Inheritance Tax Split Between Siblings
- MAZ
- Aug 19
- 18 min read
Updated: Sep 11
Understanding Inheritance Tax When Siblings Share an Estate
Picture this: You’re sitting with your siblings, sorting through a loved one’s will, and the topic of inheritance tax (IHT) comes up. It’s a bit of a minefield, isn’t it? In the UK, IHT can feel like a heavy weight when dividing an estate, especially among siblings who might inherit unequal shares or face complex assets like family businesses. As a chartered accountant with over 15 years advising clients across London and beyond, I’ve seen families stumble over IHT calculations, so let’s break it down clearly and practically for the 2025/26 tax year.
This first part gives you the essentials: how IHT works for siblings, key thresholds, and initial steps to verify liabilities. We’ll set the stage with real-world context and actionable tools to ensure you’re not overpaying HMRC.
What Is Inheritance Tax, and Why Do Siblings Care?
Inheritance tax is a 40% levy on the value of an estate above the nil-rate band (£325,000 in 2025/26) when someone passes away. For siblings inheriting, it’s critical because, unlike spouses or direct descendants (children, grandchildren), siblings don’t get special exemptions like the residence nil-rate band (RNRB, £175,000), which applies only when a home is left to direct descendants. According to HMRC, only about 6% of estates paid IHT in 2024/25, but with frozen thresholds until 2030 and rising property values, more families, including those splitting estates among siblings, are getting caught.
So, the big question on your mind might be: how does IHT apply when siblings share an estate? The tax is calculated on the total estate value before distribution, not per sibling, but unequal shares or lifetime gifts can complicate things. Let’s explore the basics and start calculating.
Key IHT Thresholds and Rates for 2025/26
None of us loves tax surprises, but understanding the rules helps avoid them. Here’s the lay of the land for 2025/26, verified with HMRC’s latest guidance:
● Nil-Rate Band (NRB): £325,000 per person, tax-free. If the estate’s value exceeds this, IHT is 40% on the excess.
● Residence Nil-Rate Band (RNRB): £175,000, but only if the deceased’s home is left to direct descendants (not siblings). Estates over £2 million lose RNRB at £1 per £2 above the cap.
● Spousal Exemption: Transfers to spouses or civil partners are IHT-free, and unused NRB/RNRB can transfer to the surviving spouse, potentially doubling allowances to £1 million. Siblings don’t get this perk.
● Charity Discount: If 10% or more of the estate’s net value is left to charity, the IHT rate drops to 36%.
● Gifts: Gifts made within seven years of death may be taxed, with taper relief reducing the rate for gifts given 3–7 years prior. Annual exemptions allow £3,000 in tax-free gifts per year.
Table 1: 2025/26 IHT Thresholds and Rates
Analysis: Frozen thresholds mean inflation pushes more estates into IHT’s net. For siblings, the lack of RNRB is a big deal—£175,000 less tax-free allowance compared to children inheriting a home. If your parents’ estate includes a £400,000 house, you’re already over the NRB, and without RNRB, tax hits harder.
How Is IHT Calculated for Siblings?
Be careful here, because I’ve seen clients trip up when splitting estates. IHT is calculated on the estate’s total value (cash, property, investments, minus debts like mortgages) before it’s divided among beneficiaries. Siblings don’t pay IHT directly—HMRC takes its cut from the estate first, unless lifetime gifts exceed the NRB, which we’ll cover later.
Here’s a quick example for 2025/26:
● Estate Value: £500,000 (house, savings, no debts).
● NRB: £325,000 (no RNRB, as siblings inherit).
● Taxable Amount: £500,000 - £325,000 = £175,000.
● IHT Due: £175,000 × 40% = £70,000.
● Distributed: £500,000 - £70,000 = £430,000 split among siblings.
If three siblings share equally, each gets ~£143,333. But what if one sibling inherits more, say, due to a specific bequest? The tax calculation stays the same—it’s based on the estate, not the split—but unequal shares can spark disputes, especially if lifetime gifts muddy the waters.
