Published on: 17th October 2017

Problem = Inheritance Tax due before funds are available ~ solution = house in trust

When a person dies the executor must value the estate and report the value to HMRC. In an ever-growing number of cases Inheritance Tax (IHT) may be due. Understandably, the IHT must be paid to HMRC before a receipt is issued. It is a little-known fact that the receipt from HMRC is required as part of the grant of probate process. The executor cannot call in assets without the grant of probate. A "chicken and egg" situation results. The IHT needs to be paid but money from the estate is not available until the IHT is paid. If the estate contains cash then the executor can agree with the bank holding the funds to pay HMRC directly. But if the bulk of the value of the estate is in the family home then potentially the situation is more difficult for the executors. In certain circumstances HMRC will accept payment over ten years but interest applies to the outstanding tax. Sometimes the executors or family raise a short term loan or even pay the IHT themselves.

One way round the problem is to place the family home in a special type of trust. The house is, therefore, outside the estate for probate purposes and the trustees (usually the children) can sell the property once both parents have passed away. Using this special type of trust means the executors (usually the children) will have the funds from the sale of the house to pay HMRC so that HMRC can give the receipt that allows the grant of probate process to begin. There can be additional benefits of using this type of trust such as, in certain circumstances, ring fencing the family home from Long Term Care fees assessment and even protecting some or all of the family home from "sideways disinheritance". Sideways disinheritance is when the surviving spouse (or civil partner) remarries in later life and then dies before the new spouse (or civil partner). Some or all of the family home can go to spouse (or civil partner) number two thus disinheriting the children of the first and usually lengthy marriage (or civil partnership). This special type of trust does not directly save inheritance tax. However, in certain circumstances, when combined with another type of trust IHT liability can be reduced.

Whether you are single or a couple, married (or in a civil partnership) or unmarried partners, and would like to find out how specialised trusts for the family home might be able to help you then please click here or telephone 01732 868190 and we will arrange for a Consultant to visit you. We do not charge for visiting you and discussing your situation.

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