V basic inheritance law question

V basic inheritance law question

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A male individual dies leaving a surviving spouse and son.  His circumstances could hardly be more simple:

His only assets are bank accounts and quoted investments valued at £1000K all held in joint names with his spouse (not as tenants in common).  No house or other complications.

His Will is equally simple:  £325K or such lesser amount as is available in the estate passes to the son, and the balance to the spouse.

So ... How much does the son get:

1) £0
2) £325K
3) Other (explain, please)

With kind regards

Clint Westwood

(PS ignore the posting category "Tax".  Would have selected "Other" but it is not provided as an option)

Replies (27)

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By Manchester_man
20th Nov 2016 21:36

To my mind 325k

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By catlady
20th Nov 2016 22:34

£0 because everything passes to the spouse as it is jointly held.

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By Manchester_man
20th Nov 2016 23:32

Ah, yes. I see that as held jointly the assets will automatically go to the surviving spouse. I have to say, I thought a Will took precedent but I agree that it doesn't. If it were tenants in common, then the son woukd get 325k.

It can be challenged in a court if the son can show that this was not the deceased person's intention. Also, if the assets were contributed to wholly or mainly by one spouse, this can also be a basis on which to mount a challenge.

Interesting.

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By nogammonsinanundoubledgame
21st Nov 2016 06:14

Thanks. We are agreed that the son (normally) gets nothing? Now change the facts slightly. In the original conditions, substitute sibling for spouse throughout.

This presumably has no effect on the original question, but as I understand it there is under the revised conditions an IHT liability assessable on the estate calculated on the full £1000K less nil rate band (which has not been used against any other transactions).

But, as the assets have all passed by survivorship to the surviving sibling in full, does this mean that the estate is insolvent having no assets out of which to pay the IHT bill of 40% x £750K? Or can HMRC go after the sibling?

Thanks

With kind regards

Clint Westwood

Thanks (0)
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By catlady
21st Nov 2016 07:11

If jointly held with the sibling, IHT would only be payable on the deceased's share of the £1000k.

The IHT would be the responsibility of the sibling who inherited.

https://www.gov.uk/tax-property-money-shares-you-inherit/joint-property-...

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Replying to catlady:
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By nogammonsinanundoubledgame
21st Nov 2016 07:15

catlady wrote:

If jointly held with the sibling, IHT would only be payable on the deceased's share of the £1000k, so 40% of (£500k less £325k NRB) or other amount if not held jointly as 50% shares.

The IHT would be the responsibility of the sibling who inherited.


I am pretty confident that I came across somewhere that had the assets included a jointly held residential property that was not held as tenants in common then the whole of value of the property falls in the valuation of the estate because there is no division of beneficial entitlement and he has a beneficial entitlement to the whole of the property. Are you saying that other investment types are treated differently? Or is my confidence misplaced? Happy to accept that the beneficiary would be liable to cough up, however calculated.

With kind regards

Clint Westwood

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Replying to nogammonsinanundoubledgame:
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By catlady
21st Nov 2016 07:24

nogammonsinanundoubledgame wrote:

catlady wrote:

If jointly held with the sibling, IHT would only be payable on the deceased's share of the £1000k, so 40% of (£500k less £325k NRB) or other amount if not held jointly as 50% shares.

The IHT would be the responsibility of the sibling who inherited.

I am pretty confident that I came across somewhere that had the assets included a jointly held residential property that was not held as tenants in common then the whole of value of the property falls in the valuation of the estate because there is no division of beneficial entitlement and he has a beneficial entitlement to the whole of the property. Are you saying that other investment types are treated differently? Or is my confidence misplaced? Happy to accept that the beneficiary would be liable to cough up, however calculated.

With kind regards

Clint Westwood

It is based on who put in the original money. See IHT404. So if the father paid for everything 100%, yes 100% goes into the calculation. As another example, a house held jointly by a cohabiting couple, each paying 50%, only half of the value would be included in the esate of the first death.

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Replying to catlady:
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By nogammonsinanundoubledgame
21st Nov 2016 07:46

I had the impression that the reason (or one of the reasons) for severing a joint tenancy in favour of a tenancy in common in classical advice was to ensure that the valuation of the deceased's estate is limited to his (then) severable share. Is that totally up the spout? It seems so if he is only charged on his equal proportionate share anyway.