Step-by-Step: Verifying Your Estate’s IHT Liability
Now, let’s think about your situation—if you’re an executor or beneficiary, you need to ensure HMRC’s numbers are right. I’ve had clients in London double-check IHT and save thousands by spotting errors. Here’s how to verify:
Gather Estate Details: List all assets (property, bank accounts, investments, jewellery) and debts (mortgages, loans). Use HMRC’s valuation guidance at www.gov.uk/valuing-estate-of-someone-who-died.
Check Allowances: Confirm the NRB (£325,000) applies. If the deceased was widowed, check for transferred NRB (up to £650,000). RNRB doesn’t apply for siblings.
Account for Gifts: List gifts made in the last seven years. Subtract the £3,000 annual exemption (plus any carried forward from the prior year). Gifts over £325,000 may incur IHT with taper relief.
Calculate IHT: Subtract NRB and debts from the estate value, then apply 40% (or 36% if charity donations qualify). Use HMRC’s IHT calculator at www.gov.uk/inheritance-tax-calculator.
Verify with HMRC: Log into your personal tax account to check estate filings or contact the IHT helpline (0300 123 1072). Submit form IHT400 if probate is needed.
Worksheet: IHT Calculation Checklist
● List all assets: £____ (property, savings, investments, etc.)
● Subtract debts: £____ (mortgages, loans, funeral costs)
● Identify gifts (last 7 years): £____ (minus £3,000 annual exemption)
● Apply NRB: £325,000 (or £650,000 if widowed)
● Calculate taxable amount: £____
● Apply IHT rate: 40% (or 36% if charity donation ≥10%)
● Total IHT due: £____
● Check HMRC filing via personal tax account
Case Study: The Manchester Siblings’ Estate
Take Sarah, Tom, and Emma from Manchester, inheriting their mum’s £600,000 estate in 2025. The estate includes a £450,000 house and £150,000 in savings. Mum left £50,000 to Sarah (for caregiving), with the rest split equally. Here’s the IHT breakdown:
● Estate Value: £600,000.
● NRB: £325,000 (mum was single, no RNRB for siblings).
● Taxable Amount: £600,000 - £325,000 = £275,000.
● IHT: £275,000 × 40% = £110,000.
● Remaining: £600,000 - £110,000 = £490,000.
● Distribution: Sarah gets £50,000 + (£490,000 - £50,000) ÷ 3 = £196,666; Tom and Emma get £146,667 each.
Sarah’s larger share doesn’t increase IHT—it’s still estate-based—but it could cause tension. If mum gifted £100,000 to Tom five years ago, taper relief (20% rate for years 5–6) applies, reducing IHT on the gift to £14,000, paid from the estate. This lowers the siblings’ shares further, highlighting why gift planning matters.
Why Siblings Face Unique Challenges
Siblings often inherit as residual beneficiaries, meaning they split what’s left after specific bequests or debts. Unlike spouses, they can’t transfer unused NRB, and without RNRB, larger estates face heftier taxes. I’ve seen families blindsided by lifetime gifts—like a parent helping one sibling buy a home—triggering extra IHT if the donor dies within seven years.
Navigating Complex IHT Scenarios for Siblings
So, you’ve got the basics of inheritance tax (IHT) down, but what happens when the estate gets tricky—say, a family business, lifetime gifts, or a sibling in Scotland? As a chartered accountant who’s spent years helping UK families untangle tax knots, I know these complexities can feel like wading through treacle. This part dives deeper, offering practical steps for verifying IHT in tricky situations, tailored advice for business owners, and tools to spot errors like overtaxed gifts. Let’s tackle the nitty-gritty to ensure you and your siblings aren’t overpaying HMRC in 2025/26.
How Do Lifetime Gifts Affect Siblings’ IHT?
Ever wondered why a parent’s generosity years ago can sting now? Gifts made within seven years of death can trigger IHT, reducing what siblings inherit. HMRC’s rules, updated for 2025/26, tax gifts above the £325,000 nil-rate band (NRB), with taper relief cutting the rate for older gifts. Here’s how it works:
● Potentially Exempt Transfers (PETs): Gifts to individuals (e.g., cash to a sibling) are tax-free if the donor survives seven years. If not, they’re added to the estate.
