Question re inheritance

[Autumnalsky]

Suppose Family Member A (FMA) owns a flat in which Family Member B (FMB) lives. FMA also owns their own house, in which they live with their spouse and children.

FMA dies, leaving the flat to FMB in their will. FMA's own house, which they leave to their spouse and/or children, is worth more than £325, so inheritance tax is payable. The flat in which FMB lives is worth considerably less than £325, and FMA leaves them nothing other than this flat (i.e. no money or anything).

Would FMB have to sell the flat in which they're living in order to pay inheritance tax, because of the fact that FMA's total estate is worth more than £325? Or would FMB have no inheritance tax to pay, because what they're inheriting is worth less than £325?

Many thanks to anyone who can let me know what the law is on this.

@itwasnevermine is not wrong. It depends on the clause in the Will. A gift can either be subject to IHT, so payable by the recipient, or free from IHT and payable by the estate.

I would reiterate that professional advice is required. There are so many factors to be considered - what other assets there are, what lifetime gifting has been done, what the Will actually says, whether there are any other legacies or gifts and whether any grossing up is required. You cannot rely on the answers given here because they don’t have the full picture and in many cases clearly only have a rudimentary knowledge of the IHT regime.

Surely the flat would be considered a marital asset, and can’t just be FMA’s?

They are wrong. IHT is always payable by the estate except in the circumstances I have set out. If you think otherwise, feel free to post a link to the HMRC page that says so.

Why is it complex? The family home that A lives in would pass to their spouse. There would therefore be no IHT to pay. The flat is under the threshold for IHT, so again no IHT.

Or is there another half a million in savings you haven't mentioned?

Someone somewhere would still have to pay the inheritance tax. If there is not enough money in the residual estate to pay the IHT then the flat would have to be sold to pay the IHT. Just by saying the flat is left to FMB tax free does not mean there flat is not liable to IHT.
A relative thought they were being clever by leaving property ' tax free' and that the estate was absolved from paying IHT (because the will said so). This has caused a family rift and a major headache for the executors.

@prh47bridge I believe this is the legislation that @itwasnevermine is referring to. Yes, technically IHT can be paid by the estate, but then claimed back from the other party if property is passing outside of the will.

www.legislation.gov.uk/ukpga/1984/51/section/211

Possibly, but it doesn't support what they were saying. What this section actually means is that specific bequests do not normally bear their own tax, the main exception being where there is an express direction in the will to the contrary - the example in the IHT manual being a gift of unlisted shares to a son on condition that he pays the tax on them. In that situation, the recipient of the bequest must repay the tax to the executors. That is the opposite of what @itwasnevermine was suggesting. They were saying that the recipient of a bequest pays the IHT unless the will states that the bequest is free of IHT. The reality is that the estate pays the IHT but can reclaim the IHT relating to a bequest from the recipient if the will specifically provides for that.