Inheritance tax
Discussion
If you're asking about the nil rate band allowance, parent B gets added to their own allowance what was left from parent A's allowance.
i.e. if parent A left everything to their spouse/civil partner, assuming it is parent B, then parent B gets double the allowance applicable at the death of parent B.
i.e. if parent A left everything to their spouse/civil partner, assuming it is parent B, then parent B gets double the allowance applicable at the death of parent B.
The current Nil Rate Band threshold is £325,000.
If a single person dies leaving an estate worth (say) £425,000 to their brother or child, the estate will pay 40% IHT on £100,000 i.e. £40,000.
If a married person or someone in a civil partnership dies and leaves a similar estate to their spouse/civil partner - the entire transfer is completely IHT free.
They also pass on their own £325,000 Nil Rate Band - turning the spouse's/civil partner's Nil Rate band into £650,000 (£325,000 x 2).
When this individual dies, their estate is covered by a total Nil Rate Band of £650,000.
People who live in non-formal relationships (i.e. are not married or not in a Civil Partnership), this doubling of the nil Rate Band does not apply.
If a single person dies leaving an estate worth (say) £425,000 to their brother or child, the estate will pay 40% IHT on £100,000 i.e. £40,000.
If a married person or someone in a civil partnership dies and leaves a similar estate to their spouse/civil partner - the entire transfer is completely IHT free.
They also pass on their own £325,000 Nil Rate Band - turning the spouse's/civil partner's Nil Rate band into £650,000 (£325,000 x 2).
When this individual dies, their estate is covered by a total Nil Rate Band of £650,000.
People who live in non-formal relationships (i.e. are not married or not in a Civil Partnership), this doubling of the nil Rate Band does not apply.
Sounds like the combined Nil Rate Bands will come into effect. It doesn't matter how many recipients there are. The IHT is based on the value of the estate that exceeds the Nil Rate Band threshold.
I presume there is a professional involved in overseeing the distribution of the deceased's estate?
I presume there is a professional involved in overseeing the distribution of the deceased's estate?
boxst said:
A related question if you don't mind.
If my Mother dies, can she leave 'her' 50% of the house to me? Then when my father dies he leaves the remainder to me. Does that get around the £325K? (Total value is probably £500K).
Thanks for any answers.
Steve
The allowances are cumulative between spouses therefore in the scenario you describe the threshold for IHT will be £650k. With a total value of £500k there will be no IHT to pay.If my Mother dies, can she leave 'her' 50% of the house to me? Then when my father dies he leaves the remainder to me. Does that get around the £325K? (Total value is probably £500K).
Thanks for any answers.
Steve
Note: IHT is not calculated on the basis of what you receive - it's calculated on the basis of what the deceased/donor has given away. So any gifts made by the deceased/donor in the 7 years before death must be taken into account.
As an extreme and over-simplified example, if three years ago someone gave away money equal to their nil rate IHT band (£325k) to person A, and then in their will leaves £100k to person B, person B will only get £60,000 after 40% IHT has been paid/deducted by the executors. The fact person B had received nothing previously makes no difference.
As an extreme and over-simplified example, if three years ago someone gave away money equal to their nil rate IHT band (£325k) to person A, and then in their will leaves £100k to person B, person B will only get £60,000 after 40% IHT has been paid/deducted by the executors. The fact person B had received nothing previously makes no difference.
boxst said:
A related question if you don't mind.
If my Mother dies, can she leave 'her' 50% of the house to me? Then when my father dies he leaves the remainder to me. Does that get around the £325K? (Total value is probably £500K).
Thanks for any answers.
Steve
Be careful with this and take professional advice. As it stands it appears to be ok as the property value is below the nil rate threshold. If the property value or nil rate threshold changes so that the property value is greater than the threshold you may have an issue. Will your father be paying you a market rate rent to cover your 50%?If my Mother dies, can she leave 'her' 50% of the house to me? Then when my father dies he leaves the remainder to me. Does that get around the £325K? (Total value is probably £500K).
Thanks for any answers.
Steve
Eric Mc said:
What allowance is this?
I believe he is referring to this. https://www.gov.uk/government/publications/inherit...Ozzie Osmond said:
Note: IHT is not calculated on the basis of what you receive - it's calculated on the basis of what the deceased/donor has given away. So any gifts made by the deceased/donor in the 7 years before death must be taken into account.
As an extreme and over-simplified example, if three years ago someone gave away money equal to their nil rate IHT band (£325k) to person A, and then in their will leaves £100k to person B, person B will only get £60,000 after 40% IHT has been paid/deducted by the executors. The fact person B had received nothing previously makes no difference.
