inheritance tax question

[Kristal53]

hi -another question about wills -no i'm not obsessed lol! -this is on behalf of a good friend who is in this predicament. 30 years ago, following the death of her father, her mother made a will leaving the house to my friends brother and the rest of her estate (savings) to her . At this time this was around equal value and everyone was satisfied- house was valued at 200,000, savings slightly more. now 30 years on she has died. the current value of the house , due to huge hike in prices since 1981 has been valued at 750,000 while the savings are around 300000, making an estate of over 1000000 which will of course be liable to inheritance tax. the property is not agricultural or business and will attract the 40% IT after the 325K allowance. This is going to be a wopping sum which will have to be paid for out of the estate -question is -are both parties liable equally to IT -the tax bill could end up being around 2ooK which will have to be paid out of the savings -can my friends brother be made to sell the house to cough up half the tax bill -or will the tax man have first dibs on the savings, leaving my friend with only a fraction of what her mother wanted her to have, and her brohter with a very valuable house

[buildersmate]

Hmm, a bit of a problem. Your family is going to have to agree to settle this amicably.
It is the estate of the deceased that pays the IHT - the notion of 'each party' (being the beneficiaries) doesn't come into it. Thus unfortunately it seems the will has been drawn up without thinking through the implications of increasing house values. If one beneficiary has been left 'the house' in the will, then that is what they get - after IHT has been paid out of the estate. Which is going to mean the residue of the estate is pretty small by comparison.
It may be possible for a deed of variation on the will, if all parties agree and the family / beneficiaries all agree they want to equalise the wishes of the deceased.
PS - has the friend appreciated that there may be transfer possible of part of the nil rate band from the first-to-die (the father), such that the £325k allowance you quote may be higher than £325k before IHT is liable on the residue??

[Barmaid]

This really depends on whether the bequest to the brother is "free of tax" or "bearing its own tax". Therein lies the answer.