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Inhertance Tax
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i understand that my children will have to pay the inheritance tax due on assets i leave them in my will, but where can they get this money from, a bank, or is there some special place that deals with this type of thing
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If the value of your estate comes to less than £325,000 there's no Inheritance Tax to be paid anyway. (If your spouse pre-deceased you, and left you everything, that figure is increased to £650,000).
If there is Inheritance Tax to be paid then it's up to the executors of your will (or the people holding 'letters of administration' if you died without leaving a will) to find a way to pay the money. For example, if you left your house to your children they could sell it to find the money to pay the Inheritance Tax. Alternatively, if they wanted to live in the house, they could keep it and pay the Inheritance Tax from their own bank accounts (taking out loans if necessary).
If there is Inheritance Tax to be paid then it's up to the executors of your will (or the people holding 'letters of administration' if you died without leaving a will) to find a way to pay the money. For example, if you left your house to your children they could sell it to find the money to pay the Inheritance Tax. Alternatively, if they wanted to live in the house, they could keep it and pay the Inheritance Tax from their own bank accounts (taking out loans if necessary).
Let's pretend, Mybutty, that you appointed me as executor of your will (but left everything to be shared between your children).
It would be my job to call in all of the assets of your estate, and then use that money to pay all of your bills, your other debts, your funeral expenses and (if relevant) the Inheritance Tax. Then, after I'd done all of that, I'd share out the remainder amongst your children. (Of course, if they'd rather that I didn't sell your house, because they wanted to live in it, they could offer to pay your debts and Inheritance Tax from their own monies. I'd then have to take what they'd paid into account when sharing out the rest of your estate).
So, as you've said, the Inheritance Tax would be paid before your children got anything but (unless they'd voluntarily stepped forward to pay some money, as with my example of them wanting to move into your house, rather than sell it), they wouldn't need to fork out a penny because it would be me (acting as executor) that would pay the Inheritance Tax from your estate.
Of course you might choose to appoint your children as executors of your will. In that cast they'd have to 'wear two hats'. Firstly, as executors, they'd collect in all of your assets, then use that money to pay your debts and the Inheritance Tax. Only then would they share out the rest of your estate between the beneficiaries of your will (who just happened to be themselves). So, once again, the Tax would be paid before any sharing was done, meaning that your children still wouldn't need to find any money 'up front' to pay the tax.
It would be my job to call in all of the assets of your estate, and then use that money to pay all of your bills, your other debts, your funeral expenses and (if relevant) the Inheritance Tax. Then, after I'd done all of that, I'd share out the remainder amongst your children. (Of course, if they'd rather that I didn't sell your house, because they wanted to live in it, they could offer to pay your debts and Inheritance Tax from their own monies. I'd then have to take what they'd paid into account when sharing out the rest of your estate).
So, as you've said, the Inheritance Tax would be paid before your children got anything but (unless they'd voluntarily stepped forward to pay some money, as with my example of them wanting to move into your house, rather than sell it), they wouldn't need to fork out a penny because it would be me (acting as executor) that would pay the Inheritance Tax from your estate.
Of course you might choose to appoint your children as executors of your will. In that cast they'd have to 'wear two hats'. Firstly, as executors, they'd collect in all of your assets, then use that money to pay your debts and the Inheritance Tax. Only then would they share out the rest of your estate between the beneficiaries of your will (who just happened to be themselves). So, once again, the Tax would be paid before any sharing was done, meaning that your children still wouldn't need to find any money 'up front' to pay the tax.
Personally I think you should take some professional advice from an Accountant who is a Tax Specialist, for two reasons;
1st) The Tax arrangements in regard to a "buy-to-let" portfolio are changing from April this year'. Placing the properties into a Limited Company is just one option. Tax on dividend income is also changing, I believe the first £5000.00 of dividend income will be tax exempt, so a lot to consider, just for that.
2nd) How you organise your affairs in respect of the above will impinge on how you decide to bequest or transfer your Estate to your beneficiaries to minimise IHT.
It may cost some money now, but save in the long run.
1st) The Tax arrangements in regard to a "buy-to-let" portfolio are changing from April this year'. Placing the properties into a Limited Company is just one option. Tax on dividend income is also changing, I believe the first £5000.00 of dividend income will be tax exempt, so a lot to consider, just for that.
2nd) How you organise your affairs in respect of the above will impinge on how you decide to bequest or transfer your Estate to your beneficiaries to minimise IHT.
