£63,000 Inheritance tax saved by Co-op probate - case study

25 April 2017

Client situation

Mr S instructed Co-op Probate to administer the Estate of his late mother, Mrs D, and the Estate of his late grandmother, Mrs G. The two had sadly died in quick succession, with Mrs D passing away shortly after her mother.

Mrs G had left a Will saying that her net Estate should pass to Mrs D. Mrs D’s Estate (which now included the value of Mrs G’s Estate) then passed to Mr S, as set out in the terms of her Will.

Because Mrs D’s Estate included the value of Mrs G’s Estate, it exceeded the Inheritance Tax nil rate band. It also included an interest in an Estate in Canada.

Mrs G’s Estate was under the Inheritance tax nil rate band but it did include a joint bank account held by Mrs G and Mrs D. It was held in joint names for convenience – the funds in it had been provided by Mrs G.

How we helped

In order to reduce the Inheritance Tax bill for Mrs D’s Estate, we prepared two Deeds of Variation.

The first Deed of Variation transferred the Estate of Mrs G directly to Mr S so that it did not pass through Mrs D’s Estate. The second Deed of Variation, with the approval of Canadian lawyers, passed the interest in the Estate in Canada direct to Mr S.

If a Deed of Variation is completed within two years of the date of death (and complies with certain requirements), for Inheritance Tax purposes, it is treated as if the Will of the deceased had been re-written immediately before the deceased passed away (or if there is no Will, as if the position on intestacy was changed).

HMRC initially argued that 50% of the money in the joint account formed part of the Estate of Mrs D. We provided evidence to demonstrate that the funds in the account were solely provided by Mrs G and, after discussions with HMRC, it was agreed that the proceeds of the account formed part of Mrs G’s Estate (and passed to Mr S under the terms of the Deed of Variation).

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

The outcome

As a result of the two Deeds of Variation, a sum of about £58,000 was “diverted” from the Estate of Mrs D directly to the Estate of her son, Mr S. There was a total saving of Inheritance tax of about £23,200.

On the separate point of the joint account, Mrs D’s Estate saved Inheritance Tax of about £40,000 as a result of HMRC agreeing that the whole of this account belonged to the Estate of Mrs G.

The total Inheritance tax saving to Mr S was approximately £63,200.

* 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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