Inheritance tax

I am administering the estate of M. M never married and had no children, and dies leaving only his surviving brother and nieces/nephews.

M has died intestate. Does his estate only benefit from £325,000 nil rate band? Also he has listed shares (which family want to sell and not transfer) and a private residence. Will the personal representative (brother) have to pay IHT along with CGT if the shares/property increase in value since date of death?

Michelle Phillips
KTS Legal

Michelle, although there can be no transfer of a spouse’s unused IHT allowance in this situation, there are other possible IHT allowances available depending on the circumstances.

For example, if some or all beneficiaries make a deed of family arrangement that includes sufficient gifts to charity, IHT on the balance reduces to 36%.

If the PR’s sell estate assets for more than their acquisition value (ie as on IHT 400), there is a taxable capital gain. You may be able to mitigate the amount of CGT, or possibly make it nil.

The PRs CGT allowance is low, but if they transfer assets to the entitled beneficiaries (jointly), immediately before the sale, this should attract no tax. The beneficiaries are then the seller, and each beneficiary should have a greater CGT allowance than the PRs. Accountants’ advice would be needed.

Barry Abrahamson
Abrahamson & Associates

IHT - yes assuming he didn’t make any CLTs/PETs Annual Exemption in the preceding 7 years (possibly 14 years).

CGT payable if the values increase from the probate values and if over the PRs CGT allowance (same as an individuals for year of death and 2 subsequent full year). If CGT is an issue, consider appropriation of some or all of the shares as may increase CGT allowances available.

Karl Taylor
Parker Rhodes Hickmotts

As there are no children and no deceased spouse then M only entitled to £325k NRB.

The brother takes all; nephews and nieces receiving nothing.

The sale of assets comprising M’s estate can be made by the PRs or assented to brother for the latter to sell. Under either option CGT arises on difference between probate values and market values at date of sale. TCGA 1992 s225A may be of help.

IHT will be a testamentary expense payable by the PRs.

Malcolm Finney

As has been said, it is the unused part of the £325k NRB that is available. The brother could consider the merits of a DOV.

Ray Magill

Just to cover all bases by allowing for what is currently a minority interpretation of “the family”:

If M in fact died having left “nephews and nieces” who were the children of any siblings of M who had not survived him, then those children would take, equally if more than one, the share which any such predeceasing siblings would have taken had they also survived M.

Mark Walker
Anglolex Ltd.

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The deceased had deceased siblings so their children receive their share?

Michelle Phillips
KTS Legal

As Mark points out if the deceased had siblings (in addition to the surviving brother) all of whom died before the deceased then to the extent any of such deceased siblings had issue then the latter (equally if more than one) will take contingent on reaching age 18 or marrying under that age.

Malcolm Finney

There is a gain but the gain is on the principle private residence therefore no taxable gain?

Michelle Phillips
KTS Legal

There can be no PPR after death. Any gain will be on the difference in value between probate value and when it is sold. As others have mentioned, where there are several individuals who would benefit, it may be worth considering assenting the property to them at probate value - so no gain for the Estate - and then they sell as individuals and are able to utilise their higher annual exemptions.

Maxine Higgins
Citroen Wells

Just an additional query about appropriation and CGT…
If a residential property is appropriated to beneficiaries then sold, is it correct that the beneficiaries are the ones required to file the 30 day return?

Sue Howard
Talbots Law

If a mum and son live together in the family home and mum wants to gift it to son, apart from the 7 year rule are there any tax implications if son then sells the house within 7 years? Mum is moving to her second property.

Michelle Phillips
KTS Legal

Hi Sue,

That is correct, assuming there is a tax liability. It may be that the increase between probate and sale price, shared between a number of beneficiaries, after annual exemption, means that no tax liability arises, which means that no 30-day report is required.

Lucy Orrow CTA TEP
Lambert Chapman LLP

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