Inheritance tax - again, sorry!

downshifter

Dear all, I know IHT is a recurring theme, and I ought to understand by now, but I can't find an example that exactly matches my mothers situation even though it's very straightforward.

My father died in 2001 and everything went to my mother, quite rightly. Around 2 years ago, she moved to a smaller house and made around £250k profit. She gave £50k of this to each of her 3 children. She has plenty to live on and enjoy as well as a fair bit in savings etc plus her 'nursing home' fund - just in case. The house is worth around £350k and there is no mortgage. She's in fantastic good health at 83.

Am I right in thinking that when she dies anything she leaves will be subject to the current nil tax band (at the moment £325k) plus whatever the nil band was when my father died (say £200k)? So before having to pay IHT, her estate will first have £525k ignored and anything over that amount taxed at 40%. Obviously the gifts to us and anything else she gives away before her death will go into that pot too though subject to the sliding scale 7 yr decreasing amount..

I'm going to see her this weekend, - she lives at the other end of the country to me - and I know she finds this confusing, but is keen to understand. She asked at her bank a while ago but I think some rules have changed since. Is there anything else I need to tell her about all this?

Thanks DS

luiccia

The current single allowance is 325k. If your mother was to die this year, her allowance would be 650k since your father passed his estate to his wife.
If when she dies her estate is above this amount, any gifts she made within the previous 7 years would reduce her allowance. The sliding scale doesn't apply for the amounts you mention.

downshifter

luiccia wrote: »

The current single allowance is 325k. If your mother was to die this year, her allowance would be 650k since your father passed his estate to his wife.
If when she dies her estate is above this amount, any gifts she made within the previous 7 years would reduce her allowance. The sliding scale doesn't apply for the amounts you mention.

Oh goodness, I thought it would be the allowance in existence in the year he died, I didn't realise it would be the same as if he died this year. Thank you very much. She will be pleased about that, I'm sure she doesn't realise that his allowance is added to hers anyway as she's often mentioned trying to get it down to nearer her own band mark. Hopefully in the next 10 or more years she will spend it all on holidays and toyboys so it won't arise. It doesn't worry her as such - she has a life!! - but it's important that she has control and knows what's going on with her money.

Thanks very much

DS

luiccia

I expressed myself badly in the latter part of my post. I should have said that the value of any gifts ( less annual allowances) made in the seven years prior to death would be added to the estate value.
But yes, the tax free amount would be double the threshold of the year of the second death.

John_Pierpoint

luiccia wrote: »

The sliding scale doesn't apply for the amounts you mention.

Because that 150K is deemed to have been given away by using up her nil rate band?

Let me wish mum a another 5 years of good health.

[It is interesting that for ordinary commercial debts the parties can go back 6 years.
For Inheritance Tax it is 7 years. Do I remember it used to be 5 years?
When trying to reclaim over paid income tax it is 5 3/4 years with a proposal to reduce that reclaim period.
Sauce for Geese and Ganders seem to come to mind?]

dzug1

No the sliding scale only comes into play if you give away more than the nil rate band

downshifter

John_Pierpoint wrote: »

Because that 150K is deemed to have been given away by using up her nil rate band?

Let me wish mum a another 5 years of good health.

]

Thank you. I'm hoping she continues to do so well for at least another 15! She has become friendly with an 87 yr old gentleman and has began to say 'we' instead of 'I' when talking about what she's doing. I think this is so wonderful, and hope the healthy genes carry on to the rest of us.

Part of it all is her need to understand exactly what's what - whether her money, her new digital telly or how her car works. I hope I'll be the same!

Thanks all for the help, I understand and can explain to her now.

DS

John_Pierpoint

dzug1 wrote: »

No the sliding scale only comes into play if you give away more than the nil rate band

I think you meant Yes?
(It will be another 5 years before "mum's" 150K is old enough to drop out of the account and no longer be potentially liable to full rate 40% IHT..)

To be pedantic I suppose we should ask if any of the 3 siblings were clever enough to have got married in the same year as the gift and if mum was clever enough to write one cheque on April 5 and the other two on April 6, or would it be the date the cheques were cashed that counted?:D

On a personal level I have a daughter who has just got married and a son who is expecting the birth of his child in the autumn.
If I were to leave it until then to give some money to grandchild & daughter, do you think my executor could claim that the daughter's payment was connected to her marriage?

kamichi_2

dzug1 wrote: »

No the sliding scale only comes into play if you give away more than the nil rate band

In the above situation, when does the sliding scale apply from? Above £325,000 or above £650,000?