Inheritance Tax And Administration Flashcards
Describe the tax year for Inheritance Tax (IHT) in the UK.
The tax year for Inheritance Tax (IHT) runs from 6 April one year to 5 April the following year.
What is the lifetime rate of Inheritance Tax (IHT)?
The lifetime rate of Inheritance Tax (IHT) is 20%.
How is the death rate for Inheritance Tax (IHT) defined?
The death rate for Inheritance Tax (IHT) is defined as 40%, which applies to the value of an estate above the nil rate band at the time of death.
Explain the conditions under which a Potentially Exempt Transfer becomes chargeable to IHT.
A Potentially Exempt Transfer becomes chargeable to IHT if the transferor dies within seven years of making the transfer.
Define Lifetime Chargeable Transfers (LCT) and their tax implications.
Lifetime Chargeable Transfers (LCT) are lifetime transfers of value that are immediately chargeable to IHT at the lifetime rate, and they are reassessed if the transferor dies within seven years.
What is the implication of selling property at an undervalue for IHT?
Selling property at an undervalue implies that the difference in value is considered a gift, which may be subject to IHT.
Define the basic nil rate band (NRB) in the context of inheritance tax.
The basic nil rate band (NRB) is £325,000, allowing individuals to make chargeable transfers up to this amount at a rate of 0%, meaning no tax is due.
Explain the residence nil rate band (RNRB).
The residence nil rate band (RNRB) is an additional nil rate band of £175,000 for individuals who leave their family home to a direct descendant upon death.
How can a surviving spouse benefit from the nil rate bands?
A surviving spouse can inherit the unused portions of both the basic nil rate band (NRB) and the residence nil rate band (RNRB) from their deceased partner.
Describe the tax treatment of Lifetime Chargeable Transfers (LCT) made into a trust after 22 March 2006.
“An LCT is a chargeable transfer when made, with IHT payable at a lifetime rate of “ 20%. If the transferor survives 7 years after the LCT
When is the TNRB available
Only after the surviving spouse dies
How can the TNRB be claimed from multiple spouses
Individuals who have survived more than one spouse can claim the TNRB in respect of all of them, subject to a cap of 100% of a full nil rate band (max £325K)
What happens if the husband dies and wife remarries and then subsequently dies. Can the new husband’s estate claim TNRB from the first husband?
Yes, but it will be claimed from the wife’s estate who would have been entitled to the TNRB but didn’t claim it
When must a claim for TNRB be made
Within two years of the end of the month of death
What are the conditions to qualify for RNRB
The death estate included a ‘qualifying residential interest’ (‘QRI’) and The QRI was ‘closely inherited’ by a ‘direct descendent’
What happens if the deceaseds share or interest is less than £175k
The RNRB is called at the value of the deceased’s interest in the property (e.g if property costs 150k RNRB will be capped at £150k)
What happens to the RNRB if an estate’s net value (value of assets minus debts but before exemptions appply) is greater than £2 million
The reduction in the RNRB is £1 for every £2 (divide excess above 2 million by 2 and deduct that figure from the RNRB)
When is there no RNRB available
for net estates worth £2,700,000 or more
What happens where the deceased had more than one
residential property interest in their estate at death
The PRs must nominate one of them to qualify for RNRB
What does RNRB not apply to
rental investment properties in which the deceased never lived.
When will a child not closely inherit the property
When they have a contingent interest (e.g gift is contingent on them reaching 25 and they are currently 15) unless will specified otherwise
Who qualifies as a direct descendant
1) The deceased’s children, grandchildren, great grandchildren and other lineal descendants,
- Spouse or civil partner of anyone included in 1) above,
- Widow, widower or surviving civil partner of anyone included in 1) above who has pre-deceased the deceased, provided the survivor does not re-marry or enter a new civil partnership before the deceased dies.
Do step children qualify as direct descendants
Yes, if their parent was married to the deceased
Can you transfer unused RNRB to a surviving spouse
Yes, provided surviving spouse leaves it to a direct descendant
What is the max NRB amount
£1 million
Define the spouse exemption in the context of IHT.
The spouse exemption allows transfers between spouses to be exempt from inheritance tax.
How does the charity exemption affect IHT calculations?
The charity exemption allows transfers made to registered charities to be exempt from inheritance tax.
Explain the family maintenance exemption in IHT. (Lifetime gift exemption only)
The family maintenance exemption allows for certain transfers made for the maintenance of family members to be exempt from inheritance tax.
What is the annual exemption in the context of IHT? (Lifetime gift exemption only)
The annual exemption allows individuals to make a certain amount of gifts each year without incurring inheritance tax.
Describe the small gifts allowance in IHT calculations.(Lifetime gift exemption only)
The small gifts allowance permits individuals to make small gifts up to a specified limit each year without being subject to inheritance tax.
How does normal expenditure from income function as an exemption in IHT?
Normal expenditure from income allows individuals to make gifts from their income that do not affect their standard of living, exempting them from inheritance tax.
What is the marriage exemption in IHT?
The marriage exemption allows gifts made in connection with a marriage to be exempt from inheritance tax up to a certain limit.
Define business property relief in the context of IHT.
Business property relief allows certain business assets to be exempt from inheritance tax, promoting the continuation of businesses.
Explain agricultural property relief in IHT.
Agricultural property relief provides exemptions for agricultural land and property from inheritance tax to support farming operations.
What are the annual exemptions (AE) mentioned in the context of the gift?
The annual exemptions mentioned are £3,000 for the year of the gift and £3,000 for the previous year.
What is the percentage reduction in IHT for transfers made 3 to 4 years before death?
80% of the IHT is payable.
How much IHT is payable for transfers made 4 to 5 years before death?
