FIL's Inheritance dilemma

[flutterworc]

On behalf of FIL!

He has recently inherited a sum of money from his aunt. The will was complex, but boiled down to two great nephews inheriting the house and 16 other people each inheriting a portion of the capital. The will states that the house is a gift to the great nephews and so the solicitor is saying that any gifted property is not then liable for inheritance tax payments that it incurs. This means that those who inherit the capital share the tax between them.

He's confused as this could lead to a scenario where someone inherits a house worth a million pounds and someone who inherits the capital of £10,000 must pay the tax for the house, far outweighing the money they have inherited.

Anyone know if this is right?

No it's not right. For a "gift" to be exempt from tax it has to be given 7 years before death.
The tax is applied to the whole estate over the threshold, and should come off each inheritors portion proportionately.
The exception is a spouse inheriting.

I'm surprised at the solicitor tbh

Surely the will could state where the tax comes off though

Pretty sure my dm had a bequest where it was 'tax paid'

If the house was in the deceased aunts name when she died, then it forms part of the taxable estate and incurs inheritance tax.

She must have gifted the house at least 7 years before she died for the house to be exempt from inheritance tax.

All taxes must be paid before any bequests are distributed.

The house can only be a gift 7 years before the person dies, so unless it was gifted then the tax still has to be paid on the house. Otherwise all houses would be a 'gift' when inherited!

The gift made before 7 years part is irrelevant as she died before anything was gifted.

The entire estate including the house will be included in the value used to calculate the inheritance tax due.

If the will states that certain assets (the house) and cash amounts are left to individuals and the residual of the estate to be shared, this residual is calculated after inheritance tax is accounted for.

If the residual of the estate is insufficient to pay the tax then it takes precidence over other gifts.

You can give a gift free of tax in your Will (so that the tax is paid from the residue of your estate). This appears to be what has happened here.

This is of only possible if the residuaru estate has sufficient funds to pay the tax - otherwise HMRC will look to the recipient of the gift.

Oops - cross post and typos!

Thanks all - that clarifies things!