The 7 year rule is tapered years 1-3 is 40% do if total estate plus this gift is within the free range you pay nothing if it's over then 40% applies then it goes to 32% and to 8% in year 7 then year 8 zero tax to pay. As an extreme and over-simplified example, if three years ago someone gave away money equal to their nil rate IHT band (£325k) to person A, and then in their will leaves £100k to person B, person B will only get £60,000 after 40% IHT has been paid/deducted by the executors. The fact person B had received nothing previously makes no difference.
Generally speaking this is how the wealthy end up paying no Ontario they simply give it away throughout their lives on a rolling year on year gift setup so in an ideal world when they die they are under the threshold or that the tax due is so insignificant in the grand scheme of things meh pay up
Welshbeef said:
The 7 year rule is tapered years 1-3 is 40% do if total estate plus this gift is within the free range you pay nothing if it's over then 40% applies then it goes to 32% and to 8% in year 7 then year 8 zero tax to pay.
Yes, thanks. The main point I was trying to make got lost in my over-simplification. Namely, that although the rate of tax payable on lifetime gifts made within 7 years of death tapers as you have described, the £325k tax free band remains fully "used" until the entire 7 years has expired. Later gifts under the Will may well end up fully taxed at 40% even if the £325k band was used 6 years previously. In other words it's the tax on the lifetime gift which tapers - not the value of the gift itself.As regards who actually pays IHT you make the valid point that it's an avoidable tax. At the end of the day it is, like stamp duty, a "tax on houses in London and the South East".
IHT is no longer a concern for the very wealthy, it deserves careful consideration by many more people than it used to. For many (not all) people, writing insurance into trust covers off the gifting issue in the simplest way. A cash gift to children (for example) may be classed as a potential exempt transfer (PET) but, as stated, it only become IHT free if the person making the gift survives seven years from the time he or she made the gift.
If the donor doesn’t survive the seven years then a PET will most probably form part of the donor's estate and could result in an IHT liability. Specifically, a Gift Inter Vivos insurance policy written into trust could address the issue. The value of the sum insured declines in a pre programmed descent profile over the course of seven years.
A few years back, there was one mighty hoohah about gifting to charities, to avoid IHT. 'What was a charitable contribution compared to a donation to a charity' for instance? A reduced rate of IHT of 36% applies where 10% or more of a net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity.
The EU even got pulled in, widening the scope of charities to whom a gift may be made, thereby avoiding some IHT. A gift to a needy individual however, even if made with charitable motives, is not a gift for charitable purposes within the meaning of IHT regulation. All complex though, as gifting and using other allowances can affect the donation baseline - take care and advice you trust.
You can also blag your way out by gifting to the National Monuments Register and claiming tax relief for gifts made to national heritage assets. The gift must be to a building, estate, parklands of asset of outstanding historical or architectural interest, land with outstanding natural beauty and spectacular views, of outstanding scientific interest or an object with national interest.
Not at all, any institutional nepotism behind some of those ones, right? The full list..
http://www.hmrc.gov.uk/heritage/lbsearch.htm
http://www.hmrc.gov.uk/heritage/colsearch.htm
If you receive assets in a will, you have two years in which to make a variation to the will, in order to improve your IHT position. Thank god we had a discussion about IHT which hasn't included the Franklin quote about the only two things in life we can be certain about are death and taxe.. oh, bugger.
If the donor doesn’t survive the seven years then a PET will most probably form part of the donor's estate and could result in an IHT liability. Specifically, a Gift Inter Vivos insurance policy written into trust could address the issue. The value of the sum insured declines in a pre programmed descent profile over the course of seven years.
A few years back, there was one mighty hoohah about gifting to charities, to avoid IHT. 'What was a charitable contribution compared to a donation to a charity' for instance? A reduced rate of IHT of 36% applies where 10% or more of a net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity.
The EU even got pulled in, widening the scope of charities to whom a gift may be made, thereby avoiding some IHT. A gift to a needy individual however, even if made with charitable motives, is not a gift for charitable purposes within the meaning of IHT regulation. All complex though, as gifting and using other allowances can affect the donation baseline - take care and advice you trust.
You can also blag your way out by gifting to the National Monuments Register and claiming tax relief for gifts made to national heritage assets. The gift must be to a building, estate, parklands of asset of outstanding historical or architectural interest, land with outstanding natural beauty and spectacular views, of outstanding scientific interest or an object with national interest.
Not at all, any institutional nepotism behind some of those ones, right? The full list..
http://www.hmrc.gov.uk/heritage/lbsearch.htm
http://www.hmrc.gov.uk/heritage/colsearch.htm
If you receive assets in a will, you have two years in which to make a variation to the will, in order to improve your IHT position. Thank god we had a discussion about IHT which hasn't included the Franklin quote about the only two things in life we can be certain about are death and taxe.. oh, bugger.
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