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If you’re under 18, how do you pay a £50,000 tax bill? This might sound like the opening of a riddle, but actually, it’s a very real situation for one family that has been caught in an IHT trap – and it’s perfectly within the law.
A woman and her partner died following a crash on the M5. Their estate passes to two children, both aged under 18, meaning they were liable for a £50,000 inheritance tax (IHT) bill – and now, their grandparents are campaigning for a change in the law after HMRC said it “could not make an exception for minors”.
As the law stands in this country, IHT is payable at 40% of anything over a £325,000 threshold, which applies to the value of an estate. For spouses, this is set at 950,000 (for 2019) if this includes your home.
The children’s mother, Becky Mitchell, received a death in service payment, which would have gone to her partner, Adrian, had he not died himself. It would also have been free from IHT in that instance, because it would have been part of Becky’s estate and therefore part of the £950,000 threshold. However, the £130,000 death in service payment pushed Becky’s estate in excess of the IHT tax level for an individual, i.e. the children, and therefore means the estate is liable for a 40% tax charge. This all has to be dealt with by the executors appointed in a will, or administrators if there is no will.
It means that despite being minors, Becky’s children will in effect have to pay a £50,000 tax bill. But, Becky’s mother added that she and Adrian’s family were now planning to campaign on the issue and petition for a debate in the House of Commons – particularly as the children are still dependents.
The children’s grandparents have already successfully written to the treasury via their local MP, but the reply was not as positive. The Treasury said that there is a provision for exemptions under the rules, but being a minor is not one of them, and these exemptions are extremely rare. In the current circumstances, the tax has been paid, but the campaign continues.
If you have been caught in an IHT trap, or you would like some advice about how you can plan your estate to protect your loved ones, contact the Private Client team at Downs Solicitors to see how we can help.