Inheritance Tax - Check my workings please?
Discussion
I've sadly become Executor for an estate this week, and just getting my head around what needs to be done.
- Mr and Mrs Person lived in and jointly owned a house since 1970.
- Mrs Person died in 1995 and left her share of the house to Mr Person.
- Mr Person passed away recently, leaving his entire estate to their 2 sons.
From a quick read of MSE and a few other places (the HMRC guidance is not the easiest to follow!), I think;
Mrs Person had an unused £325K threshold, and also benefits from an additional £175K residence nil rate band (so total £500K).
Mr Person has the same, and his threshold + nil-rate band is added to hers due to inheriting her share of the house.
So the IHT threshold that now applies to the estate of Mr Person is £1M - do I have that right?
Thanks in advance.
- Mr and Mrs Person lived in and jointly owned a house since 1970.
- Mrs Person died in 1995 and left her share of the house to Mr Person.
- Mr Person passed away recently, leaving his entire estate to their 2 sons.
From a quick read of MSE and a few other places (the HMRC guidance is not the easiest to follow!), I think;
Mrs Person had an unused £325K threshold, and also benefits from an additional £175K residence nil rate band (so total £500K).
Mr Person has the same, and his threshold + nil-rate band is added to hers due to inheriting her share of the house.
So the IHT threshold that now applies to the estate of Mr Person is £1M - do I have that right?
Thanks in advance.
Dave2P said:
I've sadly become Executor for an estate this week, and just getting my head around what needs to be done.
- Mr and Mrs Person lived in and jointly owned a house since 1970.
- Mrs Person died in 1995 and left her share of the house to Mr Person.
- Mr Person passed away recently, leaving his entire estate to their 2 sons.
From a quick read of MSE and a few other places (the HMRC guidance is not the easiest to follow!), I think;
Mrs Person had an unused £325K threshold, and also benefits from an additional £175K residence nil rate band (so total £500K).
Mr Person has the same, and his threshold + nil-rate band is added to hers due to inheriting her share of the house.
So the IHT threshold that now applies to the estate of Mr Person is £1M - do I have that right?
Thanks in advance.
As long as its children inheriting the house then yes to the 2x175k. If it's not then you lose that. Otherwise correct- Mr and Mrs Person lived in and jointly owned a house since 1970.
- Mrs Person died in 1995 and left her share of the house to Mr Person.
- Mr Person passed away recently, leaving his entire estate to their 2 sons.
From a quick read of MSE and a few other places (the HMRC guidance is not the easiest to follow!), I think;
Mrs Person had an unused £325K threshold, and also benefits from an additional £175K residence nil rate band (so total £500K).
Mr Person has the same, and his threshold + nil-rate band is added to hers due to inheriting her share of the house.
So the IHT threshold that now applies to the estate of Mr Person is £1M - do I have that right?
Thanks in advance.
Note that you can claim the 325x2 on the online probate portal thingy but you need to claim the 175x2 separately
Just been through this myself for my late father (mum passed in 2017)
hth
Apologies for thread hijack - but i wonder if anybody could advise;
if Mr PH Director's ISA + other cash exceeds £325k (let's say it's £500k) then, on his death ALL of it can transfer to his wife without any IHT.
On Mrs PHD's death she s has £800k cash plus a £200k house.
Am i right in thinking that only £650k cash is IHT free even though the combined IHT band is £1m ? ie the IHT thresholds are £650k cash and £350k property?
Thanks in advance
if Mr PH Director's ISA + other cash exceeds £325k (let's say it's £500k) then, on his death ALL of it can transfer to his wife without any IHT.
On Mrs PHD's death she s has £800k cash plus a £200k house.
Am i right in thinking that only £650k cash is IHT free even though the combined IHT band is £1m ? ie the IHT thresholds are £650k cash and £350k property?
Thanks in advance
The full £350k (2x£175k) is only available if the home/residence is worth £350k or more (and this home, or the value when sold, is passed down to blood descendants).
