Tax Problem

[ronwicks]

Where can I obtain good advice on an Inheritance Tax/Income Tax problem that probably involves some mis-administration of an Executorship.  I have tried contacting HMRC but after waiting almost two days for a Tax Advisor to come online I gave up.

[Ethel Street]

I guess you know as you've been a member for many years that CAG forum rules don't allow us to name and recommend specific firms of solicitors or tax accountants but perhaps if you can give us some details people here with experience of executorship and IHT may be able to share their expertise with you.

Edited February 22, 2021 by Ethel Street

[dx100uk]

We have several previous threads here that might help

 

https://www.consumeractiongroup.co.uk/search/?q=Executor&quick=1

 

Tell us your story too

 

Dx

[ronwicks]

Basically the problem is 

My wife and I separated in Sept 2019 and I passed to her some £211.600.   She passed away on 8^th January 2021 and left a Will for her estate to de divided equally among three grandchildren with our daughter A as executor.  A has one daughter and our other daughter has two children.

 

It has come to my attention that ALL of my wife’s funds were transferred to that daughter’s (A) Bank account prior to death, and that some £100,000 had been paid as 4 years advance Boarding School fees for her daughter. 

 

As this large sum of money was transferred to my daughter and/or paid to the benefit of that granddaughter prior to death what, if any, are the tax implications?

 

The two other grandchildren have each received £20,000 from the Aunt’s Bank account, not apparently from the estate, Would this be taxable ^income^ - if so how much – can £7,000 gift be exempt?

[Ethel Street]

Firstly, gifts whether from an Estate or a gift while the giver is still alive, would not normally be considered the taxable income of the person who receives the money. Any tax liability of the giver's Estate for IHT is payable from the Estate not by the beneficiary. (Certain exceptions could apply if the Estate has no money to pay the IHT but let's put that aside.)

 

Secondly, what is your ex-wife's overall Estate worth? You only mention the money you gave her. Is the overall Estate over IHT threshold? Incidentally if you are separated but not divorced I'd think that for IHT law you are considered still married which might (or might not) be relevant here.

 

If Daughter A is the sole Executor then I'd expect all your wife' assets to be transferred to a bank account in the name of Daughter A. That's normal practice, the Executor becomes the legal owner of the assets and takes control of them so they can be paid out to beneficiaries.

 

I'd expect the Executor to have opened a separate bank account to put the Estate assets in. That's what I've always done when I've been Executor. The money in it wasn't mine personally, I held it on trust for the beneficiaries in my capacity as Executor. That's what would happen after death. Why your wife made the transfer before her death I cannot comment on.

 

If it was to avoid IHT liability then almost certainly it will fail, as a gift made that soon before her death will be treated by HMRC as part of her Estate for IHT purposes and Daughter A as Executor will have to deal with the Estate accordingly.

 

The fact that Daughter A may have paid the money out on school fees or whatever is irrelevant to the IHT liability of your wife's Estate. Small gifts from your wife's Estate are ignored for calculating IHT - detailed on HMRC website.

[slick132]

Hi Ron,

 

You say you passed £211K to your wife in 2019 but this probably has no relevance to the questions you ask if she left a valid Will.

 

As Ethel Street has said above, very recent cash tranfers by the deceased will be irrelevant and IHT, if applicable, will be payable by the Estate. 

 

I would be more interested in how, why and when your late wife's funds were transferred to daughter A. Did she have Financial Power of Attorney or authority to act (with your late wife's bank).

 

If the 3 grandchildren are/were to receive equal shares of your wife's Estate, will this happen given that daughter A has transferred the funds into her own name and already "allocated" school fees several years ahead.

 

If their Aunt has given the other 2 grandaughters £20K each from their Aunt and not from the Estate, this looks suspicious based on what you've told us so far.

 

More info is needed about the size of the Estate, whether YW left a property or other assets when she passed, and whether you think daughter A is acting improperly.

Edited February 23, 2021 by slick132
edit from para 2

[ronwicks]

Many thanks for the interest and informative replies

 

As far as I am aware the total estate of my wife was the £211,000 handed over, less any living and care expenses in the past year.  