It may cost some money now, but save in the long run.
I'll try again!
Assuming that your children are also the executors of your will (or the 'administrators' of your estate if you were foolish enough not to leave a will), they will first need to seek a 'grant of representation' (known as 'probate' if you left a will or 'letters of administration' if you didn't). To do so they have to submit an application to the Probate Registry. (The process just involves collecting relevant information together, entering all of the details on a form and then swearing an oath). Once they've got the grant of representation they will be empowered to access your bank accounts, sell your properties and do anything else necessary to sort out your affairs.
At that point they should open a special executors' bank account. Any money paid into that account will BELONG TO YOUR ESTATE and NOT (at that time) TO YOUR CHILDREN.
As soon as there is some money in the account (e.g. by transferring the funds from your personal bank account or through selling your properties) they can start paying off any debts you may have, paying your funeral expenses and paying any Inheritance Tax which is due.
Once all of your assets have been collected in and all necessary monies paid out, your children can then share out what's left in the executors' account between themselves and close that account.
Assuming that your children are also the executors of your will (or the 'administrators' of your estate if you were foolish enough not to leave a will), they will first need to seek a 'grant of representation' (known as 'probate' if you left a will or 'letters of administration' if you didn't). To do so they have to submit an application to the Probate Registry. (The process just involves collecting relevant information together, entering all of the details on a form and then swearing an oath). Once they've got the grant of representation they will be empowered to access your bank accounts, sell your properties and do anything else necessary to sort out your affairs.
At that point they should open a special executors' bank account. Any money paid into that account will BELONG TO YOUR ESTATE and NOT (at that time) TO YOUR CHILDREN.
As soon as there is some money in the account (e.g. by transferring the funds from your personal bank account or through selling your properties) they can start paying off any debts you may have, paying your funeral expenses and paying any Inheritance Tax which is due.
Once all of your assets have been collected in and all necessary monies paid out, your children can then share out what's left in the executors' account between themselves and close that account.
OK., I will try again too, most of the responses you have received have been based on a fairly simple "I leave my Estate to". None have even considered the use of Trusts, whch can only be arranged with consideration to your actual circumstances and income needs now. Certainly noneof your responses have considered you transferring your property portfolio into a Limited Company. You would be foolish not to get professional Tax advice, especially given the structure of your assets!
// That's why I put it, simply, hc.//
um yeah
the tax of course has to be paid before distribution of assets ( this is quite clear from the gov.uk sites )
and what happens if there is a house and a huge bill which cant be paid before sale ? The executors have to raise a loan ....
the bank keeps on asking me why I keep 50-100k in my current account and why I wont squander it on one of their terrible fixed bonds .....
[ completely different in Code Napoleon countries where the lucky beneficiary has to pay the tax and it is common to say no thanks to the gift AND the tax bill]
um yeah
the tax of course has to be paid before distribution of assets ( this is quite clear from the gov.uk sites )
and what happens if there is a house and a huge bill which cant be paid before sale ? The executors have to raise a loan ....
the bank keeps on asking me why I keep 50-100k in my current account and why I wont squander it on one of their terrible fixed bonds .....
[ completely different in Code Napoleon countries where the lucky beneficiary has to pay the tax and it is common to say no thanks to the gift AND the tax bill]
// legacyee does not pay tax, the estate potentially pays it.//
the legatee does not pay tax - the estate always pays for it
( I am leaving aside the possibility the estate does not pay tax when er there is no tax to pay) - but it does give some idea of the standard of discussion
You started with who pays the tax and how
and it has become - do a good will and minimise tax
and so you should get advise
for example DocHH CAN'T have transferred houses to a company as he hasnt covered - what would be the trading object of the company ?
and also CGT payable by you now on transfer into the company
so yeah get advise
similar difficulties about wills trust
sorry must go neighbour called
the legatee does not pay tax - the estate always pays for it
( I am leaving aside the possibility the estate does not pay tax when er there is no tax to pay) - but it does give some idea of the standard of discussion
You started with who pays the tax and how
and it has become - do a good will and minimise tax
and so you should get advise
for example DocHH CAN'T have transferred houses to a company as he hasnt covered - what would be the trading object of the company ?
and also CGT payable by you now on transfer into the company
so yeah get advise
similar difficulties about wills trust
sorry must go neighbour called
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