Inheritance tax

Espace

Hello this is my very first post.

I don't seem to be able to get a clear idea of how ITax works.

I am married, with two growing-up children, still at home. I own my house out-right, so no mortgage.

I have a have a reasonable pension in position. So I am assuming that on my (her) death our estate will reach the IT threshold.

Am I correct in understanding that when a husband or wife dies the estate goes directly to the surving husband/wife without any Inheritance tax needingto be paid? And only upon the death of the surviving parent does their estate (due to be left to the two surviving children?) then become eligible for IT?

I know there are many variants that can come into play but I’m just looking for a general answer to the husband/wife scenario I hope this makes sense to someone?

Fruit_and_Nut_Case

Welcome to MSE :wave:

You may not get much information about Tax here. This area is for Credit Card questions.

Davide123

On death any transfer to wife is exempt to iht (assuming you are uk individuals)

On death every one has a nil rate band, the amount one can transfer to other people without incurring iht.

Obviously if you gave all to wife you would lose your nil rate band....however there is a clever rule whereby any unused nil rate band will be passed over to our wife. So for example, the remaining spouse could have a nil rate band of 650k.. (325k x2)...

Espace

Hi David 123, many thanks.
Yes we are both UK citizens. So my first premise is correct? Whichever of us survives inherits the estate tax free?

But you then go on to say… “Obviously if yougave all to wife you would lose your nil rate band....however there is a cleverrule whereby any unused nil rate band will be passed over to our wife. DO YOU KNOW HOW I DO THIS?So for example, the remaining spouse could have a nil rate band of 650k.. (325kx2)”...
SO IF I UNDERSTAND YOU CORRECTLY ONCE MY WIFE INHERITES FROM ME... HER ESTATE AT HER DEATH WOULD HAVE TO EXCEED 650k TO START PAYING IT?

Many thanks

Davide123

Yes

Have a look at the link below which explains all.

http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

CLAPTON

Espace wrote: »

Hi David 123, many thanks.
Yes we are both UK citizens. So my first premise is correct? Whichever of us survives inherits the estate tax free?

But you then go on to say… “Obviously if yougave all to wife you would lose your nil rate band....however there is a cleverrule whereby any unused nil rate band will be passed over to our wife. DO YOU KNOW HOW I DO THIS?So for example, the remaining spouse could have a nil rate band of 650k.. (325kx2)”...
SO IF I UNDERSTAND YOU CORRECTLY ONCE MY WIFE INHERITES FROM ME... HER ESTATE AT HER DEATH WOULD HAVE TO EXCEED 650k TO START PAYING IT?

Many thanks

NO
this is NOT so

it depends upon whether you have wills (and what they say), the size of the estate, how the property is owned

post on the TAX board

Davide123

CLAPTON wrote: »

NO
this is NOT so

it depends upon whether you have wills (and what they say), the size of the estate, how the property is owned

post on the TAX board

Why does the size of the estate matter? If on first death all to wife then second death you have have nil rate band x 2.

dzug1

Davide123 wrote: »

Why does the size of the estate matter? If on first death all to wife then second death you have have nil rate band x 2.

Correct - but if no will then it will not (depending on the size of the estate) be 'all to wife' - the intestacy rules will step in which limit the amount a wife gets and use up part of the nil rate band.

holly_hobby

Davide123 wrote: »

...... Obviously if you gave all to wife you would lose your nil rate band....

No, this isn't correct - any nil band transfers apply only to spouse/civil partner, and are classed as exempt under Spousal Exemption regs - thereby the individuals available nil rate band is unaffected by such transfers (as long as the spouse is within the UK).

As you also don't actually give your nil rate band to your spouse/c partner, but instead is effectively applied for under nil rate band transfer, by their administrators on their subsequent death.

Davide123 wrote: »

On death every one has a nil rate band, the amount one can transfer to other people without incurring iht

Transfer of any unused nil rate band allowance is only to spouse or civil partner.

Whether IHT is due is not on the amount transferred to beneficiaries, but based on the net value of the estate before any bequests or intestatcy dividsion is administered, and is only ever liable following death of the individual.

Transfers/gifts, made whilst alive and kicking may well turn into PETs, but they have no actual liability on donation, and may never have any if the Donor surivies the 7 yr cycle (and of couerse they are not gifts with reservation).

If none of the spouse's nil rate band has been used by their death (ie full 325k avail), then upon death of the surviving spouse, their estate administrators may apply for transfer of the unused nil rate band of the pre-deceased spouse, which may be added to the nil rate band of recently deceased spouse - achieving a max 650k IHT exemption pool - any such transfer is requested from HMRC under form http://www.hmrc.gov.uk/cto/forms/iht217.pdf

Davide123 wrote: »

however there is a clever rule whereby any unused nil rate band will be passed over to our wife. So for example, the remaining spouse could have a nil rate band of 650k.. (325k x2)...

This is only if the estate is classed as an exempt estate, and 100% of the 1st decds unused nil rate band available for transfer (process discussed above) - where 650k would be available (not withstanding any non-exempt tsfs made within the lifetime of the 2nd decd of course)

However, the mechanics of the nil rate band spousal tsf changes significantly, IF the 1st/pre-deceased spouse made any non-exempt gifts during their lifetime (ie part of their nil rate band was essentially used on death), as the residual unused nil rate band for spousal tsf is not as you would think, a straight tsf the balance (ie 325k nil rate band - 50k of non exmpt gifts = 275k to be tsfd to surviving spouse's estate on death), but is instead calculated as a percentage of the remaining nil rate band ..... I know couldn't make it any more complicated could they !!

This is initially determined by deducting the value of the non-exempt gifts/transfers from the decd's nil rate band, and then calculating the equivilent percentage and sum that is available for the administrators to claim spousal transfer on their subsequent death.

Hope this helps

Holly

holly_hobby

Davide123 wrote: »

Why does the size of the estate matter? If on first death all to wife then second death you have have nil rate band x 2.

Certainly, if there is 100% unused nil rate band available and if there is a valid will.

dzug1 wrote: »

Correct - but if no will then it will not (depending on the size of the estate) be 'all to wife' - the intestacy rules will step in which limit the amount a wife gets and use up part of the nil rate band.

Absolutely, if there is no valid/located will on death the estate will be administerd under Intestacy Regs - with possible exposure (depending on net value of course) of the decds estate in respect of any non-exempt transfers/inheritance.

Hope this helps

Holly