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Starla

Probate

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Not sure where to put this so OT Forum seems right. I can't find the answer to this on the internet and no one I know has a clue, so here goes with some background.

A year ago, I'm floundering about in London rent-land with nightmare flatmates. A friend of mine had been listening to my issues over the years and kept telling me they "wished they could help". Then, they suddenly chirped up with "Oh, I know how I can help you, I've got a spare house!" This was said in the same way that you might say "Oh, I totally forgot, I've got a spare pair of socks!" FFS, how can you suddenly remember you have a spare house, especially one in Greater London. Friends Dad had died 8 years ago, the house was left to them as the only child in a will with them as the executor. Since that time no probate has been done, the house was left absolutely as is, not touched, no house clearance done, shopping on the bed still etc. Mate was paying the bills on the place, although details are vague. The deal my mate was proposing was that I sort out the house clearance, live in the house, pay the bills, maintain it, do it up to a liveable standard of my choice (place is very dated and realistically needs gutting). They were delighted with this idea and for me it is perfect. Job done, that's where I've lived for the last year.

Once I'd moved in I kept trying to encourage my mate to get their financial affairs in order and to get the probate done. I've never been willed anything and never will be, so it's not an area I'm familiar with. Seems to me that my mate isn't interested in sorting anything out and views this place as their pension in 10 years time, at which point I guess they might do something. So my questions are...

Who's house am I living in? My mates, their parents, David Camerons?

What's the time limit for doing probate?

What happens if you just don't do probate for 5, 10, 15 years?

Does it have tax implications with interest making it really costly if you don't crack on?

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Whilst there is no technical limit on how long you have before probate must be completed you mate is in trouble.

If there is an Inheritance Tax liability - presumably there is on a property in London - thenth a tax return must be filed with the Inland Revenue within 6 months of the date of death otherwise interest or penalties can apply.

I assume, in the 8 years since he inherited the house, the house has soared in price considerably. However, a big chunk of that will no doubt be liable for tax and because he has gone past the 6 months the IR can add interest to that sum, which they will do, and no doubt add some kind of penalty.

The best thing your mate can do is go visit the GP and claim that he/she has been suffering from depression for 8 years, is regularly kidnapped by aliens who anally probe him/her. However, the HMRC is not going to give a feck and the tax will be payable.

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From a tax point of view it's going to depend on the value of the estate at death.

There are statutory penalties for late returns up to a maximum of £3,000. The good news is that the penalties are limited to the amount of tax due, the bad news is that I suspect there is going to be quite a bit of tax due.

Assuming death at some point in 2005 the IHT nil rate band at the time would be £275,000; if the death occurred post October 2007 that band could be effectively doubled by the mothers unused nil rate band (assuming that they weren't separated at the time of death etc) but given the information provided this is unlikely to be the case.

IHT of 40% will be due on on the value of the estate above £275,000; given that the estate included a house in London plus possibly substantial other assets (i.e. money, shares etc) this could be quite a significant sum of money.

Assuming for example that the house was worth £450,000 at the time and there was another £25,000 in cash and savings (and no debts), the value of the estate would be £475,000, which of course gives an excess over the nil rate band of £200,000. Legally therefore IHT of £200,000 x 40% = £80,000 would be due approximately 7 years ago - the interest on that would be not insubstantial in itself.

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Thanks Goat & TMT - I should have added more detail in original post.

House is in Greater London, not a particularly desirable part, very average, and looking at sold prices for similar I'd say it was around £240k in 2005ish and now £300k-£320k. Sort of place where I expect prices will get pushed up by central London refugees. Those prices take into account that there is a heck of a lot of work to do (new heating system, needs re-wiring/new plug sockets, kitchen etc et, needs gutting I'd say). So if I understand that right they'd be clear from tax as under £275k but need to pay a 3k late fee.

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What Goat said.

Basically I think your friend is lucky about the housing boom - will probably need to sell the house to pay the tax and the interest/penalties. Best for him to do that now don't you think whilst London house prices are so high.

Of course, he could get a mortgage and get in professional lodgers. Would need to do the house up first of all of course.