● Taper Relief: Applies to gifts exceeding the NRB, reducing IHT based on time:
○ 0–3 years: 40%
○ 3–4 years: 32%
○ 4–5 years: 24%
○ 5–6 years: 16%
○ 6–7 years: 8%
● Annual Exemptions: £3,000 per year, plus one prior year’s unused exemption (£6,000 max). Small gifts (£250 per person) and regular gifts from income (e.g., birthday cash) are exempt.
Table 2: Taper Relief for Gifts (2025/26)
Analysis: Gifts can erode the NRB, leaving less tax-free allowance for the estate. If your parent gave £50,000 to one sibling four years before passing, and the estate is £400,000, the NRB covers the gift, but a £200,000 gift would trigger IHT, reducing siblings’ shares. Always check bank records for gift history—HMRC will.
Actionable Step: Request the deceased’s financial records (bank statements, gift declarations) from the last seven years. Use HMRC’s IHT403 form to report gifts at www.gov.uk/valuing-estate-of-someone-who-died. Cross-check against exemptions to avoid overreporting.
Unequal Shares: A Tax Trap for Siblings?
Be careful here, because I’ve seen clients trip up when one sibling inherits more. IHT is calculated on the estate, not individual shares, but unequal distributions (e.g., one sibling getting the family home) can spark disputes or tax surprises. For example, if a will specifies £100,000 to one sibling and the rest split equally, the tax is still 40% on the estate’s value above £325,000. However, the sibling with the larger share might feel they “owe” more, though they don’t.
Case Study: The Bristol Siblings’ Unequal Split
Meet Jack, Sophie, and Liam, inheriting their dad’s £700,000 estate in 2025. The will gives Sophie the £400,000 family home, with £300,000 (savings) split equally. Here’s the IHT:
● Estate Value: £700,000.
● NRB: £325,000 (no RNRB for siblings).
● Taxable Amount: £700,000 - £325,000 = £375,000.
● IHT: £375,000 × 40% = £150,000.
● Remaining: £700,000 - £150,000 = £550,000.
● Distribution: Sophie gets £400,000 (house); Jack and Liam split £150,000 (£75,000 each).
Sophie’s larger share doesn’t increase IHT, but if she sells the house later, capital gains tax (CGT) could apply if it appreciates. To avoid disputes, consider a deed of variation within two years of death to reallocate shares, potentially reducing IHT if redirected to charity (36% rate). Check rules at www.gov.uk/inheritance-tax.
Business Owners and IHT Reliefs
Now, let’s think about your situation—if you or your siblings inherit a family business, you’re in luck with reliefs, but it’s not a free pass. Business Property Relief (BPR) can reduce IHT by 50% or 100% on qualifying assets (e.g., shares in an unquoted trading company, sole trader assets). Agricultural Property Relief (APR) offers similar relief for farmland. In my practice, I’ve seen business owners save fortunes by claiming BPR, but HMRC is strict.
● BPR Eligibility: The business must be trading (not investment-focused, like property letting). Assets must be owned for two years before death.
● APR Eligibility: Applies to agricultural land or farmhouses used for farming, owned for two years (or seven if tenanted).
● Pitfalls: HMRC may challenge BPR if the business has significant non-trading assets (e.g., excess cash). Document trading activity clearly.
Example: Your dad’s £500,000 manufacturing business qualifies for 100% BPR. The estate also has £200,000 in savings. IHT is only on the savings: £200,000 - £325,000 NRB = £0 tax. Without BPR, IHT would be £68,000 (£700,000 - £325,000 × 40%). Verify eligibility via HMRC’s IHT418 form at www.gov.uk/valuing-estate-of-someone-who-died.