60% of the IHT is payable
Define the taper relief for transfers made 5 to 6 years before death.
40% of the IHT being payable.
What percentage of IHT remains payable for transfers made 6 to 7 years before death?
20% of the IHT is payable
What is included in the taxable estate of a deceased person who owned property as joint tenants?
The taxable estate includes the deceased’s share of the property, which is deemed severed, along with any other assets they owned.
What happens to a deceased person’s share of property owned as tenants in common?
The deceased’s share of property owned as tenants in common passes into their estate for both tax and distribution purposes.
How does the gift with reservation of benefit (GROB) rule affect inheritance tax?
The GROB rule affects inheritance tax by including the value of an asset in the donor’s estate if they have reserved a benefit from that asset, such as continued use, at the time of their death.
How does a donationes mortis causa affect inheritance tax (IHT)?
The subject matter of a donationes mortis causa is still considered part of the deceased’s estate for IHT purposes, and IHT will be payable on its value as of the date of death.
Describe the process of statutory nominations regarding accounts.
A person can make a written nomination of monies in accounts such as Friendly Society, Industrial Society, or Provident Society, with each account’s amount not exceeding £5,000.
Explain the relationship between statutory nominations and inheritance tax (IHT).
Although the monies in statutory nominated accounts pass directly to the nominee and do not enter the distribution estate, they still form part of the IHT estate.
Will a life tenant’s interest be included for inheritance tax purposes
The capital value of the trust fund will be included. If trust created after 22nd march 2022, capital will be valued at time of persons death
Describe excluded property in the context of a life interest trust.
Excluded property refers to assets that are not included in a person’s taxable estate. A common example is a remainder interest in a life interest trust, where the trust fund does not pass to the remainderman’s estate if they die before the life tenant.
Define the implications of an insurance policy written in trust for another.
If a deceased had an insurance policy on their own life written in trust for another, the proceeds are not included in the deceased’s estate for inheritance tax (IHT) purposes.
How does the designation of insurance policy proceeds affect the taxable estate?
If the insurance policy proceeds are payable to the deceased’s estate, then the amount would be included in the taxable estate for IHT purposes.
Describe how quoted shares are valued for an estate at the date of death.
Quoted shares are valued by taking the lower of the two prices on the Stock Exchange Daily List and adding one-quarter of the difference between the higher and lower value.
How is the value of jointly owned property adjusted in an estate valuation?
The value of the deceased’s share of co-owned land is reduced by 10% to reflect the difficulty of selling a share, unless the co-owners are married, in which case related property rules apply.
How are assets valued when they form a set owned by spouses?
When assets owned by spouses are worth more when valued together, each party’s share is valued at their proportionate share of the combined total.
How are post-death debts treated for tax purposes in relation to the estate?
Only reasonable funeral expenses and the cost of a tombstone can be deducted from the estate for tax purposes; other post-death expenses cannot reduce the overall tax due.
Describe the exemptions and reliefs relevant to the death estate for IHT calculations.
The relevant exemptions and reliefs include Spouse exemption, Charity exemption, Business property relief (BPR), and Agricultural property relief (APR).
Explain the role of trustees in relation to IHT for a trust.
Trustees are jointly liable to pay the IHT due on the assets received by the trust.
What happens to the trust fund after IHT is paid by the trustees?
The trust fund left to benefit the beneficiaries is reduced after the IHT is paid.
Describe the process of grossing-up in the context of a trust transfer.
Grossing-up involves calculating the total value of a transfer by adding the tax paid to the net amount transferred. For example, if a man transfers £400,000 into a trust and pays the IHT himself, the grossed-up value is £400,000 plus the tax paid.
What happens if the trustees do not pay the IHT on a lifetime trust transfer?
If the trustees do not pay the IHT, the donor becomes liable for the tax.
How does grossing-up affect the amount of tax paid to HMRC?
More tax is paid to HMRC when grossing-up is required because the IHT is calculated on a higher grossed-up value rather than just the net amount settled.
Who is liable to pay inheritance tax on a LCT after donor has died
If the trustee of a lifetime transfer does not pay the IHT due within the deadline, the deceased’s personal representatives become liable for the tax.
If donor was alive they would be liable to pay if trustee doesn’t
What is the deadline for submitting IHT 400?
12 months from the end of the month of death.
How are gifts in a will treated in relation to tax liability?
Gifts in a will, other than residue, are deemed to be given ‘free of tax,’ regardless of whether this phrase is explicitly stated.
What is the preferred option for most testators regarding tax payment?
The preferred option for most testators is to follow the general rule that IHT is payable from the residue.
Identify who is responsible for the payment of IHT on joint tenant property.
The surviving co-owner is responsible for the payment of IHT on joint tenant property.
Explain the responsibility for IHT on statutory nominations.
The nominated beneficiary is responsible for the payment of IHT on statutory nominations.
Define donationes mortis causa and their tax implications.
Donations mortis causa are gifts made in contemplation of death, and the lifetime donee is responsible for the payment of IHT on these donations.
Who will be liable to pay inheritance tax in an intestacy situation
The proportion owed by each is calculated with reference to the value of the asset
relative to the value of the whole estate.
What is the difference between tax avoidance and tax evasion
Tax avoidance is lawful and involves minimizing tax liability through planning, while tax evasion is unlawful and involves hiding income or assets to avoid tax.
when can. GROB arise in a trust
A GROB will arise if the settlor (the donor) is a potential beneficiary of the trust, regardless of whether they actually obtain a benefit.
What happens with a loan used to obtain BPR assets
If a loan is used to purchase assets that qualify for BPR or agricultural relief, this cost can be deducted from the taxable estate
When are normal loans deducted from the estate
If they have actually be repaid from the estate
Give an example of a POAC
A man makes a gift of shares to his sister. The sister immediately sells the shares and uses the proceeds to buy a car. The man uses the car to drive to work every day and parks it outside his house. This is not a GROB so there is no possibility of electing into that regime
Describe the conditions under which maintenance payments are not treated as transfers for IHT purposes.
