Payment of IHT Flashcards
What must be paid to obtain the grant of representation?
Inheritance tax (IHT) must be paid in order for the personal representatives (PRs) to obtain the grant of representation and begin to administer the estate.
What are the two types of estates regarding IHT payment?
The two types of estates are excepted estates and all other estates.
What must PRs do if the estate is not an excepted estate?
PRs must insert a unique ‘probate code’ and values for the gross and net estate on the application for the grant.
What must be submitted to HMRC to receive details for IHT payment?
Form IHT 400 must be submitted to HMRC to receive the necessary details.
When must IHT be paid?
IHT must be paid by the PRs before six months after the end of the month in which the deceased died.
What happens if IHT is not paid within six months?
Interest will accrue on the amount due, and PRs will lose the option to pay tax by instalments on instalment property.
When is the first instalment of IHT due?
The first instalment of IHT is normally due six months after the date of death.
What must be submitted within 12 months from the end of the month of death?
The IHT 100 form must be submitted within 12 months from the end of the month in which the deceased died.
What is a challenge faced by PRs in paying IHT?
PRs cannot access the deceased’s assets until IHT has been paid, creating funding challenges.
What is the Direct Payment Scheme?
Certain banks allow PRs to pay IHT directly from the deceased’s accounts through the Direct Payment Scheme.
What form is needed for banks to process IHT payments?
PRs need to provide the bank with an IHT 423 form.
What is a disadvantage of using life assurance for IHT payment?
The process is not quick and may not be suitable if PRs urgently need to obtain the grant.
What is the maximum value of any one asset that may be released without a grant of probate?
The maximum value is up to £5,000.
What does the Administration of Estates (Small Payments) Act 1965 allow?
It allows certain institutions to release the assets of the deceased to the PRs without sight of a grant of probate.
How can wealthy beneficiaries manage Inheritance Tax (IHT)?
Wealthy beneficiaries may fund the tax from their own resources on condition of repayment from the deceased’s estate.
What types of assets might beneficiaries have received that do not pass by will?
Beneficiaries may have received money in a jointly held bank account or proceeds of a life assurance policy where they are the named beneficiary.
What is the typical condition for banks when offering loans to pay IHT?
Banks will offer loans on the condition that they receive an undertaking from the PRs to repay this.
What is the importance of prompt repayment for loans taken to pay IHT?
Interest will be charged, so prompt repayment is important.
What can be offered in lieu of tax under IHTA 1984?
Items that are pre-eminent for their national, scientific, historic, or artistic interest can be offered in substitution for the tax.
Under what circumstances can PRs obtain a grant on credit?
In exceptional cases where PRs can demonstrate they are unable to pay the IHT in advance.
What is IHT loss relief?
IHT loss relief allows PRs to reduce the IHT liability of the estate by claiming relief when certain qualifying assets are sold.
When can IHT loss relief be claimed?
This is available if the PRs sell the qualifying assets for less than the amount they were valued at death.
How are assets valued at death for IHT purposes?
Assets are valued at their ‘probate value’, which is the price they might reasonably fetch if sold on the open market immediately before death.
What discount may be applied for co-owned land?
A discount of 15% for residential property and 10% for investment property may be applied.
What are excepted estates?
Excepted estates are those that do not require the personal representatives to pay IHT to obtain the grant.
What are the three types of excepted estates?
The three types are small estates, exempt estates, and non-UK domiciled estates.
What defines a small estate?
Small estates are those where the value of the estate plus any chargeable transfers made in the seven years before death is below a certain threshold.
What is the current nil-rate band for inheritance tax?
The current nil-rate band is £325,000, or £650,000 if a spouse has pre-deceased the testator and transferred their entire nil-rate band to the testator.
What are the detailed requirements for the nil-rate band?
The deceased must have died whilst domiciled in the UK, and the total value of the estate, specified transfers, and specified exempt transfers must not exceed the nil-rate band threshold.
What constitutes ‘specified transfers’?
Specified transfers include LCTs and PETs made in the seven years before death, excluding transfers of exempt property such as quoted shares.
What is the maximum value of ‘settled property’ before death?
The total value of settled property must not exceed £250,000.
What is the limit for property situated outside the UK?
The total value of the deceased’s property situated outside the UK cannot be more than £100,000.
