Insurance proceeds and inheritance tax

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The personal representative or Executors of a deceased individual must value the deceased’s estate at the date of his death to determine its liability to inheritance tax (IHT).

A deceased’s estate is defined (section 5, Inheritance Tax Act 1984 (IHTA 1984)) as the aggregate of all the property to which he is beneficially entitled immediately before his death. One question faced by Executors is whether any potential insurance claims that have not yet paid out before death need to be taken into account.

If the insurance claim is an asset of the estate within section 5 IHTA then the value of the claim will be liable to IHT.

Section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934 provides that any cause of action existing at the date of an individual’s death survives either for the benefit of or against his estate (subject to certain exceptions being claims for defamation, and claims for bereavement under section 1A of the Fatal Injuries Act 1976).

Of particular interest at the moment is the treatment of Flood Damage Insurance.  Many claims from 2013 are still being processed and the Executors will need to consider the value of any claim, whether this is likely to succeed and the costs to the estate of completing the claim.

For further information in relation to the valuation of a property that is damaged at the date of death see HMRC InheritanceTax ManualIHTM23015 – Investigation of form IHT405: Page 4 of form IHT405 – special factors that affect the value andIHTM23203 – Special valuation matters: property subject to damage affecting its value.

 

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