Worksheet: Business Asset IHT Checklist
● Confirm business type: Trading [ ] Investment [ ]
● List qualifying assets: £____ (e.g., machinery, shares)
● Verify ownership duration: ____ years
● Apply BPR: 100% [ ] 50% [ ]
● Check non-trading assets (e.g., cash reserves): £____
● Submit IHT418 to HMRC via personal tax account
Scottish and Welsh Variations
IHT is UK-wide, but executors in Scotland or Wales face quirks when managing estates, especially if earning income (e.g., rental properties) during probate. Scotland’s income tax bands differ (e.g., 21% intermediate rate for £12,571–£31,092 in 2025/26), and Wales has devolved income tax powers, though rates align with England for now. If you’re an executor selling estate assets, income tax or CGT applies to you, not the estate, affecting your personal tax code.
Tip: Use your personal tax account to check your tax code if managing estate income. Scottish executors, watch for higher rates (e.g., 42% on income over £75,000). If overtaxed (e.g., emergency tax code 1257L W1), claim refunds via HMRC’s R40 form.
Rare Scenarios: Emergency Tax and Child Benefit Charges
Don’t worry, it’s simpler than it sounds, but some tax quirks catch siblings out. If you’re an executor earning estate income (e.g., dividends from inherited shares), HMRC might apply an emergency tax code (e.g., M1 for monthly assessments), overtaxing you until corrected. Check payslips and P45/P60 forms against your personal tax account.
If a sibling or executor earns over £60,000 and claims child benefit, the High Income Child Benefit Charge (HICBC) kicks in, taxing 1% of the benefit per £2,000 above £60,000, up to 100% at £80,000. An estate’s income could push you into this bracket, so tally all income sources.
Example: Emma, from our Manchester case, earns £55,000 and receives £10,000 in estate dividends. Her £65,000 income triggers HICBC, reducing her child benefit by 25%. She claims a refund via HMRC if overtaxed.
Advanced IHT Verification and Business Owner Strategies
None of us loves a tax surprise, especially when you’re splitting an estate with siblings and juggling numbers that don’t quite add up. As a chartered accountant with 15 years guiding UK families through inheritance tax (IHT), I’ve seen clients save thousands by double-checking HMRC’s math or leveraging reliefs. This final part dives into advanced verification for complex estates, tailored advice for self-employed executors or business owners, and original tools to ensure you’re not overpaying in 2025/26. Let’s wrap up with practical steps and a clear summary to keep you on track.
What If HMRC’s IHT Demand Seems Off?
Picture this: You’re staring at an HMRC letter claiming £100,000 in IHT, but something feels wrong. In my London practice, I’ve seen errors—like misvalued properties or missed reliefs—cost families dearly. Here’s how to verify HMRC’s calculations:
Review the IHT400 Form: Executors submit this to HMRC, detailing assets, debts, and reliefs. Download it at www.gov.uk/valuing-estate-of-someone-who-died. Cross-check asset valuations (e.g., property at probate value, not sale price).
Check Reliefs and Exemptions: Ensure NRB (£325,000) and any Business Property Relief (BPR) or Agricultural Property Relief (APR) were applied. HMRC sometimes overlooks BPR if business assets aren’t clearly trading-focused.
Verify Gift Calculations: Confirm gifts within seven years were correctly tapered (see Part 2’s Table 2). Use HMRC’s IHT403 form to check exemptions.
Use Your Personal Tax Account: Log into www.gov.uk/check-income-tax-current-year to view estate filings. Contact HMRC’s IHT helpline (0300 123 1072) if discrepancies arise.
Challenge Errors: If HMRC overvalues assets or misses reliefs, write to HMRC within 12 months of the IHT payment deadline, referencing form IHT38 for refunds.
Table 3: Common IHT Errors and Fixes (2025/26)
Analysis: HMRC processed 24,500 IHT-paying estates in 2024/25, with errors in ~10% of cases, per LITRG data. Overvaluations are common for unique assets like art or unquoted shares. Always get independent valuations to challenge HMRC’s figures.
