Death duty question
Discussion
Hi
I have a question regarding Death Duty.
I understand this amount is calculated on the estate on date of death.
If upon death there are shares in the estate to the value of (lets say) £100 and the IH tax = £40 and this tax is paid immediately.
After probate the shares are sold, but their value is now only £80. Am I correct that inheritance tax relief can be applied for on the £20 'loss' (so 40% of £20 = £8?)
Likewise, if the shares had gone up, is there extra IHT to pay?
I have a question regarding Death Duty.
I understand this amount is calculated on the estate on date of death.
If upon death there are shares in the estate to the value of (lets say) £100 and the IH tax = £40 and this tax is paid immediately.
After probate the shares are sold, but their value is now only £80. Am I correct that inheritance tax relief can be applied for on the £20 'loss' (so 40% of £20 = £8?)
Likewise, if the shares had gone up, is there extra IHT to pay?
IHT is calculated as at the date of death so in theory that’s the final number. However, you can apply for a refund if an asset ultimately sells for a lower value although I think any refund is discretionary.
If there is a gain from the IHT valuation to final realised amount I think that would be classed as a capital gain and so would get hit tor 20% not the 40 that IHT suffers (after allowances in each case).
If there is a gain from the IHT valuation to final realised amount I think that would be classed as a capital gain and so would get hit tor 20% not the 40 that IHT suffers (after allowances in each case).
Steve H said:
IHT is calculated as at the date of death so in theory that’s the final number. However, you can apply for a refund if an asset ultimately sells for a lower value although I think any refund is discretionary.
If there is a gain from the IHT valuation to final realised amount I think that would be classed as a capital gain and so would get hit tor 20% not the 40 that IHT suffers (after allowances in each case).
I have not heard of retrospective refunds but interested to hear.If there is a gain from the IHT valuation to final realised amount I think that would be classed as a capital gain and so would get hit tor 20% not the 40 that IHT suffers (after allowances in each case).
A lot of people ask for professional valuations to keep the property value low for probate when under the iht threshold…then get hit with CGT later. Much better to maximise the allowance with a genuine valuation.
12 month window on any loss incurred on shares.. IHT35
https://www.gov.uk/government/publications/inherit...
48 months on land/property…IHT38
https://www.gov.uk/government/publications/inherit...
https://www.gov.uk/government/publications/inherit...
48 months on land/property…IHT38
https://www.gov.uk/government/publications/inherit...
Edited by Mogul on Monday 27th February 21:25
Caddyshack said:
A lot of people ask for professional valuations to keep the property value low for probate when under the iht threshold…then get hit with CGT later. Much better to maximise the allowance with a genuine valuation.
But IHT is 40%, CGT is 10% (I think). So if you have the choice, take the CGT, no?Simpo Two said:
Caddyshack said:
A lot of people ask for professional valuations to keep the property value low for probate when under the iht threshold…then get hit with CGT later. Much better to maximise the allowance with a genuine valuation.
But IHT is 40%, CGT is 10% (I think). So if you have the choice, take the CGT, no?How does it work when a house sells for a materially different amount than the professional valuation for probate?
Let’s say a house is valued at £1.5m and IHT paid on that basis for probate, but then 3-4 months later actually sells for £1.3m. Is there a refund of £80k? (£200k x 40%)
Similarly in the other direction, what if the house is valued at £1.5m but actually sells for £1.7m, is there another £80k to pay?
I assume “yes” in both cases but don’t know how it actually works.
Let’s say a house is valued at £1.5m and IHT paid on that basis for probate, but then 3-4 months later actually sells for £1.3m. Is there a refund of £80k? (£200k x 40%)
Similarly in the other direction, what if the house is valued at £1.5m but actually sells for £1.7m, is there another £80k to pay?
I assume “yes” in both cases but don’t know how it actually works.
I am not an expert.
When my mums estate went through probate (my dad having died about twenty years previously) the house sold for more than the valuations (about £770k vs £700k), but some shares lost value.
The extra on the house was subject to capital gains - the Revenue were happy that we had not made a deliberate attempt to underdeclare its value), the solicitors got a tax refund on the IHT applied to the shares, which was more than they charged for the time to do it.
When my mums estate went through probate (my dad having died about twenty years previously) the house sold for more than the valuations (about £770k vs £700k), but some shares lost value.
The extra on the house was subject to capital gains - the Revenue were happy that we had not made a deliberate attempt to underdeclare its value), the solicitors got a tax refund on the IHT applied to the shares, which was more than they charged for the time to do it.
Simpo Two said:
Steve H said:
the estate may end up well below the £650k-1m IHT threshold anyway
£650K I can understand in the case of a married couple (if Spouse 1 leaves 100% to Spouse 2), but how do you get it to £1M?On the subject of Death Duty, what's the Window Tax allowance now?
It is actually fairly simple to increase that figure too if timing and planning allows.
Example: Mr and Mrs write a Will to leave their nil rate band to a family trust and nominate who benefits from the enhanced nil rate band (therefore 2x £500k) Any residue is left via Interest In Posession. If there is a decent chunk of cash in the estate on first death you can trigger use of a £325k nil rate band as the survivor can move money to beneficiaries - it is hard to explain and there are a lot of things to be aware of but a competent STEP qualified advisor can deal with it and map out the pros and cons.
This can also help protect the property from long term care as the survivor no longer owns a whole property and therefore the property is removed from the means testing - no deprivation of assets has occurred as the survivor did not put that side of the planning in place - it was the deceased. This also protects this part / their side of the estate for blood line erosion if the survivor re-marries.
It can also help the future beneficiaries as the money can pass from generation to generation free of future IHT and the trust does not attract periodic and exit charges if the trust remains under the nil rate band.
Loans to survivors can also be used to allow spending of the cash outside of the estate and then repaid on death to avoid the IHT for the next generation.
I do not arrange these - but I have used the planning and I know a great guy in this business.
Simpo Two said:
Caddyshack said:
A lot of people ask for professional valuations to keep the property value low for probate when under the iht threshold…then get hit with CGT later. Much better to maximise the allowance with a genuine valuation.
But IHT is 40%, CGT is 10% (I think). So if you have the choice, take the CGT, no?Caddyshack said:
Yes, but why value a property worth around £1m at say 750k if you have used the proper allowances and then sell it for £1m and pay CGT at 20% on the uplift from 750k to £1m on disposal. Whereas use £1m in probate and not pay any CGT on sale.
Yebbutt - that assumes you have £1M IHT allowance to spend. I'm not sure the OP has.Simpo Two said:
Caddyshack said:
Yes, but why value a property worth around £1m at say 750k if you have used the proper allowances and then sell it for £1m and pay CGT at 20% on the uplift from 750k to £1m on disposal. Whereas use £1m in probate and not pay any CGT on sale.
Yebbutt - that assumes you have £1M IHT allowance to spend. I'm not sure the OP has.Gassing Station | Finance | Top of Page | What's New | My Stuff