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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My mother died a couple of years ago and left me and my

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My mother died a couple of years ago and left me and my younger sister her house worth £400,000. The children got cash from the banks and societies while my older sister got a gift 5 years before mums death of over £900,000. The accountant we used belonged to my mother and older sister. He gave my mothers and fathers tax allowance of £650,000 to my older sister. She picked up the total tax bill - on my mothers request although nothing in writing to say she should - but it was calculated wrongly by the accountant. Now the HMRC have written to me as executor of the will for another £145,000 which my sister will not pay. My question is, if the inheritance tax relief was split 3 ways between myself and 2 sisters, me and my younger sister wouldn't owe any tax. Have we been wrongly done by?


Take a look at the notes here and here.

Gifts made in the seven years before the death of the donor are included in the deceased estate for Inheritance Tax purposes. The nil-rate band is first used against gifts made in the seven years before death in chronological order so only £250,000 of the £900,000 gift to your elder sister would have been chargeable to IHT. If you elder sister has paid all the IHT including that on the property left to you and younger sister, then she has already done you a favour. Normally, where there is not enough cash to settle the IHT liability, assets are liquidated to pay it and everybody will contribute based on what is left to them regardless of the lifetime gift having priority access to the nil-rate band . Beneficiaries are only liable to the extent of the IHT on what is left to them. I'm afraid that you will need to consult a family lawyer to discuss options open to you including suing the accountant.

I hope this clarifies your position but let me know if you have any further questions.

Customer: replied 1 year ago.
I understand that the £650,000 was written off against the £900,000 my question really is;
is that right and fair. Surely if you split the £650,000 into 3 parts (£216,000 approx each) then each of us gets to pay an amount of tax in relation to what was received. Was the accountant out of order giving it all to her?

The nil-rate band can be split by agreement but you have to recognise that the gift was made before the death of the donor and, is therefore entitled to have priority access to the nil-rate band. The recipient of the pre-death gift has no IHT liability beyond the liability on that gift. The accountant was correct in allocating the nil-rate band to the £900,000 gift as you will read here. If your sister paid the IHT on the £400,000 left to you and your younger sister too, then she has clearly exceeded her responsibility as far as IHT is concerned already.

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