Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

gmt56565 · 17 June 2011 at 2:38PM

Hello, I am hoping that my situation is very straight forward and I am really just looking forward to confirmation that I do not need any expensive advice from anyone to avoid paying a lot of Inheritance tax.

The facts

My step father died last year,(no children).
His will left all to my Mother.
My mothers will leaves all to me, (only child)
My mothers estate is estimated at £420K

Am I right in thinking that as a couple my Mother and Step father have a total IHT exemption of £650K ?

Any areas I need to check on please feel free to comment.

Thank you in advance for any help.

Mojisola · 17 June 2011 at 3:17PM

gmt56565 wrote: »

Am I right in thinking that as a couple my Mother and Step father have a total IHT exemption of £650K ?

Assuming that they were married - as you call him Step father - then yes.

SeniorSam · 17 June 2011 at 5:43PM

gmt56565

You already have confirmation that you are right. However, you may wish to consider your own financial position depending on what assets you hold at this time.

Inheriting approximately £420,000 may make your own estate subject to IHT, so depending on your own marital situation and if you have children, there could be advantages in your Mother making changes to her Will before she dies? If you want more information on this, please give advice on your own position, so that suggestions can be made, which you may wish to considered.

Sam

Willman_Rodders · 18 June 2011 at 6:33AM

gmt56565 wrote: »

Hello, I am hoping that my situation is very straight forward ...

... Any areas I need to check on please feel free to comment.

There are procedures to claim the transferable nil-rate band allowance; it is not just a case of assuming you qualify. The HMRC website lists the evidence they require to accept a claim. More information is available from them at:

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM06025.htm

and the links from that page.

John_Pierpoint · 18 June 2011 at 10:35AM

Interestingly there is now a fast track procedure, where the first to die had a modest sized estate and the survivor is now almost certain not to be liable for IHT, after 2.5 years of the new rules.
Presumably HMRC was getting lots of IHT400 forms for estates over 325K but after checking had to write back and say "We agree no IHT to pay" and this was a lot of work for no money.
So now there is yet another thing to worry about "If I the first to die DON'T leave absolutely everything to my partner, then I could be lumbering my partner's executors with extra administration and form filling and expense".

IHTM06024 - When the nil rate band may be doubled by a claim to transfer unused nil rate band

For deaths on or after 6 April 2010, an estate which can benefit from the transferable nil rate band (TNRB) (IHTM43001) may able to qualify as an excepted estate. The regulations contain detailed conditions about when TNRB may be claimed and restrict it so it only applies in the most straightforward of circumstances.
For unused nil rate band to be transferred from the earlier death, the following conditions must be met

the deceased survived the earlier death of their spouse or civil partner and was married to, or in a civil partnership with, them at the earlier death,
none of the nil rate band was used by the earlier death, so that 100% is available for transfer,
a valid claim is made (IHTM06025) and is in respect of one earlier death only, and
the first deceased person died

- on or after 13 November 1974, where the deceased was the spouse of the first deceased person, or
- on or after 5 December 2005, where the deceased was the civil partner of the first deceased person.

The estate of the first person to die must also meet the following conditions

the first to die was domiciled in the United Kingdom when they died,
their estate consisted only of

- property passing under their Will or intestacy, and
- jointly owned assets

if their estate included foreign assets, their gross value did not exceed £100,000, and
agricultural relief (IHTM24000) and business relief (IHTM25000) did not apply.

It follows that an estate cannot claim TNRB where the estate of the first person to die included

settled property,
a gift with reservation of benefit (IHTM14301),
an alternatively secured pension fund (IHTM17350), or
any chargeable lifetime transfers, which must be calculated by ignoring agricultural and business relief and, for deaths after 1 March 2011, ignoring normal out of income exemption where the exemption exceeds £3,000 per tax year.