Maintenance payments are not treated as transfers for IHT purposes if made to a spouse (or former spouse as part of a divorce settlement), the minor child of either party for maintenance, education, or training, or a dependent relative for reasonable care provision.
What is the implication of a recipient being domiciled outside the UK regarding maintenance payments?
If the recipient is domiciled outside the UK, the maintenance exemption can still be applied even if the spouse exemption would not normally apply.
Describe the small gifts exemption in terms of tax.
Small gifts of up to £250 per recipient can be made free from tax, allowing a transferor to make multiple gifts to different people without a limit on the number of recipients.
Explain the restriction on combining the small gifts allowance with other exemptions.
The small gifts allowance cannot be combined with any other exemption, including the annual exemption (AE).
How can a donor utilize both the small gifts allowance and the annual exemption effectively?
A donor can utilize both by giving £3,000 to one person (using the AE) and £250 to another person (using the small gifts allowance), thus claiming both reliefs.
Describe the marriage exemption limits for gifts given by parents.
A parent can give a gift of up to £5,000 in consideration of a marriage.
How much can one party of the marriage give to the other without incurring tax?
One party can give a gift of up to £2,500 to the other party of the marriage.
Define the gift exemption limit for remoter ancestors in relation to marriage gifts.
Remoter ancestors, such as grandparents or great-grandparents, can give a gift of up to £2,500.
What is the exemption limit for gifts made in any other case related to marriage?
In any other case, the exemption limit for gifts is £1,000.
How does the term ‘child’ expand under s 22 IHTA for the purpose of marriage gifts?
Under s 22 IHTA, ‘child’ includes illegitimate children, adopted children, and step-children.
How does the relief apply per donor in respect of a marriage?
Each donor can claim relief per marriage, allowing both parents of both parties to give £5,000 each, totaling a maximum relief of £20,000.
Define the term ‘normal expenditure out of income’ as it relates to transfers of value.
Normal expenditure out of income refers to regular payments made from the donor’s income that do not affect their standard of living and are considered exempt from taxation.
What is the importance of a settled pattern of giving in relation to tax exemptions?
A settled pattern of giving, such as consistent monthly payments, provides evidence to HMRC that the transfers are part of normal expenditure and thus more likely to qualify for tax relief.
Describe the spouse exemption in relation to a life interest trust.
The spouse exemption applies to the value of assets transferred to a life interest trust if the surviving spouse receives a life interest, meaning they are named as the life tenant. Spouse exemption will not apply if the spouse is named the remainder man
What factors can affect the effectiveness of a charitable gift?
The effectiveness of a charitable gift can be influenced by whether the gift is clearly made for charitable purposes and whether the charitable body meets the statutory requirements for IHT exemption.
How does the reduced IHT rate apply to charitable gifts in a will?
The reduced IHT rate of 36% applies to chargeable assets in the estate if the deceased leaves at least 10% of their net estate to charity.
Describe the purpose of Employee Benefit Trusts (EBTs) in relation to employee remuneration.
EBTs are a tax-efficient way of remunerating employees that is exempt from inheritance
How must a gift to a charity be structured to qualify for tax exemption?
A gift to a charity must be immediate and not in remainder, and it must normally be absolute to qualify for tax exemption.
Describe unquoted shares in the context of qualifying business assets.
Unquoted shares refer to all private company shares, such as those in a limited company (ltd), regardless of the size or value of the shareholding.
Define quoted shares as qualifying business assets.
Quoted shares are shares listed on a recognized stock exchange, such as a UK PLC, but are considered business assets only if the taxpayer controls the company with a shareholding of 50% or more.
What types of assets owned by a taxpayer can qualify as business assets?
Assets owned by a taxpayer that can qualify as business assets include land, buildings, and machinery, provided they are used for business purposes by a company controlled by the taxpayer or a partnership in which they are a partner.
What is the rate of relief for quoted shares assuming no controlling interest?
The rate of relief for quoted shares is 50%.
How does the rate of relief differ between unquoted and quoted shares?
Unquoted shares have a 100% rate of relief, while quoted shares have a 50% rate of relief.,
Describe the types of businesses or interests that are not considered business property.
Businesses that consist wholly or mainly of dealing in securities, stocks or shares, land or buildings, or making or holding investments (such as rental properties) are not considered business property.
Describe the ownership requirement for a transferor to qualify for the transfer of business assets.
The transferor must have owned the business assets continuously for at least 2 years immediately prior to the relevant transfer.
Explain the flexibility in the type of business during the ownership period.
The type of business does not need to be the same throughout the 2-year period, but there must have been a business for all of that time.
Identify an exception to the two-year ownership rule regarding the replacement of assets.
If qualifying assets are sold and replaced with new qualifying assets within a certain period of time, the taxpayer’s period of ownership is usually treated as continuous.
what is an exception to the two year rule for BPR in relation to spouse
If a person inherits business assets following the death of their spouse, they are
deemed to have owned the property from the time it was originally acquired by their deceased spouse irrespective of how long they had been married
A makes a PET of shares in a ltd trading company worth £400,000 to B. A had owned the assets for 3 years prior to making the gift. A dies 5 years later. The PET has failed and is now assessed to IHT. Can A’s estate claim BPR in respect of the failed PET?
BPR will only be available if B still owns the business assets transferred.
What is a qualifying agricultural property to qualify for agricultural property relief
Agricultural land and buildings used for purposes connected with agricultural activity.
