Individual overpays £30,000 due to ‘misleading’ IHT form

A solicitor has raised concerns about a potentially “misleading” inheritance tax form that could result in Britons overpaying by thousands of pounds, as reported by Express.

Jessica Partridge, a partner specialising in private client law at Mayo Wynne Baxter,  highlighted the IHT436 form, describing it as “really misleading” after a client misunderstood the rules, leading to an overpayment of £30,000.

Introduced in 2018 at £100,000, the residence nil rate band has since increased to the current £175,000. However, the guidance notes in the form stipulate:

“Where the spouse or civil partner’s death occurred before 6th April 2017, the Residential Enhancement at that time is deemed to have been £100,000.”

The misunderstanding arises when dealing with estates where one partner passed away before 2017. In such cases, there is confusion regarding the applicable allowance — the client assumed an allowance of £100,000, not realizing that, in fact, the unused percentage of the first partner’s allowance could be transferred.

Contrary to assuming a fixed amount, it’s the percentage of the unused allowance from the first partner that can be transferred when the second partner dies. In this instance, since the first death occurred before 2017, the full 100% of the nil rate could be transferred, resulting in an additional £175,000 tax-exempt allowance instead of £100,000.

The individual needlessly paid a 40% tax on £75,000 of the estate, translating to an overpayment of £30,000. Mayo Wynne Baxter is now rectifying the situation, working on a corrected account to facilitate the repayment of the overpaid tax.

Ms. Partridge emphasised the complexity of inheritance tax rules, noting that various aspects can be challenging for laypeople to comprehend. This serves as a cautionary tale, urging individuals to seek professional advice to navigate the intricate landscape of inheritance tax and avoid potential pitfalls that could lead to financial overburden. She said:

“Inheritance tax is a really complex tax. There’s lots of different aspects, people have varying assets.

There’s rules for giving money away if it’s capital, or if it’s income, for giving something away and retaining a benefit, for business property relief, for agricultural property relief, for heritage property.

There’s so many different aspects of a person’s estate and no one is the same. In order to navigate all the potential tax exemptions and benefits, you have to have a really good knowledge.”

One Response

  1. Whilst I agree there are many situations where professional advice is advisable with respect to IHT, I wonder if this person had ticked the box at the top of page 12 of the IHT400 – might have been an easy fix in this case.

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