The Lemon Fool

On the grant of probate it gives the "gross value of the estate", and I'm not sure what this includes or leaves out.

I believe these would be included: Cash, shares, investment funds, cars, other property, house.
Not Included: Drawdown pension

Not sure:
Share of small family business (limited company)? As far as I know this is not taxable. Don't know if it is included.
Inheritance Tax paid? Is that taken off or included?

I have incomplete information and have to put some big plugs in my spreadsheet to get to the gross value.
Difference between gross and net is just 6k. Expect that was funeral cost.

https://www.gov.uk/guidance/work-out-wh ... itance-tax

Gross value is everything owned by the deceased a moment after death. Regardless of whether it is taxable or not. Plus half of all jointly owned items (for tax purposes only). So yes, that includes the value of shares in a private company.

Net value is where you remove exemptions, like funeral costs or left to charities or a spouse. Shares is a private plc would usually qualify for exemption, provided it is classed as a "trading" company, and not an "investment" company. Talk to the company accountant for confirmation. They may also be able to help with a valuation, as valuing small private companies can be difficult.
https://www.trethowans.com/insights/com ... r%20estate.

Then you apply NRB and RNRB and calculate the actual tax to be paid.

Then you pay the tax. Tax paid does not reduce the value of the "taxable" estate.

---
Pensions and life insurance are tricky, cos it depends how they are setup. Typically the benefits revert directly to the beneficiary on death, and do not form part of the estate (even gross). But sometimes they pass to the estate. It depends on the exact mechanism of your scheme. Probably best to talk to the Pension scheme operator.

Gryff

Probate gross value is the value of everything solely owned by the deceased.
It would not include the value of a house unless it was solely owned or a part share owned via tenancy in common.
And a house that is owned as joint tenants cannot enter Probate because it cannot be left by Will.

The IHT gross value includes the value of everything the deceased owned or their share of anything partly owned. This would include marital assets such as a family car, furniture, shared bank accounts, shared investments and so on.

Thanks to you both.

I'm sure the pension was not in the Probate gross value - it was paid out months ago, while probate was granted only last week.

I am confused about the house. It was jointly owned (50/50) by the deceased and a life partner (they were not married). The will has lots of verbiage about it. Basically, if the partner does not want to buy the share (she doesn't), she can live there as long as she wants. The value of the half share goes to the will's beneficiaries when she dies or sells it.

House worth 400k (say). Deceased share is 200k.
Is that 200k included in the Probate gross value?
For IHT purposes, is it 200-175=25k?

AdrianC wrote:I am confused about the house. It was jointly owned (50/50)

No. It is EITHER
Jointly owned - in which case the deceased's share reverts automatically to the co-owner. Irrelevant what the will says. (Half value still included for tax.)
OR
Tenants-in-common 50/50. In which case it matters what the will says about the deceased's half.

How can you tell which? For tenants-in-common the deeds (available from Land registry for c£4) will contain a phrase such as "No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court"
(Assuming England. Rules are different in Scotland)

Either way, half value included in Gross value, AND net (since it is not left to a spouse).
The allowances come off AFTER the gross and net calculations for probate/tax, but before the tax is paid.

Gryff

I checked with the land registry and the house is tenants-in-common.

gryffron wrote:Either way, half value included in Gross value, AND net (since it is not left to a spouse).
The allowances come off AFTER the gross and net calculations for probate/tax, but before the tax is paid.

It's making sense now, the probate gross value, net value and the IHT amount. Not that it makes any difference to the outcome, I just like to understand.

Thanks again.

AdrianC wrote:I checked with the land registry and the house is tenants-in-common.

gryffron wrote:Either way, half value included in Gross value, AND net (since it is not left to a spouse).
The allowances come off AFTER the gross and net calculations for probate/tax, but before the tax is paid.

It's making sense now, the probate gross value, net value and the IHT amount. Not that it makes any difference to the outcome, I just like to understand.

Thanks again.

Given the joint ownership of the house and that they were not married, it would be standard to discount the value of house for IHT purposes. HMRC will, I think, normally accept a 15% discount in this situation.

genou wrote:Given the joint ownership of the house and that they were not married, it would be standard to discount the value of house for IHT purposes. HMRC will, I think, normally accept a 15% discount in this situation.

The house is held tenants-in-common, so does this apply?

AdrianC wrote:

genou wrote:Given the joint ownership of the house and that they were not married, it would be standard to discount the value of house for IHT purposes. HMRC will, I think, normally accept a 15% discount in this situation.

The house is held tenants-in-common, so does this apply?

Yes. I think genou meant "shared". The reason is that the 50% share of the house would not have full resale value with a legal sitting occupant (the co-owner).

Hard to see how this could apply to joint ownership. Since the occupier would become the 100% owner, and thus not have such a restriction .

Gryff

gryffron wrote:

AdrianC wrote:The house is held tenants-in-common, so does this apply?

Yes. I think genou meant "shared". The reason is that the 50% share of the house would not have full resale value with a legal sitting occupant (the co-owner).

Hard to see how this could apply to joint ownership. Since the occupier would become the 100% owner, and thus not have such a restriction .

Gryff

Yes, I meant tenants-in-common. I don't think in English law terms, so apologies. But the IHT discounting will apply.

Makes sense.