Do farmhouses and cottages qualify
Thmay qualify if they are of a ‘character appropriate’ to the associated agricultural land and have been occupied for the purposes of agriculture e.g. farmhouse occupied by a farm worker or their surviving spouse and not someone who occupies for purely domestic reasons.
What is the qualifying period of ownership for agricultural relief
• occupied for agricultural purposes by the transferor throughout the two years immediately before the transfer, or, (owner occupied for two years)
• owned by the transferor and occupied by them or another for agricultural purposes throughout seven years immediately before the transfer (tenant occupier for 7 years)
What exceptions apply to the period of ownership rule
Same as for business assets
What is quick succession relief
beneficiary dying within five years of deceased, exempt from the second inheritance tax
How much relief is available when beneficiary dies within one year of deceased
100% which is tapered down as years go by up to 5 years
Does spouse exemption apply to discretionary trusts
No
Who is a PR appointed by will
Executor
Who is a PR appointed by statute
Administrator
When is an executor able to act
An executor derives authority from the will and they may act from the date of death. The grant confirms this authority.
When is an administrator able to act
An administrator derives authority from the grant. They have no authority to act until the grant is issued.
What duties must PR’s comply with before the grant of representation is obtained
The PRs must notify HMRC about the assets and liabilities of the estate by completing form IHT 400
Inheritance tax must also be paid.
What are the duties of PRs
• Identify and locate the deceased’s assets (including sums owed to the deceased)
• Identify the deceased’s liabilities and creditors
• Obtain control, possession or legal ownership of the assets
What are estate accounts
a list of assets and values (inventory) kept by PRs and a record of the steps they have taken in the administration
What happens if PRs have not maintained adequate estate accounts
an application to court is made by a beneficiary or creditor for an order to produce an inventory and account to be made.
When should administration of the estate be done by
within 12 months of the date of death known as the ‘executor’s year’. If the administration takes longer than 12 months this does not necessarily mean a breach has occurred, but from this time PRs are required to justify any delay
What are PRs prevented from doing due to their fiduciary duty
• Place themselves in a position of conflict e.g purchasing estate assets even if for fair value
• Profit from their position.
What are PRs power to appropriate
Substitute gifts provided in will e.g gift of £100 cash provided to beneficiary to be replaced with antique chair at beneficiary’s request
What are the conditions power of appropriation is subject to
• A specific beneficiary must not be prejudiced.
• Consent of the recipient beneficiary is required.
• The value of the asset must be considered at the date of transfer/appropriation rather than the date of death.
What happens if the value of an asset exceeds beneficiary’s entitlement
the PRs may not appropriate.
What happens if value of asset is less than entitlement
the PRs may appropriate and then make a balancing cash transfer.
Where can PRs take insurance out of
Estate income or capital
When can professional solicitors claim reasonable remuneration for their services
• when they are not acting alone, and
• when co-PRs give their written consent.
How can a professional PR who is acting alone claim remuneration
They need to be given express power in the will to charge for their services.
What expenses can PRs(including lay PRs) be reimbursed for
expenses properly incurred when acting on behalf of an estate. For example, travel costs incurred in the course of carrying out estate administration.
Can PRs delegate their powers to a beneficiary
No
What duties can PRs not delegate
• how and whether assets should be distributed
• whether fees or costs are payable from income or capital
• the appointment of trustees
What must PRs do when choosing to delegate
• they must do so in writing to the agent and
• they must provide them with a written policy statement which the agent must agree to comply with
Who can give good receipt on behalf of a minor
Parent or guardian which PRs can appoint as trustees for the beneficiary
When can a jointly appointed PR act alone
when exercising a lawful power to sell or transfer an estate asset during the administration
How can a PR who failed to carry out their duties be removed from the role
• by a court order appointing a replacement
• An administration action, where the court would take over the administration itself
What can a PR do if they foresee difficulties in the administration and are concerned about personal liability
They may seek court guidance
What else can a PR do when there is a question over the construction of the will which isn’t as expensive and time consuming as applying to court
PRs may make an application under s 48
Administration of Justice Act 1985 to distribute in accordance with a written legal opinion
How can PRs prevent liability to unidentified
beneficiaries and creditors,
the trustees may publish a s27!notice of their intention to distribute to known beneficiaries two months after the date of the advertisement.
Where must the notice be placed
i) The London Gazette,
ii) A newspaper circulating in the area in which any land held on trust is situated, and
iii) Any other newspaper which is appropriate e.g. if the deceased owned a business, the relevant trade paper may be appropriate.
What is the limitation for s27 for beneficiaries
It does not protect other beneficiaries who receive more than their entitlement to the estate. A disappointed creditor/ beneficiary may still claim against the beneficiaries.
When is a Benjamin Order used
In the case of known but missing beneficiaries
What must PRs demonstrate for a Benjamin Order
PRs must make full enquiries to attempt to establish
the true position and demonstrate there is no reasonable prospect of knowing the true position without disproportionate expense
What is the Presumption of Death Act 2013
The PRs may make an application under this act for a court order declaring that a person thought to have died, or not known to have been alive, for seven years or
more has died.
How can an indemnity protect a PR
The beneficiaries promise to reimburse the PRs for any loss the PRs suffer as a result of being sued by a disappointed beneficiary or creditor.
When is a payment into court a suitable option
where a beneficiary can be located but is refusing to accept their inheritance
Under what conditions will a court exonerate a PR from personal liability
- if they acted honestly and reasonably,
- ought fairly to be excused for:
- the breach of trust and - omitting to obtain directions of the court in the matter
What is a Grant of Letters of Administration (with will)
• the deceased left a valid will
• but the will appoints no executors who are willing/able to act.