 

Daughter A is the sole Executor and had LPOA joint and several with me, but I certainly was not consulted on any such transfer of funds.  As far as I can ascertain the monies were transferred before death, and I can find no trace that Probate has been granted.  Also my wife suffered from Alzheimer's.

 

I have not seen the Will, but the terms were to be that the 3 Grandchildren shared equally, inheriting at the age of 25.  One is 25 this Sept, second in September next year but A’s daughter is now only 12.

The payment of £100k advance school fees appears to be a ploy to circumvent the Will and give an unequal share to  A’s daughter and before the age of 25.f

 

Regarding the £20,000 the other grandchildren receved from A's Bank account I am concerned whether they can claim this as an inheritance to HMRC or whether this could be construed as a “Gift” from Aunt A.

 

I hope this answers all of the questions.

[Ethel Street]

Do you mean that your late wife's Estate at the time of her death was around £211,000 after  the £100k school fees and 2 x £20k gifts had been transferred out? Or that before her death the £211,000 had already been reduced by transferring out the £100k and 2x£20k? If the latter then her Estate at time of death would have been only c£70k (less any living and care expenses in the past year.). That's way below the threshold for IHT and HMRC will have no interest in your wife's Estate.

 

Even if she had had £211k at time of death it would have been well below the IHT threshold.

 

Either way the 2x£20k if transferred before your wife's death would probably be considered a gift from A not an inheritance.

 

And if Estate value was only around £70k you say it would have been further reduced by her care needs and that she had Alzheimer's. If she was in a dementia care home the care fees (assuming she was self-funding) would have used up most of that £70k. My mother was in a specialist dementia care home for the last year of her life in 2018 and the fees were over £50,000. So it could be that very little of of the money was left. It's possible the remaining Estate was so small it didn't need Probate.

 

Just speculation by me of course. Can you ask Daughter A what the position is?

 

I'm going to speculate on something else - this may be completely wrong so feel free correct me. I wonder if the reason for the transfer of the £100k + 2 x £20k while your wife was still alive was an attempt by Daughter A to remove your wife's assets from any local council financial assessment for care home fees? Sadly I think the attempt would have failed and the local coucil would have treated it as a deliberate deprivation of assets, but it sounds as if it never got to the point of asking the local council to pay her care home fees. Daughter A may have hoped that advance purchase of school fees was more likely to survive a 'deliberate deprivation of assets' challenge than merely making a cash gift.

 

I realise that this doesn't help you with the underlying issue that the effect of it all is that money has not been distributed equally between the 3 grandaughters. Have you discussed this with Daughter A?

 

Please note that I am not a lawyer or an expert, my comments are based solely on my own experience and research as executor and care home organiser for my parents and family members.

 

 

Edited February 23, 2021 by Ethel Street

[Ethel Street]

I missed the point about the LPOA. If you had a joint and several LPOA with daughter A then she had no authority to make the transfers without your agreement. Actually I am surprised the bank allowed transfers of that size to be made on the signature of only Daughter A.

[ronwicks]

As far as I am aware the £100K was paid out before death. The 2 x £20k just recently - long after death, so would this still be a gift from A and subject to Tax, less £7k gift allowance?

 

Alzheimer’s was not too far advanced and she was cared for by A at her home.

 

“Daughter A may have hoped that advance purchase of school fees was more likely to survive a 'deliberate deprivation of assets' challenge than merely making a cash gift.” This is probably the reasoning behind this payment. As this was before death would it have a benefit “Gift” to the granddaughter?

 

Not yet discussed with daughter A as I wish to get facts clear in my head and know full legal and tax implications before I act.

 

Re LPOA,  have just reread the “Jointly and Severally” section and it states that    “If  one attorney makes a decision, it has the same effect as if all the attorneys made that decision”.  Could this implicate me in any improper transfer of funds?

 

[Ethel Street]

57 minutes ago, ronwicks said:

 The 2 x £20k just recently - long after death, so would this still be a gift from A and subject to Tax, less £7k gift allowance? 

