If a married person with children dies Intestate, with an estate of £1,250,000 (excluding the jointly owned home which passes by survivorship) then it seems clear that the spouse will get the £250,000 Statutory Legacy plus £500,000 i.e. half of the balance. The adult children will get the remaining £500,000.
In this case however the estate assets include private company shares valued at £100,000 with 100% BPR and a property valued at £800,000 which attracts 50% BPR.
What is unclear to me is how to calculate the IHT in these circumstances, presumably this is all borne by the non-exempt beneficiaries, the adult children.
There were no lifetime gifts, and in this case we were contacted after the two year limit for the Deed of Variation to apply.
I think we are looking at 2 different aspects: how the beneficial interests in the assets of the estate may be dealt with, and how the legal title of assets may devolve.
Whilst I agree with Richard Bishop that the company’s articles will define to whom the legal title to the shares is permitted to pass, and whether there are any pre-emption rights, in the administration of the estate there is no restriction as to how the personal representative might appropriate the estate assets between the beneficiaries (other than, of course, their entitlement under the will or intestacy).
For IHT purposes, I understand HMRC will treat the shares as forming part of the residuary estate, with BPR limited to a half share, reflecting the children’s entitlement to residue. BPR on the property will be similarly restricted. However, as the children are said all to be adult, together with the surviving spouse they could enter into a variation effective under s.142 IHTA 1984 (and s.62(6) TCGA 1992) by which they purport to create a gift of the shares, at least, to the children with a balancing cash benefit to the spouse if considered appropriate.
If the shares are gifted to the children, as though a specific legacy, so that they are beneficially entitled to them or the proceeds of them, the actual dealings with the shares will be subject to terms of the company’s articles.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
The details of the allocation of the reliefs are set out in terms of section 39A IHTA 1984, along the lines indicated by Paul. As noted in the original posting, two years have elapsed, so an IHT effective variation is not possible.
The residue is not reduced by IHT on any specific lifetime gifts as there were none.
In the absence of provisions in the will, under s 41 IHTA 1984 it is provided that none of the tax on residue is to be borne by a gift of residue if that gift is exempt. In short, the IHT on residue must be borne buy there chargeable part of the deceased’s estate.