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inheritance
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purple_hamster
Posts: 62 Forumite


in Cutting tax
It seems my FIL doesn't have much time left with us.
MIL has told my husband that in FIL's will he is leaving everything to her. She will then split the money equally between herself, my husband and his siblings. FIL is fine with this, but he is unwilling to change his will.
As my husbnad (and his siblings) are not in the will, will this count as inheritance or will they have to pay income tax on it?
I understand about inheritance tax, but I doubt the amount will be over the threshold as they jointly own their house.
MIL has told my husband that in FIL's will he is leaving everything to her. She will then split the money equally between herself, my husband and his siblings. FIL is fine with this, but he is unwilling to change his will.
As my husbnad (and his siblings) are not in the will, will this count as inheritance or will they have to pay income tax on it?
I understand about inheritance tax, but I doubt the amount will be over the threshold as they jointly own their house.
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Comments
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Any Inheritance is not deemed to be income and will therefore not be taxed.
SamI'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.0 -
This will be a gift.
There is no tax on gifts in the UK.0 -
Whether what your in-laws are doing "makes sense" requires a whole lot more information.
The usual trick is to leave the assets to the survivor (ie widow usually) for life and then to xxxxx, normally their children or perhaps their grandchildren (who have their own income tax allowance).
[This prevents a "demented" survisor making "silly" decisions]
If the estate (ie the net worth of FIL) is more than £325k where will be potentially another beneficiary taking an interest and ready to jump in first - the tax man)
However wealth left for the benefit of the spouse has been made tax free - I think the survivor was getting to the stage of telling the tax collector where to go.
http://www.spartacus.schoolnet.co.uk/YALDchronology.htm
A more complicated trick involves "lending" the money to the survivor, the objective being not to concentrate wealth in the hands of wise old people subject to Inheritance tax [but let irresponsible younger people get their hands on it?].0 -
Thanks for the replies!
Is there any limit to the amount as I read earlier about a £3k limit per year on gifts. It'll definitely be more than that.
Would there be any problems in the future, like if MIL was in long term care, could "they" claim the money to pay for that, or if she died within 7 years?0 -
John_Pierpoint wrote: »Whether what you relatives are doing "makes sense" requires a whole lot more information.John_Pierpoint wrote: »The usual trick is to leave the assets to the survivor (ie widow usually) for life and then to xxxxx normally their children or perhaps their grandchildren.0
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ps - sorry if my questions are a bit cold. They want to know if the current will arrangement will cost more in the long run or if it needs to be changed.0
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purple_hamster wrote: »Is there any limit to the amount as I read earlier about a £3k limit per year on gifts. It'll definitely be more than that.
You are confusing IHT legislation with a tax on gifts.
As for long term care needs, there could be a problem. Look up deprivation of assets.0 -
purple_hamster wrote: »Thanks for the replies!
Is there any limit to the amount as I read earlier about a £3k limit per year on gifts. It'll definitely be more than that.
Would there be any problems in the future, like if MIL was in long term care, could "they" claim the money to pay for that, or if she died within 7 years?
There is no tax on gifts on the recipient whether £3000 or £3000000. If your MIL was to die within seven years of making the gift, this would be included in her estate subject to a tapering scale. Should her estate also fall below the inheritance tax threshold, there will be no inheritance tax to pay even if the gifts were to be included.0 -
What's the total estates of MIL and FIL
if below £650k then unless there is other relevent information there should be no IHT tax issues on either death or any gifts.
There are other potential issues like deprivation of assets but these are usualy only of issue if benifits are needed and this is known to be likely at the time of the gifts.0 -
Father leaving everything to spouse is the best route to completely avoid IHT and maximise Mums nil rate band on death (relevant if Dad/combined estate is worth in excess of 325k/650k), as there is no IHT on spousal/civil partner transfer.
As there is no IHT on spousal transfer that means that upon Mums death, her executor/administrator may apply to HMRC for the transfer of Dads unused nil rate IHT relief (currently 325k 2012/2013), to be added to Mums - giving a maximum total nil rate band for Mums estate on death of 650k (at current 2012/13 reliefs).
As Mum will be the sole beneficiary of the will and Dads estate, any gifts she later makes (notwithstanding annual exemptions, such as 3k with unused relief able to be carried fwd for 1 yr), will be applied against her estate and not his.
So, any subsequent gifts made by her, may well fall outside of PET regs (subject to her 7 yr surivial).
If she doesn't survive 7 yrs proceeding donation, the gifts will be subject to PET regs, with the resulting liable balance being recredied to Mums estate for IHT calc purposes (with, if application is made to tsf Dads full unused nil rate band tsfd, the estate only facing IHT liability if its NET value exceeds 650k. This will be reduced if Dad used any of his 325k nil rate band, which the residue instead of a straight tsf, converted to a surviving % before that being added to Mums personal nil rate band).
Estate planning for any liability inc unexpired PETs, may be provided for by term assurance on Mum (if she is below max entry age, and affordable of course), plus in respect of PETs, Gift Inter Vivos policies, (which your tax planner and FA, should be familiar with).
So, in my opinion, the current format in Spouse as the sole benefeciary is satisfactory (due to the fact that the whole of Dads unused relief may be added to Mums nil rate band relief on her death).
If you wished to amend the will to include others, then as I say any inheritance to Mum remains os of Dads nil rate band, but any donations to issue (children) or other individuals, WILL in the first place be applied against his unused nil rate band (with any nil rate band residue left over after the exercise revalued as a surviving %, and able to be tsfd (on application) to Mums estate allowance on her death).
However, plesae ensure that you check all this out directly with a practitioner, as with the best will in the world, forum advice should never be solely relied upon, esp for such a high impact monetary issue as this. (although personally I am a qualified FA).
As a side note - deprevation of assets is ONLY an issue if the Donor (or their reps) seek any MEANS TESTED benefits (of which the value of the individuals primary residence is excluded, except in the application of long term care funding assistance). With those benefits that are not the subject of any MT review, remaining unaffected by any gift made by the individual during their lifetime.
Hope this helps
Holly0
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