Another problem is that any insurance on the property is no doubt void. No insurance company will pay out for a house like this. They will take the monthly premiums but if the house burnt down they would argue that all sorts of reasons not to pay out.

Serious question - is your friend depressed?

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What Goat said.

Basically I think your friend is lucky about the housing boom - will probably need to sell the house to pay the tax and the interest/penalties. Best for him to do that now don't you think whilst London house prices are so high.

Of course, he could get a mortgage and get in professional lodgers. Would need to do the house up first of all of course.

Another problem is that any insurance on the property is no doubt void. No insurance company will pay out for a house like this. They will take the monthly premiums but if the house burnt down they would argue that all sorts of reasons not to pay out.

Serious question - is your friend depressed?

Mate doesn't want to get in professional lodgers/tenants as that would involve spending about 20k+ to get the place to legal standard, plus it was where they grew up and they don't want anyone living there that they don't trust. From an emotional point of view I get that, but from a practical point of view it makes zero sense to me. They are the sort of person that is NOT good with money, complete opposite of an HPC'er and spends money like there is no tomorrow on pointless rubbish. They have shopping enduced debts. In some ways it's good that they don't sell it as I'd envisage all the money being gone in about 10 years. As for the serious question, yes I think they are deeply unhappy in certain areas of life, hence the unbridled spending and little grasp on how to sort it out. I've tried to help.

I'd considered the insurance angle and if the house happened to burn down with me in it, that could lead to a whole new set of issues!

Edit: I've stopped getting bils in his Dads name, but still getting letters from the bank?!

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Mate doesn't want to get in professional lodgers/tenants as that would involve spending about 20k+ to get the place to legal standard, plus it was where they grew up and they don't want anyone living there that they don't trust. From an emotional point of view I get that, but from a practical point of view it makes zero sense to me. They are the sort of person that is NOT good with money, complete opposite of an HPC'er and spends money like there is no tomorrow on pointless rubbish. They have shopping enduced debts. In some ways it's good that they don't sell it as I'd envisage all the money being gone in about 10 years. As for the serious question, yes I think they are deeply unhappy in certain areas of life, hence the unbridled spending and little grasp on how to sort it out. I've tried to help.

I'd considered the insurance angle and if the house happened to burn down with me in it, that could lead to a whole new set of issues!

Edit: I've stopped getting bils in his Dads name, but still getting letters from the bank?!

I mentioned depression because you say the house is basically the same as when his dad died.

It is possible that he is suffering from clinical depression as the result of losing his dad - yes, this can go on for many, many years. I also mention it as, if he was diagnosed with clinical depression due to still grieving for his dad, it might just give him a get out of jail card when it came to paying interest and fines on not paying the inheritance tax.

The tax will still have to be paid and he would probably need to hire lawyers but if he is depressed then he is depressed. If such a route was taken then leaving the house as is would probably be best.

One important question - are you sure you know how his dad died? He hasn't knocked him off and buried him in the basement has he? This is a serious question. Perhaps you are being set up for murder????

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From a tax point of view it's going to depend on the value of the estate at death.

There are statutory penalties for late returns up to a maximum of £3,000. The good news is that the penalties are limited to the amount of tax due, the bad news is that I suspect there is going to be quite a bit of tax due.

Assuming death at some point in 2005 the IHT nil rate band at the time would be £275,000; if the death occurred post October 2007 that band could be effectively doubled by the mothers unused nil rate band (assuming that they weren't separated at the time of death etc) but given the information provided this is unlikely to be the case.

IHT of 40% will be due on on the value of the estate above £275,000; given that the estate included a house in London plus possibly substantial other assets (i.e. money, shares etc) this could be quite a significant sum of money.

Assuming for example that the house was worth £450,000 at the time and there was another £25,000 in cash and savings (and no debts), the value of the estate would be £475,000, which of course gives an excess over the nil rate band of £200,000. Legally therefore IHT of £200,000 x 40% = £80,000 would be due approximately 7 years ago - the interest on that would be not insubstantial in itself.

