad, because it increases the total tax liability. Let's say the house is worth £1 million. If all the siblings get their fair share, they only pay IHT on 500K. So they each inherit 100k's worth of house tax-free, and a further £60k after IHT. So, in total, the siblings inherit 800k and pay 200k in tax.

But, if B-E then give 60% of their share to A, A will be liable for CGT on £384k, on top of the IHT already paid (£384k being 60% of 4 x 160). I am not sure if this would be treated as a gain from property or as a cash gift for CGT purposes, but the best case scenario is that A has to pay 10% CGT (if a lower-rate taxpayer) and the worst case is that A has to pay 28%. There is a £6k tax-free allowance, so A will be paying between £37.8k and £106 in CGT. So, between them, the siblings have now paid between £238k and £306k in tax, instead of £200k.

So they will have paid £38k-£106k more in tax between them than they needed to do, and B-E will be left with £96k each when they should have had £160k each. This is crazy.

So is it just that A wants to get a house for cheap?

Probably plans to sell it. Even with the CGT, A will still do very nicely out of the deal.

Frankly, B-E sound so unbelievably wet, that it's hard to feel that sorry for them. If a sibling tells you to hand over £384k to them for no good reason, and your response is "OK", you're asking for people to people to take advantage.

Put it like this - if they buy a house worth £800,000 at the full value their 4 siblings should each get £160,000 for their share (less the IHT). If they buy it at 60% value (£480,000) you’d each get £96,000. Then when the house is theirs, they could sell it on the open market for £800,000. Meaning they make a profit of £256,000.

Are you all ok with that?

However, if the house were sold on the open market, IHT is paid first (40% of £300,000 = £120,000) then this would leave £680,000 to split between all 5 siblings ie £136,000 each.

Well, I'm not okay with it, but I'm not part of this particular alphabet so have no say. I do think there's massive advantage being taken, though, in all sorts of directions, and I'm very angry.

@UtterlyUnimaginativeUsername the Executor is required to distribute the estate as per the will. E would have to sign a deed of variation to receive less than their entitlement under the will. Without that E can pursue the Executor for their full legacy.

Es solicitor may be correct that the house can be sold with out Es approval if E, for example if the will gives everyone a % of the residual estate.Selling the house would be necessary to liquidate the estate. If the will specifically grants E 20% ownership of the property then legally E has to agree to the sale.

E is happy for it to be sold. It's the price that's an issue.

@UtterlyUnimaginativeUsername as @Tippingadvice says, the will has to be followed exactly as it says. When a will specified that an estate is to be split equally among more than one person (which is the most common situation, when a parent makes a will and their estate is shared equally among the children) then no individual beneficiary can act in a way that decreases the value for the others. So for example, one beneficiary cannot try to delay a house sale, or act in any other way which delays the others getting their share. If the house has been left to all 5 siblings, then all 5 are now owners. Unless one sibling buys the others out at a price agreed by all 4 others (which presumably would be the market value- anything else is wtf?!) then the house will have to be sold outside the family.

Sounds like A is trying it on here, for whatever reason,

Posted too soon

For whatever reason, for their own personal gain and to the detriment of the other beneficiaries. That's a really serious situation that could land them in the shit with a shed load of legal fees in the others contest it. A wouldn't have a leg to stand on legally as they want to go against the terms of the will.

As PP say, this is all misguided as there is no tax saving for selling at undervalue (other than a stamp duty land tax saving for A).

Inheritance tax is calculated on the value of the whole estate before it is distributed, based on market values.

Then there is no capital gains tax on the sale of the property at that market value (only if it goes up in value after the date of death). When working out if it’s gone up in value you look again at the market value not the price that’s actually paid.

Ultimately the executor can sell the property for any price they want, but if E thinks it has been sold for undervalue they can sue the executor for the difference they have lost out on, even if B-D all agreed.

@UtterlyUnimaginativeUsername legally E can insist on a market rate for the house.