Inheritance tax- questions help
Discussion
Can anyone help me understand how this works please?
Dad died in 1994 - left all to mum.
Mum is in way out - has 3/4 years maybe
House is worth £6-700k
Bank accounts are £250k
May need to spend £100k on care for mum.
Sister lives at mums house (never left home - now mums carer)
Are we able to use £650k as the threshold or will it be £325k before 40% tax.
So confusing - just want the most tax efficient route really.
Can anyone advise please
Dad died in 1994 - left all to mum.
Mum is in way out - has 3/4 years maybe
House is worth £6-700k
Bank accounts are £250k
May need to spend £100k on care for mum.
Sister lives at mums house (never left home - now mums carer)
Are we able to use £650k as the threshold or will it be £325k before 40% tax.
So confusing - just want the most tax efficient route really.
Can anyone advise please
Went through this process earlier this year when mum died. As your dad left everything to your mum, no IHT liability was incurred then and you can utilise all "his" allowance at the current level on your mum's estate when the time comes - unless they change the rules in the meantime...
In 2017, your mum will get a further £100,000 IHT nil rate band as part of the new Main Residence Allowance, which will increase by £25,000 a year to 2020. Therefore in 2017, the estate could be IHT free up to £750k (2 x £325k nil rate bands, plus one £100k main residence allowance), which will increase to ££825k by 2020. Anything over that would be subject to 40% IHT.
It looks like you will need to pay some IHT unfortunately, especially if you may need the cash available for care and therefore don't want to tie it up to try and mitigate the IHT charge
It looks like you will need to pay some IHT unfortunately, especially if you may need the cash available for care and therefore don't want to tie it up to try and mitigate the IHT charge
Thanks all, for a while I thought that we would be subject to anything over £325k of the estate being 40% and so would be looking at a horrific tax bill.
If I put aside £100k for mums care, and topped it up with my own funds if it was necessary, what would be the most IHT efficient way to deal with the other £150k?
I want to protect the money from incurring tax as this is ultimately going to be my children's inheritance in many (I hope) years.
If I put aside £100k for mums care, and topped it up with my own funds if it was necessary, what would be the most IHT efficient way to deal with the other £150k?
I want to protect the money from incurring tax as this is ultimately going to be my children's inheritance in many (I hope) years.
Does the OP's mum get to use £325K from the OP's dad, or because OP's dad died 1994 when the threshold was only £150K and not £325K, does she only get to use the £150K. If so, only the first £475K will be IHT exempt, not £650K (should she die before 2017).
As the transfer of unused threshold to spouse didn't exist in 1994, can OP's mum use it at all, as if not, the tax free amount is back at £325K?
I don't know the answer, but gut feeling says they rarely backdate a benefit that you wouldn't have got at the time.
As the transfer of unused threshold to spouse didn't exist in 1994, can OP's mum use it at all, as if not, the tax free amount is back at £325K?
I don't know the answer, but gut feeling says they rarely backdate a benefit that you wouldn't have got at the time.
TwigtheWonderkid said:
Does the OP's mum get to use £325K from the OP's dad, or because OP's dad died 1994 when the threshold was only £150K and not £325K, does she only get to use the £150K. If so, only the first £475K will be IHT exempt, not £650K (should she die before 2017).
As the transfer of unused threshold to spouse didn't exist in 1994, can OP's mum use it at all, as if not, the tax free amount is back at £325K?
I don't know the answer, but gut feeling says they rarely backdate a benefit that you wouldn't have got at the time.
Amazingly, yes. It's done as a percentage. For example if in 1994 the father left 10% to someone else, that would leave 90% unused allowance and it's still 90% - ie £292,500.As the transfer of unused threshold to spouse didn't exist in 1994, can OP's mum use it at all, as if not, the tax free amount is back at £325K?
I don't know the answer, but gut feeling says they rarely backdate a benefit that you wouldn't have got at the time.
hman said:
If I put aside £100k for mums care, and topped it up with my own funds if it was necessary, what would be the most IHT efficient way to deal with the other £150k?
There are certain investments that would make that money fall outside the estate within 2 years, but they are generally high risk. You could look at putting the money into trust, but it would take 7 years to fully fall outside the estate. This is quite a specialist area and you'd be best served seeking financial advice.However, in my opinion, it wouldn't be worth using your own money for care - you may as well use money that will be subject to IHT anyway to reduce the size of the estate?
Simpo Two said:
TwigtheWonderkid said:
Does the OP's mum get to use £325K from the OP's dad, or because OP's dad died 1994 when the threshold was only £150K and not £325K, does she only get to use the £150K. If so, only the first £475K will be IHT exempt, not £650K (should she die before 2017).
As the transfer of unused threshold to spouse didn't exist in 1994, can OP's mum use it at all, as if not, the tax free amount is back at £325K?
I don't know the answer, but gut feeling says they rarely backdate a benefit that you wouldn't have got at the time.
Amazingly, yes. It's done as a percentage. For example if in 1994 the father left 10% to someone else, that would leave 90% unused allowance and it's still 90% - ie £292,500.As the transfer of unused threshold to spouse didn't exist in 1994, can OP's mum use it at all, as if not, the tax free amount is back at £325K?
I don't know the answer, but gut feeling says they rarely backdate a benefit that you wouldn't have got at the time.
megaphone said:
Your mother could gift you and your sister money now, even after two years the IHT liability decreases, hopefully your mother will live longer, after 7 years the gift is IHT free.
Remember though, her house may well go up in value which will mean more liability.
If she leaves half the house to OP and half to OP's sister now, and either one of their marriages goes down the tubes, wouldn't their ex spouse then own 25% of mum's house, even though she's still alive? Could they force sale to get their money out?Remember though, her house may well go up in value which will mean more liability.
Simpo Two said:
So if a Gift and a Trust both take 7 years to work through, what are the advantages of the (more expensive and complex) Trust?
The settlor (I.e. The person that gifts the money into the trust) can retain some control over it, how it's invested, the beneficiaries of the trust could be changed, so you don't have to decide who gets the money right now. If the money was gifted, it is then in that persons estate, so could be claimed by court following divorce or bankruptcy, whereas funds in trust would be kept outside their estate.
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