Thanks

With kind regards

Clint Westwood

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Replying to nogammonsinanundoubledgame:
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By catlady
21st Nov 2016 08:46

Based on your example, if two people held a property jointly and died together, then each would show 100% ownership on their IHT return. This seems very wrong.

The main reason, that I hear of anyway, to sever a joint tenancy is to allow the share to be left to another party on death.

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Replying to catlady:
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By nogammonsinanundoubledgame
21st Nov 2016 14:19

catlady wrote:

Based on your example, if two people held a property jointly and died together, then each would show 100% ownership on their IHT return. This seems very wrong.

Yes if it is wrong (as is unanimous) then so be it, but to say that it "seems very wrong" is a bit strong to my mind. If I receive an inheritance, it is an inheritance that was included in the estate of the person who died and left it to me. If I then die while still in possession, it would then be included also in my estate.

With kind regards

Clint Westwood

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Replying to nogammonsinanundoubledgame:
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By catlady
21st Nov 2016 17:08

"seems very wrong" as in "seems very wrong that HMRC would have that intention" - no personal slight was intended at all!

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Replying to nogammonsinanundoubledgame:
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By catlady
21st Nov 2016 07:34

another double post.....fat fingers and poor wifi do not make a good combination!

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By catlady
21st Nov 2016 06:59

....double post!

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By catlady
21st Nov 2016 07:12

Apologies, edited my post just as you were posting!

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Portia profile image
By Portia Nina Levin
21st Nov 2016 10:49

The inclusion of the entire property simply because it is held as joint tenants is a nonsense.

On death, you are not valuing what is in the estate. You treat all of the deceased's estate as having been the subject of a disposition immediately prior to death death.

As with any other disposition, everything deemed transferred on death is valued on the loss to donor principle.

If immediately before Fred's death Fred and Mabel held some property worth £500K as joint tenants, then in the event that the property had been sold, Fred would have received £250K.

As a result of Fred's death, Mabel would now receive the whole £500K in the event of a sale, and Fred's executors would receive none.

Thus the loss to the donor (ie the value of the deemed transfer immediately prior to Fred's death is £250K.

Whilst not directly relevant to the OP, there is some useful information in what I call "the other Inheritance Tax Manual".

http://app.voa.gov.uk/corporate/Publications/Manuals/InheritanceTaxManua...

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Replying to Portia Nina Levin:
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By nogammonsinanundoubledgame
21st Nov 2016 14:16

Hi - thanks for this. Leaving aside that I got it from what was told to me by someone in the dim and distant past, and probably misheard by me, there is some twisted logic to the inclusion of 100%, in that the day before he died he would have been entirely within his legal right to write out a check for 100% of the balance of what stood on the joint account. All of it was therefore at his power to dispose of.

But all rather irrelevant - what is, is, just like Brexit.

With kind regards

Clint Westwood

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Replying to nogammonsinanundoubledgame:
Portia profile image
By Portia Nina Levin
21st Nov 2016 17:18

Yes but joint tenants are each other's trustees, and if Fred [***] off (a technical term to indicate permanent departure from the UK) with all of Mabel's money, he would be in breach of trust.

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By Paul Duffill
21st Nov 2016 12:52

Key feature of a 'joint tenancy' is the fact that, on death, a joint tenant's interest passes automatically to the other joint tenant or tenants. This severely restricts the joint tenant's ability to undergo any Inheritance Tax planning since the joint tenancy itself overrides the terms of a Will or a Deed of Variation thereto. (Normally, a deceased's beneficiaries may use a Deed of Variation to vary the terms of their Will within two years of the date of death.

Also you may have phrased your question as £1000K to simplify, however if this does include property there will be Residents Nil Rate Band (RNRB) comes in to play April 17 which will benefit remaining spouse and ultimately estate.

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By itp3asso
21st Nov 2016 13:15

Sorry but are you really
Clint EASTwood?

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By Robert Lovell
07th Dec 2016 16:24

Find out the definitive answer to this question from Tim Good and Giles Mooney in this video clip…

https://www.accountingweb.co.uk/tax/personal-tax/any-answers-answered-in...