Thanks Goat, v helpful. Mother died 15 years before, so just Dad leaving everything to Son. So assuming death in 2005 and the sum of the property and any cash left is less than £275,000 then no tax to pay? Just a max 3k late penalty and they can just leave the probate indefinately?

One important question - are you sure you know how his dad died? He hasn't knocked him off and buried him in the basement has he? This is a serious question. Perhaps you are being set up for murder????

I have checked with the neighbours and the story stacks. I've been in the loft and the patio is original from the 1970's,

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Thanks Goat, v helpful. Mother died 15 years before, so just Dad leaving everything to Son. So assuming death in 2005 and the sum of the property and any cash left is less than £275,000 then no tax to pay? Just a max 3k late penalty and they can just leave the probate indefinately?

If you want him to pay less tax then the worst state the house is in the better for him.

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If you want him to pay less tax then the worst state the house is in the better for him.

Oh. I might have accidently added 5-10% onto the house value by the house clearance, completely re-decorating and sorting out the garden. Mind you they do say you should leave a rental in the state you found it in, so I'll have to organise the mother of all Facebook parties before I go.

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To be honest, probably the best thing to do for him is to dismantle the whole thing brick by brick and just pretend it never existed.

pretend what never existed?

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Seriously, your friend is in a financial pickle and it is just getting worse. You need to point out these things to him.

It's all I've done for 12 months. It's like telling to Liberace to economise.

pretend what never existed?

Nothing to see here.

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Seriously, your friend is in a financial pickle and it is just getting worse. You need to point out these things to him.

If he changes his first name to his fathers then no one will ever know when he sells or bequeaths the house that he never owned it.

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Interesting thread this, I'm afraid I have no useful knowledge to add. What I'm not understanding is why, if the house was worth £250k in 2007 when the IHT nil-rate was £275k, Starla's friend is in a pickle? Surely they can just sort it at their leisure and pay the piffling £3k late fine as and when?

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Oh. I might have accidently added 5-10% onto the house value by the house clearance, completely re-decorating and sorting out the garden. Mind you they do say you should leave a rental in the state you found it in, so I'll have to organise the mother of all Facebook parties before I go.

If you can show receipts for the work you've done then you can prove that the improvements were carried out after the date of death.

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From a tax point of view it's going to depend on the value of the estate at death.

There are statutory penalties for late returns up to a maximum of £3,000. The good news is that the penalties are limited to the amount of tax due, the bad news is that I suspect there is going to be quite a bit of tax due.

Assuming death at some point in 2005 the IHT nil rate band at the time would be £275,000; if the death occurred post October 2007 that band could be effectively doubled by the mothers unused nil rate band (assuming that they weren't separated at the time of death etc) but given the information provided this is unlikely to be the case.

IHT of 40% will be due on on the value of the estate above £275,000; given that the estate included a house in London plus possibly substantial other assets (i.e. money, shares etc) this could be quite a significant sum of money.

Assuming for example that the house was worth £450,000 at the time and there was another £25,000 in cash and savings (and no debts), the value of the estate would be £475,000, which of course gives an excess over the nil rate band of £200,000. Legally therefore IHT of £200,000 x 40% = £80,000 would be due approximately 7 years ago - the interest on that would be not insubstantial in itself.

:o I'm glad I won't inherit any property!

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Thanks Goat, v helpful. Mother died 15 years before, so just Dad leaving everything to Son. So assuming death in 2005 and the sum of the property and any cash left is less than £275,000 then no tax to pay? Just a max 3k late penalty and they can just leave the probate indefinately?

If there's no tax to pay then the penalty should be reduced to zero.

One small wrinkle I didn't mention earlier, the threshold was £275,000 from 6 April 2005 onwards, if the death was before this date then it is £263,000.

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A probate is a thing up a man's bottom! ;)

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If you can show receipts for the work you've done then you can prove that the improvements were carried out after the date of death.

Not as simple as that. The valuation at time of death is what Inheritance tax is levied upon.

However, if by the time you come to sell it, if it has gone up in value, then they levy capital gains on the increase, less the cost of the repairs.

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I would have thought this sort of burying their head in the sand, regarding financial affairs, is fairly common among those particularly badly hit by bereavement.

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