Inheritence tax questions, help please

happyhero

Hi, my Mother and Step Father have been seeking advice from a financial adviser about Inheritance tax etc and have asked me to join them each time they do anything like this to help them understand it all afterwards and because they want me to make sure they are doing everything the right way. My Mother is adamant she doesn’t want anything going to the tax man in Inheritance tax.


The adviser (who was in a Skipton Building Society) gave us this book and there is a paragraph I do not fully understand, can anybody elaborate on this please, I understood the allowance for each person for inheritance tax purposes is £325,000 each and if one person has passed then the other persons allowance doubles to £650,000, so where does the £250,000 figure come in, does it just mean the amount that will pass to the survivor if there is no Will without tax being charged?


Many married people or registered civil partners still believe that, on their death, their whole estate will automatically pass to their spouse without the need for a Will. However, depending on the size of your estate, a spouse may only inherit the first £250,000 outright and the rest may pass to your children. An unmarried or unregistered civil partner has no automatic right to your estate at all.

Also does this imply that as long as you have a Will that the £250,000 jumps to £325,000 purely because you have a Will?


Out of curiosity, what Tax rate would they pay on anything over the £250,000, if there was no Will, 40%?

Also how does it work if their individual halves of the whole estate works out to more than the £325,000, i.e. if their house is worth £500,000 (and prices going up all the time)and their investments total £300,000, i.e. this would total £800,000 and so half would be more than the £325,000 but the survivor would be still living in the house, would the survivor be expected to pay any tax here or would the whole lot pass to the spouse/survivor?


Any help appreciated.

CLAPTON

happyhero wrote: »

Hi, my Mother and Step Father have been seeking advice from a financial adviser about Inheritance tax etc and have asked me to join them each time they do anything like this to help them understand it all afterwards and because they want me to make sure they are doing everything the right way. My Mother is adamant she doesn’t want anything going to the tax man in Inheritance tax.


The adviser (who was in a Skipton Building Society) gave us this book and there is a paragraph I do not fully understand, can anybody elaborate on this please, I understood the allowance for each person for inheritance tax purposes is £325,000 each and if one person has passed then the other persons allowance doubles to £650,000, so where does the £250,000 figure come in, does it just mean the amount that will pass to the survivor if there is no Will without tax being charged?


Many married people or registered civil partners still believe that, on their death, their whole estate will automatically pass to their spouse without the need for a Will. However, depending on the size of your estate, a spouse may only inherit the first £250,000 outright and the rest may pass to your children. An unmarried or unregistered civil partner has no automatic right to your estate at all.

Also does this imply that as long as you have a Will that the £250,000 jumps to £325,000 purely because you have a Will?


Out of curiosity, what Tax rate would they pay on anything over the £250,000, if there was no Will, 40%?

Also how does it work if their individual halves of the whole estate works out to more than the £325,000, i.e. if their house is worth £500,000 (and prices going up all the time)and their investments total £300,000, i.e. this would total £800,000 and so half would be more than the £325,000 but the survivor would be still living in the house, would the survivor be expected to pay any tax here or would the whole lot pass to the spouse/survivor?


Any help appreciated.

you are confusing Inheritance tax rules with those of dying without a will (intestate)


if you die and leave a will then (all things being equal) the will rules supreme

if you die without a will then the rules of being intestate apply : so if you have children then the 250,000 rule applies : It has nothing at all to do with IHT as such.


with a will you can leave as little or as much as you like to whoever your like.


often legally married people make 'mirror' wills : i.e. each leaves everything to the surviving spouse
so no IHT on first death and 650,000 allowance on second death

happyhero

Hi CLAPTON, thanks very much for that, that clears up the £250,000 for me, and yes I believe there wills are in the format you describe, i.e. mirror wills, what is worrying me is that my step father was a keen investor and the bulk of the investments were in his name and so you could say his half would be well over the £325,000 figure compared to my mother's half. He has the start of Parkinson's and is 87 (my mother is 75) hence them stepping up their attention to this.

I know they have left everything to each other and then to me after that, but I am worried that if anything happened to my stepfather, the will states it will all go to my mother so its clear on where it goes but as this would amount to more than £325,000 I was worried she would get a tax demand for IHT purposes?

