Inheritance question?

[malovitt]

Could someone in the know explain this to me?

Person A (single, unmarried) has made a will leaving her three named properties to three different named unrelated people (person B is to get Property 1, person C to get property 2, person D to get property 3.)

All three properties are worth different amounts.

She is way over the inheritance tax threshold, with only a few thousand in cash savings.

In what way will the inheritance tax be paid?

Thank you.

Executor of the estate, before the remainder gets divvied up. I think.

Sorry, I mean the executor of the estate pays it to hmrc out of the estate.

Yes, money is due by the estate not the people who inherit.

Ah, do you mean that there is a problem with liquidity? As in the amount that would be owing is not available in eg cash/shares from her estate, so would somehow need to be raised out of the properties?

Yes, inheritance tax would have to be paid from the properties somehow as there is just enough cash put by for funeral expenses.

I want to know how that would work - for example if Property 1 was worth £400K, property 2 worth £200k etc. How would it be decided where the money would come from?

I think the logical answer would be to do it by proportions. So if the total sum owing is £1000, and the property values are:
A - £500,000
B - £300,000
C - £200,000
then the following sums would have to be raised from each property:
A - £500
B - £300
C - £200

As to how that would be done, umm... Would the executor have the power to mortgage each property before handing it over? Probably not, as whose name would it be in? Would he be able to offer each recipient the opportunity to provide that appropriate amount in order to pay their share of the debt? If he can't raise it like that, he would have to sell the houses to raise the money, and pass on the remainder of the money from each sale to the recipient, maybe?

The logical answer is not always the route taken though.
Anyone?

How far over the threshold are we talking? Because in all likelihood something would have to be sold in order to pay the tax bill.

Have you looked at HMRC website on this? I can't find an exact parallel there, but the section below covers a situation where a property is inherited by someone who isn't married to the deceased.

...the deceased's executor or personal representative must pay any Inheritance Tax or debts before distributing the estate among the beneficiaries. They'll usually try to do this using funds from other parts of the estate. However, if there's a shortfall, you as the remaining owner are responsible for that shortfall and HM Revenue & Customs (HMRC) and other creditors have the right to approach you. If there isn't enough money in the rest of the estate to pay the outstanding tax or other debts, you may need to sell the property.

You can also phone HMRC and ask.

0845 302 0900
9.00 am to 5.00 pm Monday to Friday