We’re dealing with an estate that comprises a significant property portfolio, some investments and bank balances.
The property portfolio passes via specific legacy, with residue going to a different beneficiary.
Both the legacy and residue will bear IHT, but due to the value of the assets and liquidity, IHT will be paid by instalments, which will result in interest being paid to HMRC.
My question is who should bear the cost of the interest on the IHT - should this be applied across both the legacy and residue, or is the interest solely borne by residue?
Any reference to case law or guidance would be much appreciated.
Neil
Not being a solicitor I am unable to advise you of the strict legal position, but from experience I would suggest that as the instalment option is only available for certain assets e.g. land & buildings or unquoted shares, then the associated interest should be borne by those beneficiaries whose inheritance attracts that instalment option. IHT is payable in one go for other assets.
If all the IHT is being paid in instalments result of a time to pay arrangement agreed upfront with HMRC as a result of liquidity issues, then the interest should be apportioned among the beneficiaries in an equitable manner.
Maxine
The instalment basis applies wrt IHT on death. The IHT arising on the death estate is allocable to individual estate assets eligible for payment by instalments.
Depending upon the nature of the particular asset interest may be levied either where an instalment thereon is paid late [IHTA 1984 s234(1)] or on any outstanding amount of IHT which remains unpaid [IHTA 1984 s233(1)]. In the poster’s case, interest is not chargeable unless any instalment is paid late if the asset in question is land qualifying for APR; shares in trading companies; or a business (or interest in a business).
It is therefore necessary to allocate the IHT charge on the death estate amongst the particular assets wrt which the instalment basis applies and, as a consequence, any interest charged is borne by the person inheriting that particular asset and is not simply borne by residue.