What is a Grant of Letters of Administration
the deceased died without having made a valid will (i.e. died intestate)
What is the financial limit for which a grant is not required (eg for saving accounts, bonds and building society accounts)
£5,000
What do most banks require sight of as evidence recipient is entitled to to money
Death certificate and will
What assets do not require a grant of probate and will only require a death certificate
assets passing outside the succession estate:
Property owned as joint tenants
(commonly land and bank accounts)
Donationes mortis causa (DMC)
Life policies written in trust, discretionary pension lump sums nominated for a third party, and other nominated assets.
Assets held in a trust in which the deceased had an interest
What steps should be taken after obtaining a death certificate?
After obtaining a death certificate, one should locate the will or codicil, secure estate assets, and create a schedule of assets and lifetime transfers.
Describe the process for establishing the value of bank accounts after someone’s death.
PRs should request a summary of the account balance on the date of death from the bank, including any accrued interest.
What should be done for single items worth more than £500 in an estate?
A formal probate valuation should be obtained, often from commercial organizations that specialize in this service, with costs payable from estate funds.
What happens if one of the appointed executors has pre-deceased?
The remaining executor(s) may continue with the application for probate and must explain to the probate registry why not all named executors are applying.
Define the term ‘grant of double probate’.
A grant of double probate is applied for by remaining executors if a vacancy arises and the administration remains incomplete.
How many executors can a testator appoint in their will?
A testator may appoint as many executors as they like in the will.
What must happen if more than four executors are appointed in a will?
If more than four executors are appointed, they must decide who will take out the grant of probate.
Do all named executors need to apply for the grant of probate?
No, typically one executor can apply for the grant of probate on behalf of all named executors.
Discuss the implications of having power reserved for an executor.
Having power reserved means that an executor who was not initially appointed can later apply for probate if a vacancy arises, allowing them to participate in the administration of the estate.
Define the term ‘chain of representation’ in the context of PRs.
The chain of representation refers to the legal principle that allows the administration of an estate to continue through the appointment of new PRs after the death of the original PRs.
What is a grant of letters of administration de bonis non?
It is a legal document issued to appoint a new administrator for an estate when the original PRs are no longer available to complete the administration.
Describe the chain of representation in the context of executors.
The chain of representation applies when the last surviving executor (E1) dies and has appointed another executor (E2) for their estate. E2 then takes out the grant of probate for E1’s estate and automatically becomes the executor of the original testator’s estate without needing an additional grant.
Define the role of S.7 AEA 1925 in the chain of representation.
S.7 AEA 1925 provides that when the last surviving executor dies, the executor appointed by them automatically becomes the executor of both their estate and the original testator’s estate, eliminating the need for an additional grant.
What happens if the chain of representation cannot operate?
If the chain of representation cannot operate, a second grant will be issued, specifically a grant of letters of administration de bonis non.
Describe the statutory order of entitlement for appointment as administrator under a grant of letters of administration (with will)
The statutory order of entitlement includes:
a) executor;
b) trustee of the residuary estate;
c) any residuary beneficiary or a beneficiary under intestacy;
d) the personal representatives of anyone in (c) other than a trustee or life tenant;
e) any other beneficiary or creditor;
f) personal representatives of anyone in (e).
How does partial intestacy affect the rights of beneficiaries in applying for administration?
In cases of partial intestacy, a beneficiary of the estate under intestacy can apply, but only if there are no higher category individuals willing and able to act.
Describe the statutory order of entitlement to apply for letters of administration (without will)
The statutory order includes: PiSSGUT
a) surviving spouse or civil partner,
b) children of the deceased,
c) father and mother of the deceased,
d) whole blood siblings,
e) half-blood siblings,
f) grandparents,
g) uncles/aunts of whole blood,
h) uncles/aunts of half blood.
How can the Crown apply for letters of administration?
The Crown may apply for letters of administration if no one from the statutory order (a-h) can apply, claiming bona vacantia.
Explain the role of creditors in the application for letters of administration.
Creditors may apply for letters of administration if the Crown does not apply and they are not receiving a benefit from the estate.
What is the significance of ‘clearing off’ in the application process?
Applicants must ‘clear off’ anyone with a better (but not equivalent) right to apply, ensuring that only those with the most appropriate rights proceed.
What is the significance of the 28-day survival rule for the spouse’s entitlement?
The 28-day survival rule is significant because it determines whether the spouse is beneficially entitled to the estate; she must survive the deceased by this period to apply for the estate.
How does the value of the estate affect the application rights of the children?
The value of the estate affects the children’s application rights because if the estate were larger, they would have shared it with the spouse, allowing them to apply for a share.
Define the role of a minor in the context of applying for a grant.
A minor may not act as an administrator, but someone can apply for a grant on their behalf.
What takes priority when applying for a grant on behalf of a minor?
An application by an adult with equal entitlement to apply is given priority over an application made on behalf of a minor.
Under what circumstances may an application on behalf of a minor be appropriate?
An application on behalf of a minor may be appropriate if no adult with equal or greater entitlement will act, or if the minor is the only person within the category having the greatest entitlement, or if all those within the category are minors.
Define the role of a minor executor in the probate process.
If an executor is a minor, probate can be issued to the other executors with power reserved to the minor, who can apply upon reaching 18.
What options do executors have if they are unwilling to act?
Executors who are unwilling to act have several formal options, including renunciation, reserving power, or appointing an attorney.
Define renunciation in the context of an executor’s role.
Renunciation is the formal process by which an executor declines to accept their role and responsibilities as outlined in the will.
How can an executor reserve power if they are unwilling to act?
An executor can reserve power by retaining the ability to act in the future while not currently taking on the responsibilities associated with the role.
Describe the process an executor must follow to formally renounce their right to apply for probate.
An executor must sign a form of renunciation and submit it to the probate registry as evidence of their decision not to apply for probate.
