Question on who pays inheritance tax.

[Amethyst]

I'm going round in circles and don't know for certain the answer so if someone does and could point me to the right legislation I'd be very grateful.

Married Couple - spouse not accounted for specifically in will. Daughter has a cash legacy of £500k. Residual estate (inc property) about £1m which goes to the spouse.

Does the IHT come out of the daughters £500k or from the residual estate ? Or does it comes from the entire estate ( although the £1m is free from IHT as it goes to spouse ) then proportionally applied to the daughters inheritance and residual estate ?

Basically is the burden on the daughter ? ( so would she lose the £70k and only receive £430k ? )

[R0b]

Re: Question on who pays inheritance tax.

Yes, it would come out of the £500k but bear in mind the spouse also gets half of the remainder of the share so the daughter will only be entitled to half of the £430k as the spouse has a life interest on that half.

[Amethyst]

Re: Question on who pays inheritance tax.

Even if the £500k is a specific legacy ?

[R0b]

Re: Question on who pays inheritance tax.

Sorry my bad was thinking of intestacy rules, although it could apply if the will was deemed invalid, otherwise the spouse will be entitled as under intestacy rules. spouse could make an application under the Inheritance (Family and Dependants) Act if the spouse feels they are not satisfied with the amount of inheritance.

[Amethyst]

Re: Question on who pays inheritance tax.

I think the spouse is happy with the house and £300k odd left in the residual estate after the £500k goes to the Daughter. Just wasn't sure if the £70k IHT came off the £500k or the whole caboodle before distribution ( and then how much the Daughter would actually get)
So I think Daughter gets £430k cash and Spouse gets residual estate ( house & £300k cash IHT free) and tax man gets £70k.

Actually if it makes a difference it's partial intestacy as spouse isn't mentioned in will, it is literally just Daughters £500k listed - not even a 'and my spouse gets everything else' bit. (tsk!)

Thanks for your help xx

[Openlaw15]

Re: Question on who pays inheritance tax.

I'm going round in circles and don't know for certain the answer so if someone does and could point me to the right legislation I'd be very grateful.

Married Couple - spouse not accounted for specifically in will. Daughter has a cash legacy of £500k. Residual estate (inc property) about £1m which goes to the spouse.

Does the IHT come out of the daughters £500k or from the residual estate ? Or does it comes from the entire estate ( although the £1m is free from IHT as it goes to spouse ) then proportionally applied to the daughters inheritance and residual estate ?

Basically is the burden on the daughter ? ( so would she lose the £70k and only receive £430k ? )

Amended:

This is not a property law query but a tax law query. One of the main laws will be the Inheritance Act 1984 notwithstanding its associated statutory instruments/ Regulations. The testator/ testatrix's estate could be charged or the transfer on the gift to the daughter. The rules are complicated but in general it is based on the transferee (daughter) rather than the transferor (deceased's person's estate, or what's left, ie the residue. The daughter it seems likely will be subject to inheritance tax on the transfer from the testator/ other of the £500k. The same applies for the spouse but based on the £1 million residue including the property. If the property were jointly owned as the survivor already owned the property with the deceased, am not sure if inheritance tax is applicable. The estate minus the property will likely be subject to inheritance rules if it is above the threshold value.

[Openlaw15]

Re: Question on who pays inheritance tax.

I think the spouse is happy with the house and £300k odd left in the residual estate after the £500k goes to the Daughter. Just wasn't sure if the £70k IHT came off the £500k or the whole caboodle before distribution ( and then how much the Daughter would actually get)
So I think Daughter gets £430k cash and Spouse gets residual estate ( house & £300k cash IHT free) and tax man gets £70k.

Actually if it makes a difference it's partial intestacy as spouse isn't mentioned in will, it is literally just Daughters £500k listed - not even a 'and my spouse gets everything else' bit. (tsk!)

Thanks for your help xx

If there is a Will it cannot be intestate....with some exception ie if there were no executors etc. You said the residue goes to spouse so he/ she must have been mentioned?

[enaid]

Re: Question on who pays inheritance tax.

A little twist on this if 3 little words are added in the will

Leaving a gift ‘free of tax’

The value of an estate, tax thresholds and tax rates all change over time and can make the final amount of a gift uncertain. Instead you can opt to leave someone a specific amount ‘tax free’. The tax is then paid by the estate.
In this case HMRC applies a calculation called grossing up when assessing the taxable value of the estate. The exact grossing up calculation will depend on the rate of inheritance tax that will be applied to the estate.
Example

You die with an estate valued at £600,000 with no additional relief from tax applicable. No gifts made in your lifetime need to be considered. In your will you leave:

• £367,000 to your daughter ‘tax free’
• the remaining amount (the residue) to your widow

The first £325,000 of the gift to your daughter will be exempt from tax.
The rest of the gift (£42,000) is chargeable for inheritance tax at the rate of 40%. Applying the grossing up calculation gives a grossed up chargeable value of £70,000.
Adding this back to the tax free threshold (£70,000 + £325000) gives the grossed up value of the gift (£395,000).
Your daughter then receives £367,000 from the estate with no tax to pay.
The estate residue pays the £28000 tax due, leaving £205,000 for your wife.

https://www.gov.uk/guidance/work-out-what-part-of-your-estate-pays-inheritance-tax#leaving-a-gift-free-of-tax

[Openlaw15]

Re: Question on who pays inheritance tax.

A little twist on this if 3 little words are added in the will

Leaving a gift ‘free of tax’

The value of an estate, tax thresholds and tax rates all change over time and can make the final amount of a gift uncertain. Instead you can opt to leave someone a specific amount ‘tax free’. The tax is then paid by the estate.
In this case HMRC applies a calculation called grossing up when assessing the taxable value of the estate. The exact grossing up calculation will depend on the rate of inheritance tax that will be applied to the estate.
Example

You die with an estate valued at £600,000 with no additional relief from tax applicable. No gifts made in your lifetime need to be considered. In your will you leave:

• £367,000 to your daughter ‘tax free’
• the remaining amount (the residue) to your widow

The first £325,000 of the gift to your daughter will be exempt from tax.
The rest of the gift (£42,000) is chargeable for inheritance tax at the rate of 40%. Applying the grossing up calculation gives a grossed up chargeable value of £70,000.
Adding this back to the tax free threshold (£70,000 + £325000) gives the grossed up value of the gift (£395,000).
Your daughter then receives £367,000 from the estate with no tax to pay.
The estate residue pays the £28000 tax due, leaving £205,000 for your wife.

https://www.gov.uk/guidance/work-out-what-part-of-your-estate-pays-inheritance-tax#leaving-a-gift-free-of-tax

It makes sense as the state one way or another wants the inheritance tax. It seems unlikely the testator would want the estate taxed as that will mean less value and more likely to have intended for the gift when transferred to attract tax then, ie against the beneficiary.