If the home was only worth £200k when the second to die passed away, then the max IHT relief would be £850k (2 x £325k + 2 x £100k).
BTL’s won’t ever qualify. It has to be the home that is passed down (albeit there is a fix if the deceased has to move into long term care prior to death).
If the home was only worth £200k when the second to die passed away, then the max IHT relief would be £850k (2 x £325k + 2 x £100k).
BTL’s won’t ever qualify. It has to be the home that is passed down (albeit there is a fix if the deceased has to move into long term care prior to death).
Mogul said:
The full £350k (2x£175k) is only available if the home/residence is worth £350k or more (and this home, or the value when sold, is passed down to blood descendants).
If the home was only worth £200k when the second to die passed away, then the max IHT relief would be £850k (2 x £325k + 2 x £100k).
BTL’s won’t ever qualify. It has to be the home that is passed down (albeit there is a fix if the deceased has to move into long term care prior to death).
Thanks If the home was only worth £200k when the second to die passed away, then the max IHT relief would be £850k (2 x £325k + 2 x £100k).
BTL’s won’t ever qualify. It has to be the home that is passed down (albeit there is a fix if the deceased has to move into long term care prior to death).
I don't know why but mentally I'd assumed that the total IHT relief was £1m and not separate allowances for House and for other assets.
Yes that's true.
Although there a quite a few investment opportunities that would make the excess cash exempt from IHT after only 2 years.
You have to use an IFA to invest in these IHT funds.
You can also take out a policy that would pay you the IHT amount if the investor died before the 2 year period.
It's a very good alternative to gifting as the assets remain with the owner but become IHT exempt much quicker than the 7 year gifting rules.
Although there a quite a few investment opportunities that would make the excess cash exempt from IHT after only 2 years.
You have to use an IFA to invest in these IHT funds.
You can also take out a policy that would pay you the IHT amount if the investor died before the 2 year period.
It's a very good alternative to gifting as the assets remain with the owner but become IHT exempt much quicker than the 7 year gifting rules.
A993LAD said:
You can also take out a policy that would pay you the IHT amount if the investor died before the 2 year period.
It's a very good alternative to gifting as the assets remain with the owner but become IHT exempt much quicker than the 7 year gifting rules.
Without hijacking the thread - does anyone have any positive (as it can be) experience of that type of product? It's a very good alternative to gifting as the assets remain with the owner but become IHT exempt much quicker than the 7 year gifting rules.
Specifically ones written into trust to take it outside of IHT - with goal of paying off or significantly contributing to a bill.
robscot said:
Without hijacking the thread - does anyone have any positive (as it can be) experience of that type of product?
Specifically ones written into trust to take it outside of IHT - with goal of paying off or significantly contributing to a bill.
Are you asking about the Investment funds that become IHT exempt after two years?Specifically ones written into trust to take it outside of IHT - with goal of paying off or significantly contributing to a bill.
Or the insurance policy that can run alongside the investment to pay the IHT in the event that the asset owner dies before the 2-year period is complete?
A993LAD said:
Yes that's true.
Although there a quite a few investment opportunities that would make the excess cash exempt from IHT after only 2 years.
You have to use an IFA to invest in these IHT funds.
I think the easier option is going to be to gift everything over £650k to my kids as I get closer to shuffling off this mortal coil Although there a quite a few investment opportunities that would make the excess cash exempt from IHT after only 2 years.
You have to use an IFA to invest in these IHT funds.
My father's estate was worth about 600 k more than his IHT allowance.
It was possible to realise the 600k in cash and still retain the house.
So for us it made sense to put the 600k into these IHT exempt investments which means no IHT is payable on the return from the Investments provided the Investor has lived for two years after the Investment was taken out.
I could have insured the whole amount such that the insurer would have paid the equivalent of the IHT if my father hasn't lived for the two-year period. I only insured half of the amount (reduces the premiums) as I expected my father likely to live longer than 2 years. I haven't actually had to make a claim because he did live for the 2 years but the insurance policy seemed watertight and was Verified by my IFA.