In practice:
Tenants-in-common 50/50.
House worth 400k (say).
Deceased share is 200k.
The 200k is included in the Probate gross value.
A 15% discount should apply for IHT.

For IHT purposes, is the house value likely to be 200*.85 = 170k?
Then apply the 175k exemption (inheritors are children of the deceased), so no IHT to pay on the house share?

AdrianC wrote:Then apply the 175k exemption (inheritors are children of the deceased), so no IHT to pay on the house share?

Oh boy, this stuff is complicated. There's a better solution, possibly.

I understand that even though mum died 30+ years ago, since dad never remarried and mum left nothing, mum's NRB is still available (325k).
Is mum's RNRB also available (175k), even though she never lived in the house in question?

AdrianC wrote:

AdrianC wrote:Then apply the 175k exemption (inheritors are children of the deceased), so no IHT to pay on the house share?

Oh boy, this stuff is complicated. There's a better solution, possibly.

I understand that even though mum died 30+ years ago, since dad never remarried and mum left nothing, mum's NRB is still available (325k).
Is mum's RNRB also available (175k), even though she never lived in the house in question?

I think that the amount of your mum's NRB is that which applied when she died, not the current rate. Historic rates can be found at https://www.gov.uk/government/publicati ... rest-rates. The residential nil rate band only applies to those who died after 5th April 2017.

SebsCat wrote:I think that the amount of your mum's NRB is that which applied when she died, not the current rate. Historic rates can be found at https://www.gov.uk/government/publicati ... rest-rates. The residential nil rate band only applies to those who died after 5th April 2017.

Hi SebsCat, I'm afraid I disagree with both points here.

Transferable NRB is a PERCENTAGE of the unused allowance at that time. So if mum left everything to dad when she died, hence used 0% of her NRB, then 100% of her NRB is still available to be used. So that would now be worth £325k * 100%. Obviously, if mum used some of her NRB to leave bequests to children/family/friends, then that PERCENTAGE of the NRB at the relevant time would have been used up.
https://www.mandg.com/pru/adviser/en-gb ... band-facts

For RNRB, it doesn't matter when the first death occurs. This gov link states that explicitly.
https://www.gov.uk/guidance/inheritance ... -threshold

Where the first of the couple died before 6 April 2017 their estate would not have used any of the residence nil rate band as it was not available. So 100% of this tax-free allowance will be available for transfer unless their estate was worth more than £2 million and the residence nil rate band is tapered away.

(Though Adrian has already said he doesn't actually need it)

Gryff

Thanks, gryffron. I was about to post something similar, even the same links!

gryffron wrote:

SebsCat wrote:I think that the amount of your mum's NRB is that which applied when she died, not the current rate. Historic rates can be found at https://www.gov.uk/government/publicati ... rest-rates. The residential nil rate band only applies to those who died after 5th April 2017.

Hi SebsCat, I'm afraid I disagree with both points here.

Transferable NRB is a PERCENTAGE of the unused allowance at that time. So if mum left everything to dad when she died, hence used 0% of her NRB, then 100% of her NRB is still available to be used. So that would now be worth £325k * 100%. Obviously, if mum used some of her NRB to leave bequests to children/family/friends, then that PERCENTAGE of the NRB at the relevant time would have been used up.
https://www.mandg.com/pru/adviser/en-gb ... band-facts

For RNRB, it doesn't matter when the first death occurs. This gov link states that explicitly.
https://www.gov.uk/guidance/inheritance ... -threshold

Where the first of the couple died before 6 April 2017 their estate would not have used any of the residence nil rate band as it was not available. So 100% of this tax-free allowance will be available for transfer unless their estate was worth more than £2 million and the residence nil rate band is tapered away.

(Though Adrian has already said he doesn't actually need it)

Gryff

Thanks, happy to be proved wrong on both counts!

Another question...is it possible that only part of a limited company shareholding would have 100% business relief, while another part would be fully taxable for IHT?

This is a manufacturing company that also happens to own a residential house, rented out. The rent is probably negligible compared to the main company revenue. I suspect the house was revalued and included in the calculation for IHT.

Not certain, but I don’t think so. The company is defined as one or the other. There is threshold of permitted investment income, usually taken as 20%. Rent is investment income, not trading income. If the rent is “trivial”, as you say (which HMRC define as <20%), then the whole is still a trading company.

Gryff

Thanks. For the most part I have only publicly available information.
I'll find out eventually, I expect. Not that it makes any difference to the outcome.

gryffron wrote:https://www.gov.uk/guidance/work-out-what-part-of-your-estate-pays-inheritance-tax

Gross value is everything owned by the deceased a moment after death. Regardless of whether it is taxable or not. Plus half of all jointly owned items (for tax purposes only). So yes, that includes the value of shares in a private company.

Net value is where you remove exemptions, like funeral costs or left to charities or a spouse. Shares is a private plc would usually qualify for exemption, provided it is classed as a "trading" company, and not an "investment" company.
…
Gryff

Gryff,
I just re-read the above. I’m certain the shares in the private company do qualify for an exemption from IHT. I’m also pretty sure their value is included in the gross and net probate value. Does that make sense? There is only a £6k difference between gross and net. The company accounts available online show net assets of over £1m. Dad owned 42% of the shares. His shares won’t be worth 42% of company assets - there’s likely discounts applied due to lack of control and marketability. They are worth more than £6k, though!

Am I missing something?

Thanks.