IHT advice to reduce large potential charge
hoof
Posts: 54 Forumite
in Cutting tax
I am seeking advice on Inheritance Tax Planning as I am very concerned about the potentially large IHT tax charge that will arise
Background information as follows:
1) Elderly married couple both in late 80’s with each having circa £1.1m assets in deposits/NS&I/ISA’s and shares. Their main residence (Joint Tenants) is worth circa £400k.
2) Under existing wills, on the 1st death all assets pass to the survivor.
3) On 2nd death the assets are to be shared between their two daughters (in their mid 50’s). They have one grandchild aged 26.
On the first death, as all assets pass to the surviving spouse, my understanding is that no inheritance tax will be payable and the £325k unused Nil rate band will be available for use by surviving spouse.
Assuming that the survivor dies soon afterwards (in 18/19 tax year say), then it would seem that the IHT payable would be calculated as follows:
Estate Value £2,600,000 (includes £400k main residence)
Nil rate band 2 x £325k £(650,000)
Additional threshold NIL No additional relief for main residence as estate>£2m
(effective 2 x £125k = £250k relief lost due to size of estate)
Inheritance tax due on £1,950,000
IHT @ 40% = £780,000!
As things currently stand they will receive no additional relief for their main residence.
Advice on what action they could take to reduce this significant potential IHT charge would be appreciated as they were horrified when I mentioned it to them.
Their various pensions more than cover their current outgoings and their assets continue to increase.
Background information as follows:
1) Elderly married couple both in late 80’s with each having circa £1.1m assets in deposits/NS&I/ISA’s and shares. Their main residence (Joint Tenants) is worth circa £400k.
2) Under existing wills, on the 1st death all assets pass to the survivor.
3) On 2nd death the assets are to be shared between their two daughters (in their mid 50’s). They have one grandchild aged 26.
On the first death, as all assets pass to the surviving spouse, my understanding is that no inheritance tax will be payable and the £325k unused Nil rate band will be available for use by surviving spouse.
Assuming that the survivor dies soon afterwards (in 18/19 tax year say), then it would seem that the IHT payable would be calculated as follows:
Estate Value £2,600,000 (includes £400k main residence)
Nil rate band 2 x £325k £(650,000)
Additional threshold NIL No additional relief for main residence as estate>£2m
(effective 2 x £125k = £250k relief lost due to size of estate)
Inheritance tax due on £1,950,000
IHT @ 40% = £780,000!
As things currently stand they will receive no additional relief for their main residence.
Advice on what action they could take to reduce this significant potential IHT charge would be appreciated as they were horrified when I mentioned it to them.
Their various pensions more than cover their current outgoings and their assets continue to increase.
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Comments
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It is not necessarily too late to make a PET - a comfortably off elderly person of my acquaintance made a substantial gift to family members at the age of 88 - the potentially exempt became actually exempt - the donor is still in the land of the living...
Regular gifts from income might still be considered?
They can seek professional advice.0 -
multi generational IHT planning urgently required as the daughters will be left with IHT headache when they inherit.
They need to offload quite a lot of their assets and stop saving their income..0 -
They have left it rather late, but even with that level of tax their children are going to inherit a darn sight more than most people ever will, so rather than feeling horrified they should feel fortunate that they actually have this problem rather than having little or nothing to leave.
They should make some significant PET gifts now, as there still is a good chance that at least one of them could survive another 7 years. They should also make full use of their annual allowances from now on
The could move some assets into AIM shares which would become exempt providing they were held for 2 years, but that sort of investment is high risk.
The moral of the story is that at some point in your life you need to stop building up your savings and start running it down, both through gifting and spending on yourselves.0 -
Each daughter still becomes almost a millionaire without lifting a finger, so it!!!8217;s hardly horrifying. But yes if that is not satisfactory they should start shedding assets, and try and remain in good health for as long as possible.0
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Gifts over the nil rate band are also subject to taper relief so if for instance each gave £650k away, half of that would be subject to taper relief so the tax bill would start to reduce the potential tax bill after 3 years.
They can also limit their saving increasing further by giving away surplus income. At the moment it seems that they are not touching their savings so they could give away the interest and dividends they have been earning on those.
But as Has already been suggested they should take payed for professional advice on an estate that size.0 -
sorry if this is not the right place to ask for help.
please Free IHT calculator that does not require me to fill in my details before the company will give me an answer
Andy0 -
andymixed01 wrote: »sorry if this is not the right place to ask for help.
please Free IHT calculator that does not require me to fill in my details before the company will give me an answer
Andy
This is the right section, but for future reference you should start a new thread rather than attach your question to an existing one, especially one asking a different question.
The answer is you don’t need a calculator, you just need to get to grips with the available exceptions, the rest is simple maths. You should start with the following links.
https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold
https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band
https://www.gov.uk/inheritance-tax/gifts0 -
Many tanks for the useful, swift replies. Seems like professional advice and some significant gifts to get estate below £2m to avoid high marginal rate from losing main residence relief a good starting point.
I believe that they already use their £3k each year. Am I right in thinking that gifts in excess of the £3k need to be declared on their tax returns?0 -
This may not be a popular view - but alternatively, a decision could be made to allow the tax man to take a share of the accumulated wealth to help fund public services.0
This discussion has been closed.
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