I also split the total amount invested between three different IHT investment companies/funds. Octopus, Foresight and TriplePoint.
They aim to deliver around 3% growth on the capital but this isn't guaranteed and like any Investments they can go up or down. But what is guaranteed is if the Investor lives for two years or more then the Investment is exempt from the 40% IHT. So to be honest any growth on the capital above that is just a bonus.
In reality all three of the different IHT Investments I took out have grown by more than 3% each year. In fact one of them Returned 6% last year when all of my personal investments in stocks, shares and the ISAs went backwards.
Interesting that you ask about using a trust fund instead. My IFA did outline the benefits of a trust fund in that it would be exempt from IHT pretty much immediately I think. But the downside is he was recommending an offshore trust fund which is usually the case in these scenarios. And whilst it would have been exempt from IHT at 40% it would still be subject to income and other taxes on the part of any beneficiaries when the trust funds were released.
So I decided to go down the IHT investment route because it is then free from IHT but also forms part of the estate for probate and is not subject to personal taxes on the part of the beneficiaries receiving the cash from the estate.
It was possible to realise the 600k in cash and still retain the house.
So for us it made sense to put the 600k into these IHT exempt investments which means no IHT is payable on the return from the Investments provided the Investor has lived for two years after the Investment was taken out.
I could have insured the whole amount such that the insurer would have paid the equivalent of the IHT if my father hasn't lived for the two-year period. I only insured half of the amount (reduces the premiums) as I expected my father likely to live longer than 2 years. I haven't actually had to make a claim because he did live for the 2 years but the insurance policy seemed watertight and was Verified by my IFA.
I also split the total amount invested between three different IHT investment companies/funds. Octopus, Foresight and TriplePoint.
They aim to deliver around 3% growth on the capital but this isn't guaranteed and like any Investments they can go up or down. But what is guaranteed is if the Investor lives for two years or more then the Investment is exempt from the 40% IHT. So to be honest any growth on the capital above that is just a bonus.
In reality all three of the different IHT Investments I took out have grown by more than 3% each year. In fact one of them Returned 6% last year when all of my personal investments in stocks, shares and the ISAs went backwards.
Interesting that you ask about using a trust fund instead. My IFA did outline the benefits of a trust fund in that it would be exempt from IHT pretty much immediately I think. But the downside is he was recommending an offshore trust fund which is usually the case in these scenarios. And whilst it would have been exempt from IHT at 40% it would still be subject to income and other taxes on the part of any beneficiaries when the trust funds were released.
So I decided to go down the IHT investment route because it is then free from IHT but also forms part of the estate for probate and is not subject to personal taxes on the part of the beneficiaries receiving the cash from the estate.
Edited by A993LAD on Monday 27th March 14:23
Countdown said:
Apologies for thread hijack - but i wonder if anybody could advise;
if Mr PH Director's ISA + other cash exceeds £325k (let's say it's £500k) then, on his death ALL of it can transfer to his wife without any IHT.
On Mrs PHD's death she s has £800k cash plus a £200k house.
Am i right in thinking that only £650k cash is IHT free even though the combined IHT band is £1m ? ie the IHT thresholds are £650k cash and £350k property?
Thanks in advance
OT and you may be already aware but....if Mr PH Director's ISA + other cash exceeds £325k (let's say it's £500k) then, on his death ALL of it can transfer to his wife without any IHT.
On Mrs PHD's death she s has £800k cash plus a £200k house.
Am i right in thinking that only £650k cash is IHT free even though the combined IHT band is £1m ? ie the IHT thresholds are £650k cash and £350k property?
Thanks in advance
Regarding the bit I have bolded, the ISA status of this part need not be lost either as long as it is transferred to an Additional Allowance ISA account. Once in there it could be transferred to any regular ISA that accepts transfers
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