Can I assume that if they have mirror wills leaving everything to each other the estate and investments would pass to the spouse no matter what the amount involved regardless of the £325,000 tax threshold?

Apologies if I am asking anything silly here, I am just trying to get it clear in my head.

uknick

happyhero


If they are adamant they don't want the estate to pay any IHT, you could always leave any excess above the allowance to charity.


Of course, this will leave less for the family beneficiaries.

CLAPTON

happyhero wrote: »

Hi CLAPTON, thanks very much for that, that clears up the £250,000 for me, and yes I believe there wills are in the format you describe, i.e. mirror wills, what is worrying me is that my step father was a keen investor and the bulk of the investments were in his name and so you could say his half would be well over the £325,000 figure compared to my mother's half. He has the start of Parkinson's and is 87 (my mother is 75) hence them stepping up their attention to this.

I know they have left everything to each other and then to me after that, but I am worried that if anything happened to my stepfather, the will states it will all go to my mother so its clear on where it goes but as this would amount to more than £325,000 I was worried she would get a tax demand for IHT purposes?

Can I assume that if they have mirror wills leaving everything to each other the estate and investments would pass to the spouse no matter what the amount involved regardless of the £325,000 tax threshold?

Apologies if I am asking anything silly here, I am just trying to get it clear in my head.

There is NO tax if your father (first death) leaves everything to his legal spouse.
On the second death then there is a 650,000 allowance : after that then IHT at 40% applies

Mattygroves2

Anything left by one spouse to another will be free of IHT so if your stepfather has £2million in investments and leaves it all to your mother then there will be no tax to pay at that stage. His £325k IHT allowance passes to your mother and she then gets a £650k allowance on her death.

If they've got a house and £325k + of investments then I'd be surprised if they can avoid IHT completely unless their house is small. With the figures you give in the last para of your original post the tax payable on the second death would be 40% of £150k which would be £60k.
What suggestions did the Skipton man have ?

moneyfoolish

What is the inheritance situation for a married couple without wills who jointly own a house worth £400,000 and have assets between them of £350,000 some owned jointly butd neither having individual assets worth £250,000. Is it correct that in this case that everything would transfer automatically to the surviving spouse and there would be no inheritance tax payable on the first death? I understand that in this case there would be inhertitance tax to be paid on the death of the remaining spouse.

grey_gym_sock

being adamant about paying no IHT is not really a sensible position to take.

that's unless your main aim is to starve the treasury of funds (and if it is, you should be attempting to minimize other taxes, too - e.g. by avoiding buying VAT-able goods and services - which could be tricky!).

however, a simple way of achieving no IHT bill would be - sticking with mirror wills - to leave, on the second death, £650k to OP and everything else to some registered charities.

CLAPTON

moneyfoolish wrote: »

What is the inheritance situation for a married couple without wills who jointly own a house worth £400,000 and have assets between them of £350,000 some owned jointly butd neither having individual assets worth £250,000. Is it correct that in this case that everything would transfer automatically to the surviving spouse and there would be no inheritance tax payable on the first death? I understand that in this case there would be inhertitance tax to be paid on the death of the remaining spouse.

is the property owned as joint tenant or tenant in common?

do they have children?

Reaper

CLAPTON wrote: »

do they have children?

Sounds like one... [EDIT: Ah, sorry you were asking moneyfoolish not happyhero]

happyhero wrote: »

I know they have left everything to each other and then to me after that.

The obvious way to avoid inheritance tax is to start giving stuff away now. If they feel they have more than they need they could start gifting it to you now. As long as they live another 7 years after the gift you would not have any IHT to pay. If not then tax applies on a sliding scale. There are also a few small gift exclusions which are free of any IHT liability straight away.
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

Of course they may not want to do that particularly as it must be a genuine gift with no strings attached. e.g. they can't give you £100,000 on the condition you give it back if ever they need it.

moneyfoolish

CLAPTON wrote: »

is the property owned as joint tenant or tenant in common?

do they have children?

Joint tenants and 4 children. My understanding is that the house would automatically go to the remaining spouse as would everything in joint accounts.