What is an ‘exempt estate’?
An estate is an ‘exempt estate’ if the full value above the nil-rate band attracts the spouse exemption or the charity exemption.
What are the requirements for an estate to be considered exempt?
The deceased must have died whilst domiciled in the UK, and the total value of the estate, specified transfers, and specified exempt transfers must not exceed £3 million for deaths occurring on or after 1 January 2022.
What is the taxable value limit after deductions for an exempt estate?
After the deduction of liabilities and the relevant exemption, the taxable value of the estate must not exceed the nil-rate band: £325,000, or £650,000 if a spouse has pre-deceased the testator and transferred their entire nil-rate band.
What is the maximum value of settled property before death?
The total value of settled property immediately before death must not exceed £1,000,000.
What is the limit on settled property passing to non-spouses or charities?
No more than £250,000 of settled property must pass to anyone other than a spouse or charity on death.
What is the maximum value of the deceased’s property situated outside the UK?
The total value of the deceased’s property situated outside the UK cannot be more than £100,000.
What happens if a spouse who predeceased the testator transfers their nil-rate band?
The amount transferred can be taken into account up to a maximum of an additional £325,000.
What is required for the threshold to be increased for deaths before 1 January 2022?
The spouse must transfer the whole of their nil-rate band.
When does the taxpayer not have to pay any IHT if the spouse died leaving their entire estate?
The taxpayer will not have to pay any IHT if the small estate is valued at anything less than £650,000 or if the spouse or charity exemption applies so that the taxable value of the estate is less than £650,000.
What happens if the spouse died leaving half of their estate to the taxpayer?
The taxpayer will inherit half of the spouse’s nil-rate band (£162,500) and will not have to pay any IHT if the total of the taxpayer’s estate, plus any chargeable transfers made in the seven years before death, is valued at anything less than £487,500 or if the spouse and/or charity exemption applies so that the taxable value of the estate is less than £487,500.
What qualifies an estate as an excepted estate for a person who died domiciled outside of the UK?
The gross value of the estate must not exceed £150,000, and the deceased must not have been beneficially entitled to any UK residential land owned through a close company or partnership, nor made any chargeable transfers during the seven years ending with their death.
What is the procedure for obtaining the grant where the estate is an excepted estate if the death occurred before January 2022?
The PRs will need to file an IHT205 with the Probate Service.
What is the procedure for obtaining the grant where the estate is an excepted estate if the death occurred on or after January 2022?
The PRs provide information as to the value of the estate for Inheritance Tax purposes on the forms to the Probate Service, which must then pass these to HMRC within one month.
What happens if HMRC requests additional information after the grant is issued?
HMRC has 60 days from the date of issue of the grant to ask for additional information. If no request is made, the estate receives automatic clearance.
What must PRs do if the estate is subsequently found to not be excepted?
The PRs must submit the IHT400 within six months of the date of discovery.
What are caveats and citations?
Caveats and citations are specific procedures used to pause or challenge the probate process.
What is the purpose of a caveat?
A caveat prevents the issuing of a grant of representation and puts a hold on the probate process for six months.
Why are caveats usually used?
Caveats are used due to disputes over who has the right to administer the deceased’s estate or the validity of the will.
How is a caveat made?
A caveat is made using Form PA8A and requires a fee of €3.
What is a citation?
A citation is a formal request requiring someone entitled to take the grant of probate to accept the role of executor.
What happens if the executor fails to respond to a citation?
If the executor fails to respond, a substitute will be appointed.
What is a citation to take probate?
A citation to take probate compels a named executor who is not applying for probate to apply for the grant.
What is the outcome if the executor does not apply after a citation to take probate?
The applicant can apply to the court for an order allowing the executor to be passed over.
What is a citation to accept or refuse a grant?
It formally calls upon a person entitled to the grant to either accept or refuse their right to administer the estate.
What happens if the person entitled to the grant does not respond to a citation to accept or refuse?
If they do not respond, the grant may be issued to the applicant.
What is an alternative to a citation?
An applicant can apply to the Probate Service for a court order passing over the person with the right to the grant.
Why might a court order be preferable to a citation?
A court order passes over the person entirely, avoiding the complications of compelling an unwilling person to take the grant.