How is the renunciation of an executor noted in the probate process?
The renunciation will be noted on the grant when it is issued.
Define the finality of an executor’s renunciation of their role in the probate process.
Renunciation is final, and the executor cannot later change their mind without court approval.
Define intermeddling in the context of estate administration.
Intermeddling occurs when a person takes steps indicating they have accepted their appointment as executor and are fulfilling the duty to administer the estate, such as obtaining or holding the deceased’s assets.
Describe actions that constitute intermeddling with an estate.
Actions that constitute intermeddling include obtaining, receiving, or holding the deceased’s assets, forgiving debts or liabilities due to the estate, paying debts, selling assets, and disposing of personal property.
How does intermeddling affect an executor’s ability to renounce their appointment?
An executor cannot renounce their appointment if they have intermeddled with the estate, as the court will not accept an attempt to renounce under such circumstances.
What are examples of acts that do not amount to intermeddling?
Acts of common humanity, such as arranging a funeral or taking steps to secure the estate assets, do not amount to intermeddling.
How can an executor who has intermeddled still reserve power?
An executor who has intermeddled can still reserve power by ensuring that at least one other executor applies for the original grant of probate.
Explain the conditions under which an executor can apply for a grant of double probate.
An executor can apply for a grant of double probate to run concurrently with the original grant if the administration of the estate is not yet complete.
Describe the process when an executor reserves power in a probate application.
When an executor reserves power, they must notify the other executors of their intention to apply for probate. The other executors will proceed with the application, and the grant of probate will note that power is reserved to the executor who did not act.
How does the grant of probate reflect the reservation of power by an executor?
The grant of probate will include a note indicating that power is reserved to the executor who did not act, along with confirmation that they were notified of the application.
What can an executor do if they do not want to be directly involved in the administration
An executor, who does not want to be directly involved in the administration, may appoint another person as attorney to act on their behalf.
What does the Trustee Act 1925 state regarding the delegation of functions by a personal representative (PR)?
The Trustee Act 1925 confirms that a personal representative may delegate their functions to an attorney for a maximum of 12 months, which can be renewed if necessary.
Explain the process for an attorney to act before a grant has been obtained.
Before a grant is obtained, the executor can delegate the power to apply for a grant, but the attorney cannot apply for a grant of probate. Instead, the other executors would apply for probate while the attorney makes a parallel application for letters of administration.
What must be provided to the probate registry when an attorney is appointed?
The power of attorney must be provided to the probate registry as part of the application process.
What should an executor do before appointing an attorney?
The executor should give notice to the other executors before appointing an attorney.
How does the status of a person affect their ability to act as an administrator of an estate?
A person cannot act as an administrator if they pre-deceased the testator, are a minor, lack capacity, or do not have a beneficial entitlement to the estate.
Define the role of an administrator in the context of NCPR 20 or 22.
An administrator is responsible for managing the estate of a deceased person, but unlike an executor, they cannot reserve power.
How does renunciation affect the rights of a potential administrator before the grant is issued?
A potential administrator may renounce their right to apply at any time before the grant is issued, even if they have already intermeddled with the estate.
What should a PR avoid doing if they choose not to act?
A PR should not ‘do nothing’.
Describe the deadline for submitting the estate accounts after a death occurs.
The deadline for submitting the account is 12 months from the end of the month in which the death occurred.
How is the deadline for paying IHT determined after a death?
The deadline for paying IHT is 6 months from the end of the month in which the death occurred.
What happens if IHT is not paid within the 6-month deadline?
Interest becomes payable on the unpaid tax after the 6-month deadline.
What is the consequence of missing the 6-month payment deadline for IHT?
Missing the 6-month payment deadline results in interest being charged on the unpaid tax.
Describe the instalment option for IHT under ss. 227 - 228 IHTA.
The instalment option allows IHT due on certain assets to be paid in 10 equal annual instalments, with the first instalment due six months after the end of the month in which the deceased died.
How are the remaining instalments for IHT due after the first payment?
The remaining instalments are due on each subsequent anniversary date after the first payment.
Describe the types of assets eligible for the Instalment Option under IHT.
The Instalment Option is available for land and buildings, company shares/securities giving control, some unquoted company shares/securities, farms or interests in farming businesses, businesses or interests in businesses, and timber.
Define the criteria for unquoted company shares to qualify for the Instalment Option.
Unquoted company shares qualify for the Instalment Option if they did not give control and either the tax attributable to them represents 20% or more of the total tax liability or the value of the shares is greater than £20,000 and the shareholding represents at least 10% of the nominal value of all company shares.
Explain the relevance of shareholding percentage in the Instalment Option.
A shareholding must represent at least 10% of the nominal value of all company shares for the Instalment Option to apply if the value of the shares is greater than £20,000.
Define what is meant by an ‘excepted estate’.
An excepted estate is one that does not require the completion of the IHT 400 form for reporting to HMRC.
How can one determine if an estate is excepted?
An estate is considered excepted if it falls under the categories of low value excepted estate or exempt excepted estate, or if certain other conditions are satisfied.
Define a low value excepted estate.
A low value excepted estate is one where there is no Inheritance Tax (IHT) payable because the gross value of the estate is below the Nil Rate Band (NRB) amount plus any Transferable Nil Rate Band (TNRB) from their spouse.
What is an exception to a low value excepted estate
The estate cannot be excepted if the RNRB is claimed
Define an exempt excepted estate.
An exempt excepted estate is one where the gross value of the estate is no more than £3 million, no Inheritance Tax (IHT) is payable, and the net value of the estate, after debts and spouse/charity exemptions, is below the Nil Rate Band (NRB).
What types of exemptions can be considered for an exempt excepted estate?