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Replying to robertlovell:
Stepurhan
By stepurhan
07th Dec 2016 16:54

robertlovell wrote:

Find out the definitive answer to this question from Tim Good and Giles Mooney in this video clip…

https://www.accountingweb.co.uk/tax/personal-tax/any-answers-answered-inh...

This is the second time you have done this today.

Leaving aside whether plugging TaxTV belong in Any Answers anyway, the phrasing is EXTREMELY disrespectful. There is a lot of good information back and forth above. You are not even acknowledging those answers exist. Indeed, by saying TaxTVs answer is "definitive" you could even be said to be outright dismissing the other advice ("Forget everyone else's advice. TaxTV is all you need")

Any Answers has already suffered badly since the site change. If you're then going to ride roughshod over answers given in good faith, you might as well remove community interaction altogether.

EDIT : THIRD time today! Same wording each time as well. If you weren't a member of site staff I'd already be reporting you as a spammer.

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Replying to stepurhan:
Portia profile image
By Portia Nina Levin
07th Dec 2016 17:00

I think this "definitive" answer is simply an indication that Giles and Tim have nicked all the good stuff out of the thread, and passed it off as their own.

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Replying to stepurhan:
By Robert Lovell
07th Dec 2016 17:37

Sorry my post offended you Stepurhan.

No offence was intended, I just thought it would be useful to bring Giles and Tim’s take on the topic into the answers mix.

Kind regards

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Replying to robertlovell:
Stepurhan
By stepurhan
08th Dec 2016 09:33

robertlovell wrote:

Sorry my post offended you Stepurhan.

No offence was intended, I just thought it would be useful to bring Giles and Tim’s take on the topic into the answers mix.

Kind regards

You posted the same link with the same phrasing three times. That is not bringing something into the mix. That is spamming.

I am also disturbed to note that this video is referred to as "Any Answers Answered". Nice to know AW are directly monetising user content by providing it wholesale to subscription only CPD services.

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paddle steamer
By DJKL
07th Dec 2016 17:40

Like the SNP it is obviously my God given right to intervene in all matters, even when they are purely rUK and nothing to do with me, so whilst evident by inference that the chap is somewhere in rUK, as this is not expressly stated I would point out that the answer to what the son gets would likely be different if North of the Border.

So, did he drink Barr's Irn Bru, where was he domiciled and how may siblings did the mentioned son have; are there others not in the will that are due a share?

http://www.parliament.scot/ResearchBriefingsAndFactsheets/S4/SB_15-45_In...

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Replying to DJKL:
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By nogammonsinanundoubledgame
07th Dec 2016 20:02

Thanks for pointing out the differences between Scotland and England. I should have mentioned that the case of interest to me is only subject to England laws.

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By Taxed to the limit .
14th Jan 2017 10:42

A slight variation in the facts.

What would happen if the parents had gifted the property to themselves and their son as joint tenants and they all paid the living expenses equally.

The son decides to move out of the property more than seven years before the parents died and the parents did not pay the son a full market rent for his one third share of the property.

The son moved out of the property 6 years after the gift.

My understanding is that the gift of the property into joint names is a PET and there is no gift with reservation of benefit at the time of the gift.

Because the parents did not pay a full market rent up to the date they died then there is a gift with reservation at the time of each of their deaths.

When the father dies the house passes to the mother and son under the survivorship rules.

The gift of the 1/6 share to son falls back into the fathers estate for IHT valuation purposes as it is a GROB.

Therefore 2/6 of the open market value of the house plus 1/6 of the open market value of the house less a 10 discount on 3/6 is included for IHT purposes.

1/6 of the open market value of the house less the 10% discount is deducted for IHT purposes as it becomes the spouses under the suvivorship rules and spouse transfers are exempt.

When the mother dies should the whole of the market value of the property less a 10% discount be included for IHT purposes or 4/6 less the 10% discount or 5/6 less the 10% discount?

My confusion it that before the gift the father owns 3/6 of the property and the mother owns 3/6 but when they gifted the property 1/6 of the fathers share and 1/6 of the mothers share became the sons.

When the mother died she legally owned 3/6 of the property which is the same share that she owned before she gifted the property.

The fact that 1/6 was gifted to the son by the mother and 1/6 by the father does not change because the mothers share at death was the same as it was before the gift.

At the time of the mothers death she legally owns 3/6 and there is a gift of reservation as she lived in the property and did not pay the son a full market rent.

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