IHT Question re transfers between spouses

pablohoney

Can somebody help with this one?. I am aware of the law change form Oct 07 in relation to transfers between spouses but before then what were the rules in this situation:

Assuming a married couple. On the first death the assets of the deceased person were valued at more than the IHT threshold. If leave all to spouse then no IHT to pay. But if they leave some to a son/daughter then is there a IHT liability So for example:

Mum dies and her total estate is £345,000 but threshold at time is only £285,000. If she left £165,000 to her son and rest to husband would there be any IHT to pay?


Hope this makes sense. Just trying to establish if my parents have been given duff tax advice in the past!!


Thanks for help

s12s

anything passed to son would not be exempt transfer so that would reduce the % of the nil rate band on the first death that can be takien forward on the 2nd death. Had all been passed to spouse on first death the nil rate band to be taken forward to be utalised on the 2nd death would be 100%. In this case on the death of the second parent they will have the nil rate band at the time they die plus the % of the nil rate band to carry forward from the death of the first.

Not duff advise, just advise that was right at the time and now is no longer needed as much. You can only expect advise to be up to date and acurate at that time, things change and advise would now change with it.

pablohoney

Thanks for your reply. I think I understand your explanation but doesn't this apply to the rules as they currently stand?

What if prior to the change the estate of a married person is greater than the IHT threshold and they pass some of estate to son and some to spouse - does the IHT threshold only apply to amount transferred to son despite the fact the total estate exceeds the threshold?

SeniorSam

No........... if the gift to the son is below the nil rate band allowance on first death and the balance to the spouse, then only the second nil rate band was prevously allowed and any balance of the allowance was lost.

If the death was within the last two years, the Will can be changed by deed of variation to take advantage of saving the full nil rate band of the first to die.

The earlier solution was to created a Discretionary Trust on first death to protect the first nil rate band. So in your situation, if the son was given, say £100,000, the balance of the first nil rate band could be protected in the Discretionary Trust for the children. The spouse could be supported from that as a discretionary beneficiary.

When the second death occurs, the full nil rate band allowance of that person is allowed before tax

Hope this helps, if not clear, please ask

Sam

pablohoney

Great thanks- I think I understand. So if transferring assets to a spouse then this amount is deducted from estate value before IHT calculation.

So if Threshold is say £300k and estate valued at £350k if £200k is passing to spouse that reduces value to only £150k which is below threshold so no IHT to pay.

Is this right?

Sorry for being a bit dense!

sloughflint

pablohoney wrote: »

Can somebody help with this one?. I am aware of the law change form Oct 07 in relation to transfers between spouses but before then what were the rules in this situation:

Assuming a married couple. On the first death the assets of the deceased person were valued at more than the IHT threshold. If leave all to spouse then no IHT to pay. But if they leave some to a son/daughter then is there a IHT liability So for example:

Mum dies and her total estate is £345,000 but threshold at time is only £285,000. If she left £165,000 to her son and rest to husband would there be any IHT to pay?


Hope this makes sense. Just trying to establish if my parents have been given duff tax advice in the past!!


Thanks for help

I am assuming your remaining parent must be alive to be asking the question.
If your Mum passed 165k to you, she used 57.89% of her IHT allowance if it was 285k.

Your father when he dies will be entitled to use his wife's remaining 42.1% as well as his own.
If he dies when the allowance is 350k say, his IHT free amount will be 142.1% of this ie 497k.

Does that help?

pablohoney

yes it does - many thanks