Transferring Inheritance Tax Allowance - Probate Case Study

16 October 2017

In this case our client had contacted two Probate providers (before contacting us) and both informed him that Inheritance Tax would be payable on the Estate. After we submitted a full report to HMRC, there was no Inheritance Tax to pay.

Client Situation

Our Probate Solicitors were instructed in the Estate of Mrs L, a lady in her nineties who had been married, but her husband sadly died in June 1974. She did not remarry following his death. Mrs L had made a Will and we were instructed by her son and Executor, Mr L who was also the sole residuary beneficiary of his late mother’s Estate.

During our preliminary enquiries with Mr L, it came to light that before contacting us, he had been in contact with two Probate specialists to discuss his mother’s Estate and the Inheritance Tax that would be payable. He was told by both organisations that Inheritance Tax would be payable in his late mother’s Estate, because it would not be possible to transfer the unused allowance from his father’s Estate (known as the ‘Transferable Nil Rate Band’).

How We Helped

We suspected that this may not be the case as back in 2007 the law was changed, and Inheritance Tax allowances became transferable between spouses. So, for any deaths after this date, if the deceased person had a spouse who had died before them, then the Estate of the recently deceased person could claim the previously unused Inheritance Tax allowance from their spouse’s Estate.

For the Inheritance Tax allowance to be transferred from Mrs L’s late husband’s Estate to her own, the tax law would apply that existed at the time of her husband’s death. Since November 1974, assets that pass to a surviving spouse are exempt from Inheritance Tax. Before this date, however, the amount that could be passed tax-free was limited.

After checking the position in Mrs L’s Estate, we confirmed to Mr L that when his father passed away in June 1974, spouse exemption (the amount that could pass tax free to Mrs L) was limited to £15,000. This meant that any money that passed to Mrs L from her husband in excess of £15,000 would have used her late husband’s Inheritance Tax allowance; although possibly not all of it, as the Inheritance Tax allowance was also £15,000 at the time.

Mr L confirmed that when his father passed away, the whole of his Estate passed to his mother. He also confirmed that back in the 1970’s, his father was of very low means. He had purchased a house jointly with Mr L shortly before his death for £6,000 (£3,000 therefore formed part of his Estate) and he also owned a very small greengrocer’s business. Mr L could confidently say that the Estate was worth well below £15,000.

The Outcome

We explained to Mr L that a full report would have to be submitted to HMRC and they would then look into the matter and let us know whether it was accepted. The result was positive and there was no need to pay any Inheritance Tax on Mrs L’s Estate.

Mr L was very pleased with this. He told us that his late mother would have been over the moon with the outcome, as it meant that she would be able to pass on more of her Estate to her grandchildren without paying Inheritance Tax.

With our Probate Complete Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (excl VAT), Property and Estate Administration affairs*.

*We can also pay all the costs of a Co-op Funeralcare funeral, providing the Estate owns sufficient assets which can be sold in due course to repay our costs.

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