 

What's the £7k gift allowance? Sorry, I haven't come across it. AFAIK there is no tax on gifts given or received except where the giver dies within 7 years of making the gift. The gift might then be added back onto the giver's Estate for calculating IHT. Small gifts are ignored for this calculation, but there's no £7k mentioned in the HMRC page on this

 

https://www.gov.uk/inheritance-tax/gifts

 

Apart from the Inheritance Tax issue there are no tax implications that I am aware of.  

 

The IHT issue would only arise in your late wife's case if the total value of her Estate at date of death plus all gifts made in the previous 7 years (ignoring the exempt ones on that link) exceeded the IHT threshold, currently £325,000. From what you have said it wouldn't have done. In which case the whole question of gift allowances would not arise because the Esatate was not liable for IHT anyway. (Disclaimer again, I am not a tax expert and this isn't tax advice. Just sharing my experiences).

Edited February 23, 2021 by Ethel Street

[AndyOrch]

I think they are referring to PETS ( potentially exempt transfers )  ?

 

 

Generally PETs are applied to your £325,000 tax-free allowance before the rest of your estate. So, unless you've given gifts worth more than this allowance, the recipients are very unlikely to pay inheritance tax .

However, if much of the tax-free allowance has been used up against PETs and taxable lifetime gifts, this can leave little or no allowance to be used against the rest of the estate. 

 

https://www.which.co.uk/money/tax/inheritance-tax/inheritance-tax-planning-and-tax-free-gifts-aw1mb2n7snwx#headline_5

[ronwicks]

Sorry, I was thinking of the £3k annual gift allowance.  I also have very little experience of Tax Matters, that is why I need to ask questions.

[Ethel Street]

20 minutes ago, Andyorch said:

I think they are referring to PETS ( potentially exempt transfers )  ?

Yes, which is essentially just the formal tax law language for gifts and IHT which I referred to above. "Potentially Exempt Transfers" are only exempt if you live more than 7 years after giving the gift, "Exempt Transfers" are the low value gifts detailed on the HMRC link in my last post. They are always exempt whether you live 7 years or not. I thought OP was referring to the exempt gifts allowance but £7k is not one of the amounts mentioned on the HMRC page as far as I can see, hence me asking OP for clarification.

 

@ronwicksI see your clarification. But as I said before the gift is only relevant if the value of Estate at date of death plus the transfers in the prior 7 years would exceed the current £325,000 IHT threshold. From what you've said the IHT threshold would not be exceeded whatever way you classify the £20k gifts so no IHT will be due. In any case the £20k gifts were made some time after your late wife's death so the gift rules are irrelevant. They sound like a payment to beneficiaries made under your late wife's will, not gifts.

Edited February 23, 2021 by Ethel Street

[Ethel Street]

Incidentally @ronwicks I noticed you said that your wife passed away on 8th January 2021, only 6 weeks ago, and you could find no trace of Probate having been granted.

 

Even at the best of times getting Probate issued within 6 weeks would be extremely fast. It usually takes several months so you wouldn't expect to see it yet. The Probate office has been struggling with the combined effects of Covid and a new online Probate application system that didn't work well and long delays in getting Probate have been reported. 

 

Is this the site where you have been looking?  https://www.gov.uk/search-will-probate  Wills only appears here when Probate has been granted and anyone can ask for a copy (small fee)

Edited February 23, 2021 by Ethel Street

[slick132]

Hi Ron,

 

Yes, please confirm the date of death as some of what you've said is ambiguous.

 

If the Estate value was £325K or less, IHT is unlikely to be an issue with YW's Estate.

 

As I have already suggested, I wonder if daughter A was acting properly in withdrawing monies from YW's a/c. If there's a Will leaving monies equally to the 3 grand daughters, they should each be sharing the whole amount equally, after funeral and other Estate debts are settled.

 

If all YW's money was withdrawn from her a/c before or after death, perhaps daughter A is not worried about the need for Probate and accounting for everything properly.