Self-Employed Executors: Managing IHT and Personal Taxes
Now, let’s think about your situation—if you’re self-employed and an executor, you’re juggling estate IHT with your own Self Assessment. I’ve had clients in this boat, like a Bristol freelancer hit by unexpected tax codes while managing a sibling-shared estate. Here’s how to stay on top:
● Separate Estate and Personal Income: Estate income (e.g., rental income during probate) is taxed via your personal tax code, not the estate. Check your code via www.gov.uk/check-income-tax-current-year. Emergency codes (e.g., 1257L M1) can overtax—claim refunds via form R40.
● Deduct Executor Expenses: Reasonable costs (e.g., travel for probate) are deductible from the estate, reducing IHT. Log expenses on IHT400 schedule D8.
● Watch for Side Hustles: If you’re self-employed with multiple income sources (e.g., freelance work, Etsy sales), unreported income can skew your tax code, affecting estate-related taxes. Declare all income via Self Assessment by 31 January 2026 for 2024/25.
● HICBC Risk: Estate income could push you over £60,000, triggering the High Income Child Benefit Charge (1% per £2,000 above, up to 100% at £80,000). Calculate via HMRC’s child benefit calculator at www.gov.uk/child-benefit-tax-calculator.
Case Study: The Self-Employed Executor
Take Raj, a self-employed graphic designer in Cardiff, executor for his mum’s £450,000 estate, split equally with two siblings in 2025. Raj earns £40,000 annually but receives £15,000 in estate rental income, pushing him to £55,000. His tax code shifts to 1100L, under-taxing him initially. IHT is:
● Estate Value: £450,000.
● NRB: £325,000.
● Taxable Amount: £450,000 - £325,000 = £125,000.
● IHT: £125,000 × 40% = £50,000.
● Distribution: £400,000 ÷ 3 = ~£133,333 each.
Raj’s estate income triggers a tax code review, and he faces a £2,000 Self Assessment bill for underpaid tax. He deducts £1,500 in executor travel costs, reducing IHT slightly. Raj checks his personal tax account to correct his code and avoids HICBC by staying under £60,000.
Business Owners: Maximising IHT Savings
If you’re inheriting a family business, BPR is your best friend, but it’s a bit of a minefield. I’ve seen clients lose 50% relief by misclassifying assets. For 2025/26, ensure:
● Trading Status: Prove the business is trading (e.g., manufacturing, not property investment). HMRC rejects BPR for “wholly or mainly” investment businesses.
● Asset Valuation: Value qualifying assets (e.g., machinery, goodwill) separately from non-qualifying ones (e.g., cash reserves). Use a chartered accountant for accuracy.
● Succession Planning: If you’re a business owner planning your estate, transfer shares to siblings early, using the £3,000 annual gift exemption or regular income gifts to reduce the taxable estate.
Worksheet: BPR Verification Tool
● Business name: _______________
● Trading activities: _______________ (e.g., retail, services)
● Qualifying assets: £____ (list: _______________)
● Non-qualifying assets: £____ (e.g., rental property, cash)
● Ownership duration: ____ years (min. 2 for BPR)
● BPR claimed: 100% [ ] 50% [ ]
● Submit IHT418 via www.gov.uk/valuing-estate-of-someone-who-died
Rare Case: Multiple Income Sources and Overpayments
If you or a sibling have multiple jobs or side hustles, tax code errors can creep in, especially during probate. In 2024/25, HMRC refunded £1.2bn in overpaid tax, per MoneyHelper. For example, a sibling with a PAYE job and a side gig might face an emergency tax code (e.g., BR for basic rate) on estate income, overtaxing them. Check P60s and payslips against your personal tax account. Claim overpayments via form R40 within four years.
Summary of Key Points
IHT is 40% on estates over £325,000 (2025/26 NRB), paid before siblings split the remainder.
○ Verify using HMRC’s IHT400 form and personal tax account.
Siblings don’t qualify for the £175,000 residence nil-rate band, unlike direct descendants.
Lifetime gifts within seven years can reduce the NRB, with taper relief (8–32%) for years 3–7.
○ Check bank records to confirm exemptions (£3,000/year).
Unequal shares don’t affect IHT but may cause disputes; consider deeds of variation.