Only spouse or charity exemptions can be considered for an exempt excepted estate; no other reliefs can be taken into account.
List factors that prevent an estate from being classified as excepted.
Factors include: a gift with reservation of benefit, multiple trust interests or a single trust interest over £250,000, foreign assets over £100,000, specified transfers exceeding £250,000, and claims for the RNRB.
Define loss relief in the context of IHT.
Loss relief is a provision that entitles the PRs to claim a partial refund of IHT due to losses on the sale of certain assets.
How should inaccuracies in the IHT400 be addressed by the PRs?
If the PRs discover inaccuracies in the date of death information provided in the IHT400, they must correct it by submitting a corrective account using Form C4.
How can PRs utilize the Direct Payment Scheme to pay IHT?
PRs can request banks or building societies to make a direct payment from the deceased’s account(s) to HMRC via telegraphic transfer under the Direct Payment Scheme, even before the grant is issued.
Define the role of schedule IHT 423 in the payment of IHT.
Schedule IHT 423 must be completed by PRs to facilitate the direct payment of IHT from the deceased’s accounts to HMRC.
What is the potential benefit of using life policy proceeds written in trust for IHT payment?
Proceeds from a life policy written in trust can be used by beneficiaries to pay IHT without needing to access the deceased’s estate, thus bypassing the grant requirement.
What is the first step in the application process for a grant from the Probate Registry?
The first step is completing and posting a paper application form to the Probate Registry.
What is the alternative to submitting a paper application to the Probate Registry?
The alternative is submitting an online application via HMCTs service.
Describe the types of applications that require mandatory online submission.
Mandatory online applications include most grants of probate.
What types of applications are submitted on paper and are considered non-standard?
Mandatory paper applications include non-standard grants and more complicated applications under NCPR 20 and 22.
Explain the purpose of form PA1A.
Form PA1A is used when the deceased did not leave a will (NCPR 22 applies).
Explain the purpose of form PA1P.
Form PA1P is used when the deceased left a valid will, allowing executors to act under the will or administrators to be appointed by NCPR 20.
which form is used when a valid will has been drafted but there is partial intestacy
The PA1P form
Describe the information that should be included for the deceased on a death certificate.
The full name of the deceased, date of birth, and date of death should be included.
What is the significance of a ‘common name’ for the grant.
A common name refers to an alternative name by which the deceased is known, which should be stated to ensure the grant is issued in both names.
What additional information about the deceased should be confirmed besides their identity?
The testator’s domicile, marital status, and value of foreign property should also be confirmed.
Why is the unique code from HMRC important for the grant application?
The unique code and estate values are required to submit the grant application to the Probate Registry, making it impossible to proceed without them.
What must an applicant state when applying for a grant related to a deceased’s estate?
An applicant must state whether the deceased had an interest in settled land.
What is required if a deceased had an interest in settled land?
If the deceased had an interest in settled land, a separate grant is required to deal with the legal estate.
Describe the probate registry fee structure.
The probate registry fee varies based on whether a professional is applying and the value of the estate. There is no fee for estates worth less than £5,000.
Explain the requirement for death certificates in legal professional applications.
A death certificate is not required for legal professional applications.
How many sealed copies can the Probate Registry provide?
The Probate Registry will provide the number of sealed copies as requested by the personal representatives when making the application.
What is the fee associated with sealed copies?
There is a small fee for each sealed copy requested from the Probate Registry.
Does revocation of a codicil reinstate the original Will
Codicils are amendments to the original will; however, if a codicil is revoked, it does not automatically restore the original terms of the will.
What form is used to complete the power of attorney.
Form PA11 is used to complete the power of attorney, which is submitted with the application for the grant.
Describe the role of the deponent in an affidavit.
The deponent is the person making the affidavit who swears or affirms that the contents of the document are true.
What are the legal requirements for making an affidavit?
The legal requirements include a signed and dated jurat, completion and signature by an independent witness, and the jurat must follow immediately after the text.
Explain the term ‘jurat’ in the context of an affidavit.
The jurat is the authenticating statement that must be signed by all parties and dated, confirming the affidavit’s validity.
Who can witness the signing of an affidavit?
The witnessing must be done by an independent solicitor or commissioner for oaths.
What information must be included from the witness in an affidavit?
The witness must provide their name, address, and qualifications in the affidavit.
Describe the role of affidavit evidence in relation to a will.
Affidavit evidence is used to confirm the circumstances surrounding the drafting or execution of a will, especially when there is uncertainty about its validity or interpretation.
Define the term ‘attestation clause’ in the context of wills.
An attestation clause is a statement in a will that confirms the will was signed and witnessed according to legal requirements.
Describe the presumption raised by a properly executed will with a standard attestation clause.
It raises a presumption of knowledge and approval of the will’s contents by the testator.
Define the circumstances that might necessitate an affidavit of due execution.
Circumstances include the testator being blind, unable to read the will, or if the signature suggests extreme frailty.
How can the need for an affidavit be avoided when executing a will?
The need for an affidavit can be avoided if the original attestation clause is drafted to reflect the special circumstances under which the will was signed.
Describe signs that may indicate a will is incomplete or has been tampered with.
Signs include pin holes from removed staples, paperclip indentations from attached documents, non-consecutive page or clause numbering, indications of missing pages, and evidence of attempts to revoke the will such as burning or tearing.
How can a copy of a will or codicil be admitted to probate if the original is missing?
A copy can be admitted to probate with a court order, which requires evidence that the will existed after the deceased’s death, confirmation of correct execution, and that the copy accurately reflects the deceased’s wishes.
Define a ‘first proceeds’ undertaking in the context of estate administration.
A ‘first proceeds’ undertaking is a promise made by PRs to a bank to use the first funds raised during the administration of the estate to repay a loan.
