Inheritance tax

simonfr

A hypothetical here....... well, OK, not that hypothetical...

Parent has property (scotland) worth about £500k, two children. How much inheritance tax would they pay?? ???

Is it a case of halving the total (£250k) to each child, then pay the tax on the inherited amount?

OR :-/

Is it a case of the total amount taxed then halved between the two children?

Or is it a little more black art than that??

Simon

Joe_Bloggs

@simonfr
There is a major inheritance tax planning thread in the Cutting Tax section of this forum.
here.
J_B.

DiggingOut

Simon, the short answer is that IHT is paid on the estate, not on each beneficiary's share. So IHT will be paid, then whatever the government leaves behind is divided amongst heirs.

Two sure things in life, death and taxes. And the latter keeps coming even after the former has hit.

dunstonh

So, they have 500k and lets assume another 150k in various investments, cars, house contents.  Making a total estate of £650k

the allowance this year is 263k so the rest would be liable to IHT at 40%.

That would make a tax bill of £154,800 which would have to be paid before the hard assets are released (ie the house, car, contents).   If the cash isnt available to pay the tax bill, either from the estate or from yourselves, then something would have to be sold to cover it, which is often the house.

There are some allowances which your parent could use to try and reduce the liability.

edit: spot the typo. its 263k allowance. corrected.

Mortgage_Master

Simonfr,

Is that parent or parents? If the latter then they should consider using a "Will Trust" by setting up the ownership of the property as "tenants in common" (each own 50% of the property and can stipulate it in their will). Then rather than having a mirror Will, which gifts everything to the surviving spouse and then the children, they should consider transferring their share of the property, on death, in trust for the benefit of the offspring but stipulate that the surviving spouse retains full enjoyment of the property until death.  

This allows each parent to make maximum use of their £263K allowance. If all the info remained the same and the surviving spouse died a year later the IHT bill would be ZERO rather than £500000-£263000*40%= £94800 if a mirror will was used that transferred all the assets to the surviving spouse.

An added benefit: it also reduces the assets available should the surviving spouse need to go into care.

This is something your parents could discuss with their solicitor.

Simon

IHT NIL RATE BANDS
2003-04 (£) 255000
2004-05 (£) 263000

 

simonfr

It's parent...... Father

My mother died last year, and ive been trying to get my father along to see a lawyer or someone so i can take advantage of that share of inheritance which could be offset against the full amount.
However, 1 year, 4 months on still not settled it out. (father very lethargic..... manyana, manyana)

So is it too late to take advantage of it?? I dont really know. Ive tried to find out but to no avail.

Anyone know?

Thanks

Simon

Mortgage_Master

You need to speak to a solicitor urgently. I could be wrong as I'm no expert in this area but as far as I'm aware you have 2 years in which to effect a "deed of variation" to a Will.

Mortgage_Master

Simon,

Sorry, I may have pointed you in the wrong direction as I have absolutely no idea how the rights of succession operate in Scotland.

In the UK a beneficiary to a will has a 2 year period in which they can effect a "deed of variation" i.e.. change the beneficiaries to a will for IHT reasons.

Any Scots around?