Where an estate meets the above conditions and a valid claim is made

if the estate is a low value estate (IHTM06012), the gross value of the estate must not be more than double the nil rate band, and
if the estate is an exempt excepted estate (IHTM06013)

- , the gross value of the estate cannot exceed £1m and
- the net chargeable value of the estate, after deduction of liabilities and spouse or civil partner exemption and/or charity exemption only, must not be more than double the nil rate band.

There are some examples to show how these rules operate at IHTM06026

Who said tax did not need to be taxing ?NB The above does not say you must leave everything to the surviving partner at the first death to qualify for additional nil rate band at the second death.

Trustees of an interest in possession trust (eg life interest to a widow, perhaps now living abroad) might be interested in reading this link:

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM43008.htm

John_Pierpoint · 18 June 2011 at 11:00AM

I think this is the most important set of rules published by HMRC and it includes a secret bit probably giving guidance on how to double check the claim:

IHTM43006 - Claims and time limits: how to make a claim

Unlike most exemptions and relief for IHT, the personal representatives must make a formal claim to transfer any unused nil rate band from the estate of the deceased’s spouse or civil partner (IHTA84/S8B). The claim is made using form IHT402 which is one of the supplementary schedules to form IHT400. The personal representatives should include with their claim the following documents from the first death:

a copy of the grant of representation (Confirmation in Scotland) - or if no grant was taken out, a copy of the death certificate,
if the spouse or civil partner left a Will, a copy of it
a copy of any Deed of Variation or similar documents in relation to the estate, for example an appointment from a Will Trust in which no qualifying interest in possession subsists URL="http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm16060.htm"]IHTM16060[/URL made within 2 years of death.

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)
Where the time limit URL="http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm43007.htm"]IHTM43007[/URL is approaching, you may allow the personal representatives to make a provisional claim if they are having difficulty getting all the documents. In these circumstances, you can help the claimants by telling them that

a copy of a grant of representation or Confirmation and copy Wills are available from the Court Service (for England & Wales, www.hmcourts-service.gov.uk, for Scotland www.scotcourts.gov.uk, and for Northern Ireland www.courtsni.gov.uk); and
a copy of the death certificates are available from the General Register Office (for England & Wales www.gro.gov.uk, for Scotland www.gro-scotland.gov.uk, and for Northern Ireland www.groni.gov.uk).

Where the personal representatives don’t make a claim to transfer unused nil rate band, perhaps because there is no need to take out a grant, any other person liable for tax on the survivor’s death, for example, the trustees of a settlement or the donee of a gift, may make a claim, but only when the initial period for claim by the personal representatives URL="http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm43007.htm"]IHTM43007[/URL has passed.
In these cases, those making the claim should use form IHT216, which can be downloaded from the HMRC website only. The current prints of the form ask for more documents than are listed above and on form IHT402. You may accept the claim made on IHT216 as long as the documents listed above are supplied.

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM43006.htm

An I right in thinking that you won't get a copy of the deed of variation for the first death from
www.hmcourts-service.gov.uk
or does its creation require revisiting the first death's grant of probate?

malabeba · 19 July 2011 at 1:44PM

Hello,

I have been reading on internet that if you have life cover put in trust it my help the children to pay for IHT? or at least protect yourself for the 7 years period? What do you think?

Mary_Hartnell · 22 July 2011 at 3:40PM

Insure for what you cannot afford to withstand.
If paying 40% on the Potentially Exempt Transfer (PET) is going to be a really nasty shock (eg the house your children live in will need to be sold) then insure your life in trust for the kids for 7 years.

SeniorSam · 22 July 2011 at 11:02PM

Insurance is a good point. You only need insurance based on a decreasing term assurance as the liability will decrease after the first three years on the gift.

Sam

getmore4less · 22 July 2011 at 11:13PM

SeniorSam wrote: »

Insurance is a good point. You only need insurance based on a decreasing term assurance as the liability will decrease after the first three years on the gift.

Sam

Only if the gift is over the nill rate band £325k.

Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

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