Inheritance Tax Worry

Dancewood

Hello,
I am in a real quandary about IHT and the nil rate. My wife (age 77ys) and I (age 80yrs) own our home as tenants in common, it is worth about £300K. However I have ample investments and savings to £260K as I have always worked hard and invested wisely. My wife and has savings of less than fifteen thousand pounds.

Now my understanding is that we both have nil rating of up to £325K therefore it would be easiest to share my investments with my wife. However she has Alzheimers Disease and is in a good council nursing home as I was unable to care for her. She does not pay for the nursing home as she has less than £20K (although her monthly pension of £1100 goes towards the fees). If I give her 50% of my savings she will have to pay for her care - and probably be moved to a private home too. I understand this may be the case anyway if I die first.

My concern is that if I die before her, the balance above £325K (£85K with 50% the house and my investments) will be considered for IHT. Will I get her nil rate of £325K passed to me if my wife dies first although she is well below the nil rate limit.

Any ideas on what I should do? Should I give the £85K balance to my sons? Will the combined £650K be seen as such regardless of who had what?

Thank you

SeniorSam

Dancewood wrote: »

Hello,
I am in a real quandary about IHT and the nil rate. My wife (age 77ys) and I (age 80yrs) own our home as tenants in common, it is worth about £300K. However I have ample investments and savings to £260K as I have always worked hard and invested wisely. My wife and has savings of less than fifteen thousand pounds.

Now my understanding is that we both have nil rating of up to £325K therefore it would be easiest to share my investments with my wife. However she has Alzheimers Disease and is in a good council nursing home as I was unable to care for her. She does not pay for the nursing home as she has less than £20K (although her monthly pension of £1100 goes towards the fees). If I give her 50% of my savings she will have to pay for her care - and probably be moved to a private home too. I understand this may be the case anyway if I die first.

My concern is that if I die before her, the balance above £325K (£85K with 50% the house and my investments) will be considered for IHT. Will I get her nil rate of £325K passed to me if my wife dies first although she is well below the nil rate limit.

Any ideas on what I should do? Should I give the £85K balance to my sons? Will the combined £650K be seen as such regardless of who had what?

Thank you

............ whoever dies first, if their assets are passed to the surviving spouse, then when the second one dies, both nil rate band allowances can be claimed. Therefore in this tax year £625,000.

It does not matter if the first to die only owns £1 their allowance is still the full allowance £325,000 in this tax year.

If you die first, your assets up to the nil rate band allowance can be 'sheltered' in a Discretionary Trust and not passed directly to your wife. Therefore she would have far less in her name, but you could gift to your sons if you can afford to.

Don't forget you both have a gifting allowance of £3,000 each tax year and can carry that allowance forward one year if you have not been using it.

Hope this helps

Sam

CLAPTON

what do your wills say
do you each leave everything to each other or do you left something to your other people?

Dancewood

Currently we both leave our entire estate to each other. However we shall leave thirty thousand pounds to each of our two sons on the first death and the remaining 50/50 on the second spouses death.

localhero

Dancewood,

If I were you I would get a new Will drawn up pronto.

Otherwise, if you were to die before your wife you could see much of your wealth disappear in care fees.

To maximise the nil rate band I would consider giving your wife a `life interest` in your estate and upon her death the capital to your sons.

The local authority would not be able to touch the capital - but the income would be assessable for care fees - but if you leave your wife nothing in your will, the authorities could challenge the will on the basis you had not made `reasonable provision` for her.

I assume your wife no longer has the capacity to make a reciprocal will - so whoever dies first will use up about 9.2% of their nil rate band - leaving the survivor with an 90.8% uplift at the later - and hopefully much higher, nil rate band.

Personally I wouldn't entertain a discretionary trust for various reasons - one of which is the expense you would incur in professional fees which would be unnecessary in view of the fact there is a neater solution available.

Dancewood

Thanks for the answers. Reassuring. So I do not need to worry so much about the tax, thus not gift any large sums to my sums (who'd probably buy a yacht).

I will contact my solicitor to change my own will. My wife would be unable to sign anything..

Fortunately when we last did Wills, only three years ago, we added enduring power of attorney which has been invoked making things easier.

Mary_Hartnell

Is this too brutal? I guess the insurance companies who provide care home fee plans etc. must ask these questions all the time:

Can someone give a life expectancy for an elderly woman, about to be classed as "very old" in a nursing home with progressive dementia?
I would guess 3 - 4 years?
The coat of being forced to "go private" depends very much on the property and labour market of the local area but I would guess £2,000+ per month ?

Or am I breaking the last taboo.

Pee

Your wife can make what is known as a Statutory Will, through the Court of Protection. It is a slow, drawn out process - I would expect it to take six months. Just so that you know it is an option should you need it.