Think solicitor may be wrong reIHT

[Whataweek1]

I have a question re: IHT and residential enhancement.

If one parent died before 2017 and
other parent has recently died, how much is the maximum amount before IHT kicks in, assuming an estate under 2million passed directly to children? I thought it was £1m. Solicitor is saying there’s a £100,000 cap on deaths pre-2017.

Can anyone help?

I am not a solicitor! But I think yours has interpreted the rules wrongly. When someone died before 6 April 2017, the Residence nil rate band did not yet exist. HMRC’s guidance says that for pre-2017 deaths, the deceased is deemed to have had a £100,000 RNRB and used none of it, meaning 100% of the RNRB is transferable, not merely £100,000. The transfer is a percentage, not a fixed amount. So if the surviving spouse dies now, the estate can generally claim 100% of today’s £175,000 RNRB in addition to the survivor’s own £175,000.
HMRC have a worked example in the attached link when the RNRB was £150k for the second person and that was what the 100% was applied to

https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

Edited to add - I am an ACA qualified accountant - Fully prepared to admit that I can misinterpret accounting rules so would not be surprised if your solicitor has done the same here.

We recently did probate for my mother. You are correct, it is £1 million. Please don’t pay this solicitor to do probate for you.

Agree with the previous poster that the solicitor is wrong. The second spouse to die has the nil rate band (£325k), their spouse's unused nil rate band (up to £325k), the residence nil rate band (RNRB) provided they leave their family home to their direct descendants (up to £175k) and their spouse's unused RNRB (up to £175k), giving a possible £1M. @Chocolateteabag is correct about how the RNRB passed on is calculated. Your solicitor needs to understand form IHT436 which guides you through the calculation to transfer unused RNRB.

It’s the current value of the transferable residential nil rate band (£175,000) but it is capped at the value of the property, so if the property is valued at £100,000 then you can only claim £100,000 exemption so you don’t get the full £1 million.

Thank you everyone. I wonder how many people have been hit with additional, unnecessary IHT.

Well no because, like you, we check and have competent solicitors!

Where I work there’s a second person check before we close the file, so it would more likely than not be picked up unless both people made the same mistake.

He’s agreed to put it in the form but has advised against it.

So my next question is has anyone ever had an IHT form returned due to too many omissions and errors?

They are incorrect (unless there is a reason it’s less such as the property value is less than this or there are lifetime gifts or gifts on first death that have used up allowances, or the property isn’t wholly left to descendants so doesn’t fully qualify). If none of this applies and parent 1 left everything to spouse who then leaves to children, the full transferable £175k applies to give £350k RNRB. This is pretty basic for a probate solicitor. Are they an actual solicitor or a paralegal? Are they STEP qualified? If they can get something this basic wrong and need to you tell them what it should be, I would seriously consider appointing someone else.

He is an experienced solicitor. We went with a solicitor to ease the burden, but I wish we’d have done the forms ourselves to ease the burden (hindsight and all). It is now on final draft three. He sent version one for signature the day after the first tax instalment was due. We sent an email highlighting the errors, omissions and the mismatch in expectations with the first ‘final’ draft. I’d hoped the second draft would be sufficiently reviewed before sending. I’ve just had a message from another executor saying they’ve signed and sent the form back, but I’m noticing things like saying tax isn’t due yet with a due date seven months after death instead of six. The long term U.K. residence box has been ticked ‘no’. The will is missing. We are all comfortable to go against solicitor’s advice of £100k vs£175k (I’ve seen HMRC’s guidance on this online and also checked on the phone on IHT helpline) . One executor has now sent signed form back, probably because bigger issues such as amount of tax have now been sorted (first draft also excluded a 325k allowance). Do I just let HMRC ‘review’ it and come back with queries? We have now paid the first instalment, but not the interest on it.