Wills and Administration of Estates Flashcards
What are the three main occasions on which IHT may be charged?
a) Death
b) Lifetime gifts made to individuals within seven years prior to death
c) Lifetime gifts to a company or into a trust.
Immediately chargeable to IHT at the time when it is made, unless the trust is for a disabled person.
What is the method by which IHT is calculated?
- Identify the transfer of value
- Find the value transferred
- Apply any relevant exemptions and reliefs (e.g. transfers to a spouse or civil partner)
- Calculate the tax at the appropriate rate
What are the tax rates of IHT?
A range of tax rates apply to IHT, the lowest being zero per cent. There are two bands for which this is relevant:
(a) the nil rate band (£325,000 for 2023/24 and frozen until 2027/28) - available for all transfers of value
(b) the residence nil rate band (£175,000 for 2023/24 and frozen until 2027/28) - available on a transfer on death where there is a qualifying residential interest
The rate of tax that applies in excess of the nil rate band and the residence nil rate band (where applicable) varies according to the type of transfer
What is the definition of ‘estate’?
A person’s estate is defined as all the property to which the deceased was beneficially entitled immediately before their death, with the exception of ‘excluded property’.
What property is included in a person’s estate by statute?
Trust property
- In certain circumstances, a person who is entitled to the income from a trust is treated for IHT where a beneficiary who is entitled to all the income from such a trust dies, the trust fund is taxed as if it were part of the beneficiary’s estate.
“qualifying interest in possession”
Property subject to a reservation
- This rule applies where the deceased gave away property during their lifetime but did not transfer ‘possession and enjoyment’ of the property to the donee or was not entirely excluded from enjoying the property.
- If property is subject to a reservation at the time of the donor’s death, the donor is treated as being beneficially entitled to the property.
What property would be outside the estate for IHT purposes?
Property which the deceased did not have a beneficial interest in immediately before death. Common examples are:
- life assurance policy once it is written in trust for a named beneficiary
- discretionary lump sum payment from pension fund to deceased’s family
Excluded property under IHTA 1984 is also out of scope.
- e.g. reversionary interest - future interest under a settlement
How are properties in the estate valued?
At ‘the price which the property might reasonably be expected to fetch if sold in the open market’ immediately before the death.
To allow for the difficult in selling a share of jointly owned land, its value may be discounted. Normally up to 10% for commercial property and 15% for residential property. Higher may be allowed if the share in the property is very small.
However, if the death causes the value of an asset to increase or decrease, that change in value should be taken into account.
How do you value quoted shares?
The Stock Exchange Daily Official List (on date of death) quotes two prices.
You take one-quarter of the difference between the lower and higher price and add it to the lower price.
Is anything deductible when valuing an estate for IHT purposes?
Liabilities owed - i.e. gas and telephone bills, funeral expenses.
What is the exception to the spouse or civil partner exemption for IHT?
If the transferor is domiciled in the UK but the transferee is not, the level of exemption is limited to £325,000. But the transferee can elect to be treated as UK-domiciled and receive the full exemption.
Is charity exempt from IHT?
Yes - any property forming the deceases estate which ends up passing to charity is exempt.
Similar exemption applies to certain national bodies and bodies providing a public benefit.
When large charity gifts are made by the deceased, not only is the transfer itself exempt but it may effect the tax rate on the rest of the death estate.
Who will be the personal representatives?
Valid will with willing executors - executors will obtain grant of probate.
Valid will with no willing executors - administrators will obtain grant of letters of administration (usually the residual beneficiary)
No valid will - administrators will obtain grant of (simple) letters of administration (usually the main beneficiaries on intestacy).
How many PRs must there be?
One PR may obtain a grant and act alone, even if the estate includes land which may be sold.
In contrast, where trustees sell land, the purchases will insist on a receipt from all trustees being at least two in number or a trust corporation.
Where do PRs get their authority from?
Executor - from the will.
Administrators - grant of administration.
What assets may pass to the PRs without a grant?
Persons beneficially entitled to assets might not need a grant. This is not available if the asset exceeds £5,000 and, as the payments are made at the discretion of the institutions concerned, it is not possible for PRs to insist that payments should be made. These can include:
- money in the National Savings Bank and Trustee Savings Bank (not in other banks);
- National Savings Certificates and Premium Bonds; and
- money in building societies and friendly societies.
Chattels can normally be sold without PRs having to formally prove they are entitled to sell such items.
Cash does not require a grant to take custody of.
What assets do not pass through the personal representative’s hand?
Joint property
Insurance policies assigned or written in trust
Pension benefits
What must be done before a grant is obtained?
Any IHT paid that is payable.
How long should be allowed between submission of IHT400 to HMRC and the application of the grant?
20 working days
How are postal applications for grant of letters of administration made?
By post (online if certain conditions met).
Made be sending completed from PA1P if there is a will or PA1A where there was no will.
Fee for paper applications is by cheque. Online, the firm must open a ‘HMCTS Payment by Account’.
The fee is currently £273 where the estate exceeds £5,000. There is no fee if the estate is less.
One free copy of grant, extra copies cost £1.50.
What documents are required to be sent to obtain a grant?
Deceased’s will and codicil, if any, to HMCTS.
May require further evidence of validity of the will.
- If no attestation clause/defective one, doubt raised about execution - evidence from attesting witness may be necessary. Doctor re mental capacity.
