Question archive: inheritance tax

During the last tax year I received income from two estates. The first was a one third share of the residue after creditors etc were satisfied. The second was the residue of my mother's estate (of which I was also executor) after three specific bequests were paid. This involved the sale of a house which was necessary to provide the bequests. How do I declare these items on the tax return and is there a CGT implication for the sale of the house?

If the house had to be sold to meet bequests then itwill have been sold at a time when the estate was still in administration so the CGT falls onto the shoulders of the personal reps/executors and not you as an individual (your role as an executor is completely separate from the fact that you are a beneficiary of the estate). The house will have been rebased on death, i.e. the acquisition cost to the personal reps/executors is the market value of the property at the time of your mother's death therefore there is unlikely to be a huge gain. A tax return will need to be filed by the executors to report this gain (depending on the figures) - have a word with the tax office or the solicitor dealing with the estate.

How can my mother give my sister and me cash?

A Deed of Family Arrangement could be used to transfer assets up to the inheritance tax limit to you and your sister free of IHT. There is a 2 year time limit.

Is it possible to have Government Gilt Stock interest paid gross (ie without tax being deducted)?

From 6th April 1998 all gilt interest is paid gross (ie without tax being deducted), although the option of having tax deducted at source continues to be available to those who require it.

If your total taxable income from all sources for the year is less than your personal allowances, you can make a claim to have your Gilt interest paid without the deduction of tax at source. However, if you make the claim and your total income for the year exceeds your personal allowances, you will have to pay tax to the Inland Revenue on the gross interest received.

If you do not currently submit a self assessment tax return form, having your interest paid gross will mean you will have to file a tax return under the self assessment rules, if you are liable.

Is it true my sons will have to pay the tax on our bungalow when we die before they can sell it ?

If the estate of any one exceeds the exempt amount then tax is due at 40% on the balance.

Normally, if the property is transferred to them without reservation of benefit to you ( ie you then pay a rent to them for continued residence) and you outlive this transfer by 7 years, no IHT is payable. But if you were both to die before the 7 years is up, the property would be treated as having been passed over on your later death at the then market value. If your sons decided to sell the property immediately, full IHT @ 40% of the excess value over the exempt amount would be payable. If however they hung on to the property, they can pay the IHT by annual instlaments over a 10 year period with interest @ 3% being charged on the outstanding balance still outstanding

If the value of the whole Estate including monies, savings and property is under the exempt amount, then no IHT is payable.

We bought a second property a few years ago as an investment property and have let it out since. Would we have tax to pay if we give the property to our son as a lifetime gift as a PET?

As a straight gift to your son the transfer will be a PET as you describe. However, CGT may be due based on the excess of market value over cost (but take into account indexation and taper relief if appropriate). You may consider a transfer into trust in order to hold over the capital gain. All in all it is not possible to give a definitive reply as further info is needed and there are many possible alternatives depending on your own and your son's tax position.

Will a Deed of family arrangement work between an aunt and her nephews/nieces?

A deed of variation is not limited to family members but, effectively, requires the agreement of the persons who benefited under the terms of the Will and would benefit under the terms of the variation. Provided the time limit for the Deed, 2 years from the date of death, and the Notice to the Board of the Inland Revenue, 6 months from the date of the Deed, are complied with this will work. - See Section 142 IHTA 1984.

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