Inheritance Tax - Confused

Stormybay

Hi there,
I'm not sure if this is on the right board, so feel free to move it, mods, if need be. Thanks.

Briefly, the story is that my father recently passed away and left all his assents jointly between me and my brother. He had a bungalow worth about £200,000 and about £40,000 in cash and premium bonds. All the above will be split equally and seems quite straight forward.

BUT, 5 years ago, my father retired and sold his lucrative business to my brother for £1 and he had since run the business sucessfully. At the same time, my brother bought my fathers then house, worth £450,000, for £90,000 and dad bought the bungalow (detailed above), for the £90,000 he recieved from my brother.

My queston is - Do the business and my brothers house form part of my father's estate as they were 'gifted' to my brother less than 7 years ago, or does my brother just have to pay IT on the original house and business, or will it come out of the joint assents of the bungalow and cash?

I know it seems strange, but when my mother and father were alive, they had a will that left the business to my brother and the original house to me, but when Mum died, 6 years ago, it all changed and my brother seemingly got both, and Dad changed his will to leave his bungalow to both of us, presumably not thinking he would pass away within the 7 years of gifting to my brother.

I could do with some advice please as my brother has not mentioned the business or his house to our soliciter who is executer of the will.

Thanks for any advice,

Stormy

Tiggs_2

A gift in the eyes of the IR is a "loss in value to the estate"...so, for example, the purchase of the bungy by your brother for 90k was really a gift to him from your dad worth £450-90k = £360k.

Jumping up to current times the situation is that the executor needs to declare gifts made in the previous 7 years. your dads nil rate band will be offset against these first but, from the osunds of things the gifts will exceed that. Any excess over the Nil band in gifts value means the gifts are due to pay some IHT (although taper relife will apply to that liability).

Of course....the knock on effect of this is that with the nil band used up on gifts (if thats the case) a "simple" esate of a £200k bungy and £40k in assets becomes £240k @ 40% = £big old chuck of tax.

quite a common problem when people gift to one child and dont consider the knock on effect to the other/s who benifit via the will once the tax is all paid.

Hopefully the solicitor can explain all this simply enough (but you DO NOT want to hide the details from him!!!!)