Inheritance Tax Article MoneySavingExpert.com Discussion

SeniorSam

You are correct. Both your mothers allowance of £325,000 this tax year and your late father's allowance can also be claimed by the Executors. It is not automatic, it has to be claimed. The estate will therefore have £650,000 before any inheritance tax.

Had your father made gifts of say 10% of his nil rate allowance on death and the rest to your mother, then the Executors would claim the full allowance on your mothers death, plus claim for 90% of your fathers allowance, instead of the 100%.

Hope that's clarified matters for you

Sam

bunnyhugs

Thank you so much for your quick reply, Sam. That's made things much clearer.

SeniorSam

You're most welcome bunnyhugs,

I didn't complete my answer to your questions regarding reducing the value of the estate. There are many ways that this can be achieved and one of these is by gifting.

Each person is allowed to give away £3,000 in any tax year to anyone else. If they have not done this before, they can gift last years allowance as well, so £6,000 in the first year. In addition they can gift £250 to as many individuals as they wish, but not the same person.
Additional gifts can be made from income, (not capital), under rules of normal expenditure relief. Such gifts need to be set up to be made on a regular basis from income that does not reduce the normal standard of living. For instance, one could give a regular sum to another, but not if this then required to that person to use additional capital to support their lifestyle.

There are also investments that can be made within a Trust, such as a LOAN TRUST. This is capital invested into a life insurance Bond, using life funds. The amount of risk in such investments will depend on the funds used. A benefit of these Loan Trusts is that the person, or persons who set up these, can withdraw 5% per annum with tax deferred. If on death they are not higher rate tax payers, no additional tax is payable. My wife and I have set up such Trusts ourselves, so that our children can gain access to them before Probate is granted, making it much easier for them to get at money quickly if needed. Only a death certificate is needed and when the Bond is set up, the beneficiaries are named. Also, the fact that the capital is 'loaned' to the Trust, means that you can ask for it back if you need it. It is also 'sheltered' from any care costs that may be needed in the future.

A good IFA who is familiar with Trust investments could help you on this.

Hope this helps

Sam

bunnyhugs

Thank you again, Sam. How nice to have such a helpful contact with clear information.