Business Property Relief (BPR) can cut IHT by 50–100% for trading businesses.
○ Submit IHT418 with proof of trading status.
Executors face income tax on estate earnings, which may trigger emergency tax codes.
○ Correct via personal tax account.
Scottish executors face higher income tax rates (e.g., 21% intermediate band).
High Income Child Benefit Charge applies if estate income pushes you over £60,000.
○ Use HMRC’s calculator at www.gov.uk/child-benefit-tax-calculator.
Overvaluations or missed reliefs can inflate IHT; challenge via IHT38 within 12 months.
Self-employed executors must separate estate and personal income for Self Assessment.
FAQs
Q1: Can siblings reduce IHT by redistributing their shares after inheritance?
A1: Well, it’s a clever thought! Siblings can use a deed of variation within two years of death to reallocate estate shares, potentially lowering IHT. For example, redirecting part of the estate to a charity (to qualify for the 36% rate) or equalising shares to avoid disputes can work. I’ve seen families in Birmingham save thousands by redirecting £50,000 to charity, cutting the IHT rate. Always consult a solicitor to ensure the deed is HMRC-compliant.
Q2: How does IHT apply if siblings inherit a jointly owned property?
A2: It’s a common mix-up, but here’s the deal: For a jointly owned property (e.g., tenancy in common), only the deceased’s share counts toward the estate for IHT. If your parent owned 50% of a £400,000 house (£200,000), that’s taxed above the £325,000 nil-rate band. A client in Leeds once overlooked this, overpaying IHT on the full property value. Check the ownership deed and confirm with HMRC.
Q3: What happens if one sibling lives in the inherited family home?
A3: Tricky situation! If one sibling lives in the home but all inherit equally, IHT is still calculated on the estate’s total value. However, the sibling living there might face capital gains tax (CGT) if they buy out others and later sell, as it’s not their primary residence. I’ve advised clients in Manchester to document agreements to avoid CGT surprises. Valuation at probate is key.
Q4: Can siblings claim IHT relief for a family business with mixed assets?
A4: In my experience with clients, Business Property Relief (BPR) can be a lifesaver but gets complicated with mixed assets. Trading assets (e.g., machinery) qualify for 50–100% relief, but investment assets (e.g., rental properties) don’t. For a £600,000 business with £200,000 in non-trading cash, only £400,000 gets BPR. Prove trading status with accounts to avoid HMRC disputes.
Q5: How is IHT handled if siblings inherit through a trust?
A5: Trusts add a layer of complexity, don’t they? If the estate includes a discretionary trust, IHT may apply at creation (if over £325,000) and on distributions (10-year charges or exit fees). Siblings as beneficiaries pay no direct IHT, but the trust’s tax reduces their share. A London client’s trust saved IHT by distributing within two years. Check the trust deed for tax triggers.
Q6: What if a sibling is self-employed and an executor?
A6: As a self-employed executor, you’re juggling two hats. Estate income (e.g., dividends) goes through your Self Assessment, potentially shifting your tax code. A freelancer in Cardiff I advised was overtaxed on £10,000 estate income due to an emergency code. Log expenses (e.g., probate travel) as deductions and check your code via your personal tax account to avoid overpayment.
Q7: Can siblings pay IHT in instalments if inheriting property?
A7: Good news here! HMRC allows IHT on property to be paid in interest-free instalments over 10 years, easing the burden for siblings. For a £500,000 house, IHT (£70,000 above the nil-rate band) can be split into £7,000 annual payments. I’ve seen clients use this to avoid selling assets. Apply via form IHT400 when filing.
Q8: How does IHT work if one sibling is non-UK resident?
A8: It’s worth noting that IHT applies to UK-based assets, regardless of a sibling’s residency. A non-UK resident sibling inherits their share post-IHT, but foreign taxes may apply if they move assets abroad. A client’s brother in Canada faced double taxation until we clarified UK IHT precedence. Check double taxation treaties for relief.
Q9: What if a sibling disputes the estate valuation for IHT?
