Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

Mattygroves2

MrGumby wrote: »

Thank you. So, on second death, £500K (full value of house) has to be declared, even though £200K (50% of the value of the house at the time) was part of the £282K estate declared on first death?

Although £500K is of course less than £650K, with other assets the total will be more than £650K.

Yes you get the benefit of two allowances but have to account for all the net assets owned by the person who died second which will include the house and also any savings etc they had (which may or may not have come from the estate of the deceased spouse).

getmore4less

MrGumby wrote: »

Thank you. £300K is the difference between the value of the house at time of second death (£500K) and the £200K that was 50% of the value of the house (£400K) at time of first death. First death was my mother and her IHT allowance passed to my father.

Her estate was valued at £282K including £200K for the house. My father's estate will be around £150K plus whatever has to be counted for the value of the house.

My question is, will the house value be counted as 300K (500K-200K) or 250K (half the current £500K value)?

You have to answer the very important question what happend to the 1/2 on first death? (and what happened to the rest of the estate)

that way you can work out how much of the house counts and how much transferable nil rate band there is.

you need to do both.

Is this a real case? the IHT forms are quite helpfull on explaining this.

MrGumby

getmore4less wrote: »

You have to answer the very important question what happend to the 1/2 on first death? (and what happened to the rest of the estate)

that way you can work out how much of the house counts and how much transferable nil rate band there is.

you need to do both.

Is this a real case? the IHT forms are quite helpfull on explaining this.

Yes, it's a real case. My parents. When my mother died, her estate was valued at £282K including half the then value of the house. It was left 100% to my father. My father is concerned about whether his estate will attract IHT but we don't understand how his half of the house will be valued. Sounds as though I need to look at the forms - thanks for that advice.

getmore4less

As spouse inherited 100% all the property transfers and you can ignore the values at that time because the nil rate band does not get used.

You value the current estate and apply the available nil rate band which as 100% of the band was unused at first death you can uplift the current band 100% to £650k total.

If over, time to spend some money

Keep_pedalling

MrGumby wrote: »

Yes, it's a real case. My parents. When my mother died, her estate was valued at £282K including half the then value of the house. It was left 100% to my father. My father is concerned about whether his estate will attract IHT but we don't understand how his half of the house will be valued. Sounds as though I need to look at the forms - thanks for that advice.

He does not have half a house he owns it outright, so the entire value needs to be declared.

It sounds like his estate is currently very close to falling into IHT territory, so if he is not already got doing so he should consider taking advantage of his annual allowances for gifting. The allowances for family property start to kick in next year which should take his estate out of any IHT.

pthogy

The government is considering raising the IHT threshold to £425000 per person in April next year. If your parents are married this means twice that will be free of IHT , that is £950000!

Currently the threshold figure is £325000, so again if they are married thats £650,000 for the 2 of them.

If the estate is valued at around £400000 there will be no IHT to pay! ( Unless of course the estate includes a property, the value of which, over the coming years breaches the IHT threshold levels, which is unlikely given the rate of house price inflation versus the plans to increase IHT thresholds over the next 4 years to £500000 per person or £1000000 for a married couple or civil partners.

It seems you do not have an IHT problem and are unlikely to unless the unfortunate happens prior to the changes due in April next year as and your parents are NOT married or in a civil partnership in which case the current threshold of £325000 applies which leaves the difference between this threshold and the £400000 value of the estate liable to IHT at 40% of £75000 = £30000

pthogy

Apologies, the figure of £950000 should read £850000

Brighty

Hi all

Wife and i need to get wills sorted and maybe think about IHT planning
We are 40 & 38 yrs old, married, 2 kids aged 5 & 3

Negligible savings, estate consists mainly of properties, mostly owned as tenants in common 50% by my brother, 25% me, 25% wife, except for property 2, which is owned by just my wife and i as joint tenants

Property 1, Bought in 2002, Main residence 2002-2008, current value £360k, 50/25/25 owned, now a rental

Property 2, Bought in 2010, Main residence 2010-2015, current value £145k, 50/50 owned as joint tenants, soon to be a rental

Property 3, inherited in 2012, main residence 2015-now, current value £300k, 50/25/25 owned

Property 4, inherited in 2012, never been a residence, current value £150k, 50/25/25 owned, rental

Therefore my wife and I's current estate is valued at £550k, however, my brother is single, never married, no kids, so I could potentially inherit his half of the properties if he goes before me being 5 yrs older, making it £955k, plus his main residence in Germany.

As i understand it, the new nil rate allowance for main residence can be used on a property of your choice, so long as it's been a main residence at some point, therefore property 1 would be best, as it makes best use of the full allowance. With that in mind, i think my wife and i are covered upto an estate of £650k now, £850k next year rising to £1million after 2020, is that correct?

Obviously property values could rise considerably, plus with the German house, take us over £1million. Also, the main residence extra allowance may not exist forever. So what should be be considering doing to ensure as much as possible goes to our kids, preferably in the form of keeping the properties as rentals in trust or whatever, to give the kids an income. Should we make wills leaving everything to the kids, or to each other?

Thanks

Brighty

cinderfella

With the new family home exemption coming into force next year, I was wondering if a home abroad would be covered.
I would imagine that the rules relate to just UK homes with the usual snub for expats.
If so then there is always the domicile of choice to fall back on, which seems the best way to go. As they say' if you don't ask- you don't get ' regarding Domicile of Choice. Just have to be sure that you fill all the requirements.:)

Savvy_Sue

Brighty wrote: »

Wife and i need to get wills sorted and maybe think about IHT planning
<snip>

Therefore my wife and I's current estate is valued at £550k, however, my brother is single, never married, no kids, so I could potentially inherit his half of the properties if he goes before me being 5 yrs older, making it £955k, plus his main residence in Germany.

<snip>

Should we make wills leaving everything to the kids, or to each other?

With that size of potential estate, you would be well advised to take 'proper' advice. Although you obviously can't be sure of inheriting from your brother, and that situation may be complicated by him living in Germany. In the UK, if he died before you and you wanted to reduce the amount of IHT due then a Deed of Variation would be the way to go, but I'm not sure if it would work with foreign assets - which is why taking advice is worth while.

cinderfella wrote: »

With the new family home exemption coming into force next year, I was wondering if a home abroad would be covered.
I would imagine that the rules relate to just UK homes with the usual snub for expats.
If so then there is always the domicile of choice to fall back on, which seems the best way to go. As they say' if you don't ask- you don't get ' regarding Domicile of Choice. Just have to be sure that you fill all the requirements.:)

One key thing to note with homes abroad is that they will be liable to foreign legislation and laws of succession, so having both a UK and a foreign will, each disposing of those assets, would be very well advised.