Advice needed for IHT

sue*_4

Can anyone help with advice to lessen the burden of Inheritance tax after death? Basically I would feel happier with a little knowledge myself before seeking a professional for writing a will.
I am single, own my house (no mortgage) valuation approx 170k, a second property that my sister (husband & kids) lives in rent free which was gifted to me by my parents just a few years ago and they have paid the CGT on this - 2nd house valuation 200k approx. This takes me over the 325k nil band rate without even considering savings etc. I have considered "gifting" but this really isn't an option for me as I don't see myself living the 7 years required to make this a potentially exempt transfer. Ideally I want to leave everything to my sister but would also like to protect any inheritance that my sister gets from any future divorce. Would the best option be to leave my estate in a trust? What would you you do in this situation? Any advice would be appreciated.

noh

What would you you do in this situation?

Spend the excess over £325K and not worry about what might happen after death.

antrobus

sue* wrote: »

...I have considered "gifting" but this really isn't an option for me as I don't see myself living the 7 years required to make this a potentially exempt transfer....

If you gift the property to your sister then the worse that will happen is that your estate will be liable for the IHT that would have been due anyway. If you survive for three years, the IHT will be reduced by taper relief, making the burden progressively lower each year until it hits zero at seven years.

noh

antrobus wrote: »

If you gift the property to your sister then the worse that will happen is that your estate will be liable for the IHT that would have been due anyway. If you survive for three years, the IHT will be reduced by taper relief, making the burden progressively lower each year until it hits zero at seven years.

Not so.
The value of the property is £200K which is below the current tax free allowance of £325K.

If the donor was to die within 7 years, of making the gift, the value of the gift is added back to their estate and is counted against the tax free allowance (£325K) first therefore no tax is due on the gift but the amount of the tax free allowance available to be used agaist the rest of the estate is reduced to £125K
Taper relief is applied to the amount of tax due on the gift which in this case is zero.

If the donor gave away assets exceeding the IHT threshold and then died between 3 and 7 years later then taper relief would apply.

For example gift £425K
donor dies 3.5 years later IHT threshold still £325K
amount taxable £100K
tax due £40K reduced by 20% taper relief
tax payable £32K

http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm

xylophone

http://www.step.org/system_pages/call_to_action_navigation/search_for_a_step_member.aspx?link=link
Take profesional advice from a solicitor expert in wills and trusts.
http://www.taxcafe.co.uk/inheritance-tax.html

antrobus

noh wrote: »

Not so.
The value of the property is £200K which is below the current tax free allowance of £325K.

If the donor was to die within 7 years, of making the gift, the value of the gift is added back to their estate and is counted against the tax free allowance (£325K) first therefore no tax is due on the gift but the amount of the tax free allowance available to be used agaist the rest of the estate is reduced to £125K
Taper relief is applied to the amount of tax due on the gift which in this case is zero.

Well yes granted. To be more accurate I should have said "IHT might be reduced by taper relief". But the main point is that the estate wouldn't be any worse off.

sue*_4

Thanks for all your comments.

Savvy_Sue

Welcome Sue, may I second the suggestion to take proper (ie paid for) advice.

Also note that gifts to charity can reduce the potential IHT bill: ask about that too.

John_Pierpoint

Don't forget that giving something away counts as a disposal for Capital Gains Tax - so you can end up paying CGT & IHT.

How about a marriage (or civil union) of convenience.;)

Seriously I know of someone who had to take that course to prevent the tax man moving in on a multi generation home.