Explain what happens if the outstanding loan is greater than the value of the secured asset.
If the outstanding loan exceeds the value of the secured asset, the creditor typically ranks as an unsecured creditor.
Identify the types of debts considered unsecured in solvent estates.
Unsecured debts include credit card debt, utility bills, and other expenses.
Where are unsecured debts paid from?
Unsecured debts are paid from the residue of the estate after any legacy funds have been allocated. This ensures that the debts are settled before the remaining assets are distributed to the beneficiaries.
How can a disappointed beneficiary use marshalling to their advantage?
A disappointed beneficiary can use marshalling to claim against the assets inherited by another beneficiary if those assets should have been used to repay the debts, thereby compensating for their reduced inheritance.
What happens to creditors in relation to marshalling?
Creditors are not bound by the rules of marshalling and are under no obligation to return the money paid to them, even if the assets were taken out of order.
How can PRs avoid unnecessary CGT when selling assets?
PRs should consider selling assets that have not risen in value to avoid CGT or using the tax-free allowance unnecessarily.
Define the tax treatment of assets transferred from PRs to beneficiaries.
The transfer of assets from a PR to a beneficiary is not treated as a disposal for CGT purposes, allowing the beneficiary to inherit the asset at its probate value.
Describe the ease of selling different types of assets in an estate.
Quoted shares and financial investment products can usually be sold quickly and easily, while unquoted shares, business interests, and land typically take longer to sell. Cars and household possessions are also relatively easy to sell but may not yield the desired amount.
How do personal representatives (PRs) consider beneficiaries’ wishes when managing an estate?
PRs are not legally bound to comply with beneficiaries’ wishes but should take them into account when making decisions regarding the estate.
How should PRs account for untaxed income when calculating the deceased’s tax liability?
PRs should include untaxed income that was due and paid before death in the tax calculations.
Define the tax treatment of bank interest paid before and after the deceased’s death.
Bank interest paid before death is taxed as the deceased’s income, while bank interest paid after death is taxed as the PRs’ income.
Identify the types of income that do not require date apportionment according to the content.
Bank interest does not require date apportionment.
What should PRs do with income paid after the deceased’s death that relates to a period before death?
PRs should account for this income in the deceased’s tax calculations.
How should PRs calculate CGT due for a deceased individual?
PRs should utilize the deceased’s tax-free allowances and apply the tax rates that were applicable to the deceased.
Explain the concept of ‘tax-free uplift’ in relation to a deceased’s assets.
Upon death, the base cost of assets in the estate is uplifted to the date of death value, effectively wiping out any gains accrued during the deceased’s lifetime.
Describe the tax liability of PRs on estate income generated before asset distribution.
PRs may be liable to pay income tax if the estate assets generate income between the date of death and the date the assets are distributed.
Are PRs entitled to claim an income tax personal allowance on estate income?
No, PRs are not entitled to claim an income tax personal allowance.
How can beneficiaries who do not pay income tax utilize Form R185?
Beneficiaries who do not pay income tax can use Form R185 to claim a tax refund.
What is the tax obligation for higher or additional rate taxpayers regarding estate income?
Higher or additional rate taxpayers must make a ‘top-up’ payment to HMRC and use Form R185 when completing their own tax return.
Define the income threshold that triggers tax liability for estate income.
The income threshold that triggers tax liability for estate income is £500 per tax year of the administration. If total income exceeds this amount, income tax is payable on the whole amount.
Describe the tax implications for gains made by the deceased during their lifetime.
Gains made by the deceased during their lifetime on assets they still owned at the date of death are not taxed for capital gains tax purposes.
Explain the chattel exemption related to capital gains tax.
In most cases, personal representatives can sell chattels without worrying about capital gains tax if the gain from the disposal of a tangible movable asset is £6,000 or less.
How is the probate value relevant to the transfer of an asset to a beneficiary?
The transfer to a beneficiary is not considered a disposal, so no chargeable gain occurs.
How can the tax-free allowance impact the decision to sell an asset or transfer it to a beneficiary?
If the beneficiary has used their tax-free allowance or would pay tax at a higher rate, it may be better for the PRs to sell the asset and use the estate’s tax-free allowance.
Under what conditions can PRs make early payments to residuary beneficiaries?
PRs may make early payments of part of a residuary beneficiary’s share if they are confident that sufficient assets will remain to meet any outstanding payments later.
What is the process for transferring shares to a beneficiary?
Shares are transferred using a stock transfer form.
What documentation is required for transferring land to a beneficiary?
An Assent for a legal estate in land must be completed using land registry form AS1.
Who bears the cost of transferring an asset to a beneficiary?
Unless the will specifies otherwise, the beneficiary must bear the cost of the transfer.
How long may PRs wish to delay distributions if a claim under the IPFDA 1975 may be brought?
PRs may wish to delay distributions until ten months after the grant is issued.
What is the deadline for issuing a claim under the IPFDA 1975?
There is a six-month deadline for issuing a claim and a further four months to serve notice.
When should PRs not make distributions regarding claims by unknown beneficiaries and creditors?
PRs should not make distributions until after the two-month deadline for being notified of claims.
What happens to general gifts if there are insufficient funds to pay all specific legacies?
If there are insufficient funds to pay all specific legacies, the general beneficiaries take no benefit.
Explain the concept of abatement in the context of legacies.
Abatement refers to the reduction of legacies when there are insufficient funds to pay all of them, occurring in reverse order of priority.
What is the priority of specific gifts in the payment of legacies?
Specific gifts take priority over general and residuary legacies.
How can PRs obtain valid receipt from a minor aged 16 or 17?
An express clause in the will can grant PRs the power to accept receipt from a minor aged 16 or 17.
