intestacy & inheritance tax

Sherwoodlond | 21:41 Thu 31st Aug 2006 | Law

5 Answers

On intestacy I believe a widow gets the first �125,000 of the eceased husband's estate plus a lifetime share in half of the remainder. On the widow's death how is this lifetime share valued? Does it just cease or is it added to her estate by the Revenue?

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JRB

The widow receives the income only from her share of the remainder of the estate and on her death this capital sum reverts to the children to be shared between them

Sherwoodlond

Question Author

So does that mean that on the widow's death the capital sum that reverts to her children is not counted in her estate?

JRB

Cannot find a definitive answer to that but common sense suggests that as the capital was never in her possession, no it would not be part of her estate.

dzug

Alas JRB it does form part of her estate. Can't quote chapter and verse but my wife is in this position and we checked it out thoroughly at the time.

The argument will be that she has had the benefit of it and that it was not subject to IHT at the time of her husband's death.
It's not part of her estate in the sense that she can't decide to leave it to someone else but for IHT yes.

Barmaid

IHT is a tax levied on the transfer of value as a result of death so funds outside the estate in which she had an interest will be included. On the widow's death, the half share of the estate in which she had a life interest is aggregated with her free estate for the purposes of IHT. IHT is then allocated proportionately between the free estate and the aggregable funds. EG say the widow owned assets of her own amounting to �200,000 and the value of the fund in which she had an interest was worth �200,000 the value of the transfer would be �400,000 and the resulting tax would be payable out of the free estate and aggregable funds in equal shares.

If the widow's death comes within 2 years of her husbands I would suggest that legal advice is sought asap since it may be possible to vary the husband's intestacy in order to make better use of the nil rate bands and thus save tax.

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