Inheritence tax questions, help please

ANGLICANPAT

CLAPTON wrote: »

who gives what to whom and when?

Im suggesting that both happyhero's parents make out a will bequeathing happy hero the amount they think will be over £650k at the second death. Which ever one dies first , happyhero gets that legacy (the surplus to £650k) at that point. The remaining parent will not have as much money to go at as they would have had , because their offspring has it , but the surplus amount will have passed untaxed, no seven year stuff to worry about , that money will also be out of reach of nursing homes .

When the surviving parent dies, they wont be over the £650k IHT limit , and they would have been free to make a new will after their partner died bequeathing their IHT free estate to whoever they wanted to.

Sounds a bit too easy which is why I was questioning if it would work. Maybe Ive overlooked something?

Daniel54

ANGLICANPAT wrote: »

Im suggesting that both happyhero's parents make out a will bequeathing happy hero the amount they think will be over £650k at the second death. Which ever one dies first , happyhero gets that legacy (the surplus to £650k) at that point. The remaining parent will not have as much money to go at as they would have had , because their offspring has it , but the surplus amount will have passed untaxed, no seven year stuff to worry about , that money will also be out of reach of nursing homes .

When the surviving parent dies, they wont be over the £650k IHT limit , and they would have been free to make a new will after their partner died bequeathing their IHT free estate to whoever they wanted to.

Sounds a bit too easy which is why I was questioning if it would work. Maybe Ive overlooked something?

Only the amount between spouses is not subject to tax.The amount left to the OP is subject to tax but none would be payable because it falls within the tax free allowance.However the amount of the bequest would be deducted from the tax free allowance carried forward to the second death

If the total estate was £750k and the amount left to the OP on the first death was £100k,the eroded tax free allowance carried forward to the second death would be £225k.So the total amount of allowance on the second death becomes £550k.The estate has been reduced to £650k by the bequest but as the tax free allowance is now only £550k ,40% tax is still due on the £100k above the allowance

ANGLICANPAT

Ah thanks, I understand why it wouldnt have any advantage now. I hadnt appreciated that bequeaths made by the first to die were subtracted from the double allowance of the second partner.

I think I need to speak to my solicitor as when we decided to update our wills a few years ago, he advised us to change the ownership of our house to tenants in common ,(which we did) , and wills each leaving half of our house to our daughter ( the remaining partner would move into a smaller property which is let at the moment, so house could be sold if necessary ) as he said the amount represented by the half property left to our daughter would then be excluded from the estate of the final parent.

CLAPTON

ANGLICANPAT wrote: »

Ah thanks, I understand why it wouldnt have any advantage now. I hadnt appreciated that bequeaths made by the first to die were subtracted from the double allowance of the second partner.

I think I need to speak to my solicitor as when we decided to update our wills a few years ago, he advised us to change the ownership of our house to tenants in common ,(which we did) , and wills each leaving half of our house to our daughter ( the remaining partner would move into a smaller property which is let at the moment, so house could be sold if necessary ) as he said the amount represented by the half property left to our daughter would then be excluded from the estate of the final parent.

maybe your solicitor made these recommendation before the transferrable IHT allowance came in, but today this is very bad advice.

if on first death, half the house becomes your daughters but you choose to continue living there; then
a. your daughter would be liable to cgt (on half the house) when eventually sold

[section deleted]

if the property was sold and daughter had half the money then there would be no cgt.


PS Plus of course the gift would reduce the father's transferrable IHT allowance as already discussed.

xylophone

if on first death, half the house becomes your daughters but you choose to continue living there; then
a. your daughter would be liable to cgt (on half the house) when eventually sold
b. it would not reduce the overall IHT as HMRC would consider it a gift with reservations unless mum paid the full market rent.
so she would pay both IHT and cgt

The child would have received the half of the house owned by the deceased parent as a bequest in a will- there is no question of a gift with reservation.

https://www.gov.uk/inheritance-tax/inheritance-tax-planning-passing-on-property

It would also be normal for each parent to insert a clause in his/her will to protect the right of the surviving parent to live in the house until death /sale etc

http://www.primewills.co.uk/will_writers_cambridge.htm

http://www.thisismoney.co.uk/money/news/article-1594984/Tenants-common.html

With regard to CGT http://www.hmrc.gov.uk/inheritancetax/tax-when-you-inherit.htm

troubleinparadise

ANGLICANPAT wrote: »

I think I need to speak to my solicitor as when we decided to update our wills a few years ago, he advised us to change the ownership of our house to tenants in common ,(which we did) , and wills each leaving half of our house to our daughter ( the remaining partner would move into a smaller property which is let at the moment, so house could be sold if necessary ) as he said the amount represented by the half property left to our daughter would then be excluded from the estate of the final parent.

Apart from the issues of IHT, this advice also stands good in the matter of financial assessments for care home funding - a house can then be removed from inclusion as a capital asset, and prevented from having to be sold to meet fees.

Mojisola

troubleinparadise wrote: »

Apart from the issues of IHT, this advice also stands good in the matter of financial assessments for care home funding - a house can then be removed from inclusion as a capital asset, and prevented from having to be sold to meet fees.

If a person's home is occupied by a spouse/civil partner/other specific relatives, the home is never included in the financial assessment.

If a widow or widower needs residential care and their partner left their share of the family home to someone else, then the value of the survivor's share will be counted - this scheme will not remove the value of the house completely from the assessment.

noh

Mojisola wrote: »

If a person's home is occupied by a spouse/civil partner/other specific relatives, the home is never included in the financial assessment.

If a widow or widower needs residential care and their partner left their share of the family home to someone else, then the value of the survivor's share will be counted - this scheme will not remove the value of the house completely from the assessment.

The value of the survivors share may be small or zero.
See section 5 of
http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS38_Treatment_of_property_in_the_means-test_for_permanent_care_home_provision_fcs.pdf?dtrk=true

Mojisola

noh wrote: »

The value of the survivors share may be small or zero.

Unless they know for sure which of the couple is going to die first, a 50/50 split is more usual.

CLAPTON

xylophone wrote: »

The child would have received the half of the house owned by the deceased parent as a bequest in a will- there is no question of a gift with reservation.

https://www.gov.uk/inheritance-tax/inheritance-tax-planning-passing-on-property

It would also be normal for each parent to insert a clause in his/her will to protect the right of the surviving parent to live in the house until death /sale etc

http://www.primewills.co.uk/will_writers_cambridge.htm

http://www.thisismoney.co.uk/money/news/article-1594984/Tenants-common.html

With regard to CGT http://www.hmrc.gov.uk/inheritancetax/tax-when-you-inherit.htm

yes are are correct : I little brain damage maybe.
I will amend my post

however the possible issue of cgt should be considered.