A9: Disputes happen, and I’ve seen them tear families apart. If a sibling believes HMRC overvalued assets (e.g., a £300,000 house valued at £350,000), request an independent valuation and submit form IHT38 for a refund within 12 months. A Surrey family saved £20,000 by correcting a property valuation error. Act fast to meet deadlines.
Q10: Can siblings claim IHT relief for gifts with reservation of benefit?
A10: Tricky one! If your parent gifted an asset (e.g., a house) but kept using it (e.g., lived there), it’s a gift with reservation of benefit and counts in the estate for IHT. No taper relief applies. I advised a client whose mum “gifted” a flat but stayed rent-free—HMRC taxed it fully. Check usage terms in gift records.
Q11: How does IHT apply to inherited pensions split among siblings?
A11: Pensions can be a tax win! If the deceased was under 75, pension funds inherited by siblings are usually IHT-free and income tax-free if paid as a lump sum. Over 75, income tax applies at the sibling’s marginal rate. A Bristol client avoided IHT on a £100,000 pension but paid 20% income tax. Verify via the pension provider.
Q12: What if siblings inherit assets abroad?
A12: Overseas assets complicate things, don’t they? UK IHT applies to worldwide assets for UK-domiciled deceased, but foreign tax credits may reduce double taxation. A client’s Spanish villa incurred IHT, offset by Spain’s tax treaty. List foreign assets on IHT401 and check treaties to avoid overpaying.
Q13: Can siblings use life insurance to cover IHT?
A13: Smart thinking! Life insurance payouts held in trust are IHT-free and can fund the estate’s IHT bill, preserving assets for siblings. A Liverpool family used a £50,000 policy to cover IHT, avoiding a house sale. Ensure the policy is trust-based to exclude it from the estate.
Q14: How does Scottish residence affect IHT for siblings?
A14: IHT is UK-wide, but Scottish executors face higher income tax on estate earnings (e.g., 21% on £12,571–£31,092). A Glasgow executor I advised was overtaxed on rental income due to a Scottish tax code. Check your personal tax account to adjust and claim refunds if needed.
Q15: What if a sibling inherits a business partnership?
A15: Partnerships are a minefield for BPR. Only the deceased’s share qualifies, and it must be trading-focused. A client’s catering partnership got 100% BPR on £200,000, but HMRC challenged non-trading cash reserves. Document partner agreements and trading activities clearly to secure relief.
Q16: Can siblings claim IHT relief for funeral costs?
A16: Yes, indeed! Reasonable funeral costs (e.g., £5,000 for a service) are deductible from the estate, lowering IHT. A client in Sheffield reduced their estate by £6,000 for cremation and memorial costs. Include these on IHT400 schedule D8, but don’t overclaim (e.g., lavish wakes).
Q17: What if HMRC delays IHT processing for siblings?
A17: Delays are frustrating, aren’t they? HMRC aims to process IHT within 20 weeks, but complex estates take longer. A client waited six months for a £700,000 estate clearance. Chase via the IHT helpline (0300 123 1072) and track via your personal tax account to avoid interest on late payments.
Q18: How does IHT apply if siblings inherit after a surviving spouse?
A18: If a parent dies after their spouse, the surviving spouse’s unused nil-rate band (£325,000) transfers, potentially doubling the tax-free amount to £650,000. A London family I advised saved £130,000 in IHT this way. Confirm transferred allowances on IHT402 when filing.
Q19: Can siblings avoid IHT by selling assets before probate?
A19: Tempting, but it won’t work. IHT is based on the estate’s value at death, not post-death sales. Selling early might trigger CGT if assets appreciate, as a client learned after selling shares pre-probate. Value assets at death and report accurately to avoid penalties.
Q20: What if a sibling’s inheritance pushes them into a higher tax bracket?
A20: Estate income can nudge you up a tax bracket, can’t it? If a sibling receives £20,000 in estate dividends, it’s taxed at their marginal rate (e.g., 40% over £50,270). A Manchester sibling I advised faced a £4,000 tax bill after dividends. Check your tax code and file via Self Assessment to avoid surprises.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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