IHT Question

[London GT3]

Hypothetical question relating to how you calculate IHT when their is potentially a Residents Nil Rate Band and some assets that are outside of the scope of IHT. In what order do the various bits get deducted?

If the gross value of a couple's estate was worth £2.7m and included in that sum is £500k of investments that were outside the scope of IHT. They would qualify for the full residents Nil Rate Band taking their joint IHT allowance to £1m. In what order is the £500k that is outside the scope of IHT taken off the total.

Option 1:
Gross value of estate £2.7m. Residents Nil Rate Band reduced to £0 due to taper provisions. Less £650k normal IHT nil rate, less £500k outside of IHT leaving an estate value for IHT of £1.55m with IHT at 40% the tax would be £620k

Option2:
Gross value of estate £2.7m. Less £500k outside of IHT giving estate value for IHT purposes of £2.2m. Residents Nil Rate Band of £250k using taper provisions. Less £650k normal IHT nil rate, leaving an estate value for IHT of £1.3m with IHT at 40% the tax would be £520k

Any informed opinion would be gratefully received. Thanks.



[Edited to correct small error on the numbers quoted in Option 1]

Edited by London GT3 on Friday 13th October 11:23

[Mogul]

If that £500k was a BPR-qualifying AIM portfolio (as opposed to within a SIPP)

Option 1

“when working out how much the estate is worth, you don’t take off any…

-Exemptions such as spouse exemption
-Reliefs such as Agricultural or Business Property Relief”

Source

The £2m taper threshold

Edited by Mogul on Friday 13th October 11:02

[London GT3]

Thank you Mogul. Part of the £500k is an AIM ISA and the rest are BPR investments. I will adopt Option 1.

I am grateful to you for clarification. It is not a real situation yet. I am just helping my elderly parents understand the likely outcome on their demise.

[Mogul]

Keep an eye on the autumn statement (22nd Nov) as there will likely be some further moving of goal posts…