Inheritance tax

hermionewilson

Hello

I have a question about inheritance tax, which seems quite simple. I was wondering if some kind person would know the answer. My Da has died, and left everything to my Ma as expected. Their house is worth above £500k (the value of the estate more). My Ma is going to sell the house to move to a smaller property.

I am helping out and there is some confusion in the air. How much is the nil-band for inheritance tax, in my Ma's case? Is it £325k(ish) - or is there a 'double band' that applies, so it is worth double (£650kish) before inheritance tax at 40% becomes due?

(Also, does the inheritance tax at 40% apply to everything in the estate above the single or double band, or are some things exempt? But this is less my enquiry, it is the single/double band question that confuses.)

Background? No-one else in the close family died in the past 20 years; my Da did not himself inherit anything from anyone in this time etc, if relevant.

Thank you
Hermione

zygurat789

hermionewilson wrote: »

Hello

I have a question about inheritance tax, which seems quite simple. I was wondering if some kind person would know the answer. My Da has died, and left everything to my Ma as expected. Their house is worth above £500k (the value of the estate more). My Ma is going to sell the house to move to a smaller property.

I am helping out and there is some confusion in the air. How much is the nil-band for inheritance tax, in my Ma's case? Is it £325k(ish) - or is there a 'double band' that applies, so it is worth double (£650kish) before inheritance tax at 40% becomes due?

(Also, does the inheritance tax at 40% apply to everything in the estate above the single or double band, or are some things exempt? But this is less my enquiry, it is the single/double band question that confuses.)

Background? No-one else in the close family died in the past 20 years; my Da did not himself inherit anything from anyone in this time etc, if relevant.

Thank you
Hermione

Did your parents not own the house jointly, if so Da's share is £250,000.
If he has left everything to your Ma there is no IHT.
Your Da left everything to your Ma including his £325,000 nil rate band so that on her death her estate will benefit from a nil rate band of £625,000 as increased by many (we hope) future budgets.
Above this figure it's all at 40%!!!

00ec25

you need to focus on the whole estate not just the house

your father has left his whole estate to your mother , as such there is no inheritance tax to pay as transfers between husband and wife are free of IHT (called the "spouse exemption") meaning that the full £325,000 "nil rate band" available to your father remains unused
http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

when your mother subsequently dies her estate will then have available a total nil rate band of £650,000 (ie her own 325 plus your father's)

IHT is charged on the excess amount over the nil rate band - so in mother's case anything in her total estate over £650,000 will be subject to 40%.

So on current figures the house is £500k leaving £150k extra before paying any IHT becomes an issue. So when you add up any cash and all other investments left to mother by your father and then include any cash etc in mother's own name at the moment is that grand total more than £650k. If yes, then you should take professional (ie paid for) advice on IHT planning to cope with mother's eventual death if you want to minimise IHT. Alternatively consider this, you will inherit £650,000 tax free from mother, paying a bit of tax on the excess over that amount may be cheaper than paying for tax advice to avoid it

hermionewilson

Well thank you. The position seems very different to what we thought!!

Without asking her (she has gone away for 4-5 days right now) I don't know if the house was jointly in her name or just in my Da's name. Does this make any difference to the position? (with no IHT being payable by her on what he has left her; and a double-band-exemption of IHT coming down to us children when she ...may be it a long time...eventually dies?) It sounds like it doesn't...

It sounds like her selling the house shortly doesn't make any difference either; that she will not have to pay some sum of tax on the sale value of the house. And that, the house sale won't affect the inheritance double-band that comes down eventually. (Is that right? Sorry if slow...it is surely major news.)
Hermione

Mojisola

hermionewilson wrote: »

I don't know if the house was jointly in her name or just in my Da's name. Does this make any difference to the position?

No, because of the spousal exemption.

It sounds like her selling the house shortly doesn't make any difference either; that she will not have to pay some sum of tax on the sale value of the house. And that, the house sale won't affect the inheritance double-band that comes down eventually.

She won't have to pay any tax if she sells the house that has been her home.

If everything your father had was left to your mother then, on her death, there will be no tax to pay on anything up to £650,000.

If her estate is likely to be above that, she could take steps to reduce it now in order to reduce her IHT liability.

zygurat789

hermionewilson wrote: »

Well thank you. The position seems very different to what we thought!!

Without asking her (she has gone away for 4-5 days right now) I don't know if the house was jointly in her name or just in my Da's name. Does this make any difference to the position? (with no IHT being payable by her on what he has left her; and a double-band-exemption of IHT coming down to us children when she ...may be it a long time...eventually dies?) It sounds like it doesn't...

It sounds like her selling the house shortly doesn't make any difference either; that she will not have to pay some sum of tax on the sale value of the house. And that, the house sale won't affect the inheritance double-band that comes down eventually. (Is that right? Sorry if slow...it is surely major news.)
Hermione

I thought that might be the case judging by your op.
It makes no difference to the amount of tax due, nil but it becomes significant when you start filling in the forms for HMRC. You don't want to tell them you're worth more than you are otherwise they'll want their share.
The double band exemption will not be handed down to the next generation it will be used up and/or lost on your Ma's estate before the estate has to pay IHT, if any.
You really do have a dim view of IHT your Ma can go ahead and do all those things with no IHT implications.
That £650,000 may be changed by budgets, usually annually in March but with other announcements in early December, it will be in the media.
If she is worth lots more then you should defintely seek professional advice.
You may find this worth reading
https://forums.moneysavingexpert.com/discussion/4985634

hermionewilson

I was aware of how IHT works on gifts. Not everyone has great knowledge of these areas, I guess some of us have to learn...

There appears a small cross-wire. From previous replies, I took the double-rate band to apply for us children, on the value of my Ma's estate when we get there. So, I took it that she pays no IHT on the estate; that this is unaffacted by the house sale; and that a £650k IHT exemption would apply on the value of her estate when she (hopefully a very long time off...) passes on. (I didn't take it that any IHT band from my ma's estate would go down to any future generation.)

But all the above is likely beside the point as on my present understanding, she will probably end up needing to spend (ie use up fully) nearly all of what's there.

zygurat789

hermionewilson wrote: »

I was aware of how IHT works on gifts. Not everyone has great knowledge of these areas, I guess some of us have to learn...

There appears a small cross-wire. From previous replies, I took the double-rate band to apply for us children, on the value of my Ma's estate when we get there. So, I took it that she pays no IHT on the estate; that this is unaffacted by the house sale; and that a £650k IHT exemption would apply on the value of her estate when she (hopefully a very long time off...) passes on. (I didn't take it that any IHT band from my ma's estate would go down to any future generation.)

But all the above is likely beside the point as on my present understanding, she will probably end up needing to spend (ie use up fully) nearly all of what's there.

To live presumably; that wont be neccesary for tax purposes.

Mojisola

hermionewilson wrote: »

But all the above is likely beside the point as on my present understanding, she will probably end up needing to spend (ie use up fully) nearly all of what's there.

£650,000 would last me a very long time!

zagfles

Just a quick point - all the replies in this thread seem to be assuming your parents were married - if they weren't then most of the above is wrong.

xylophone

If your father left the whole of his estate to his wife, then there is no IHT to pay.

Incidentally, if your parents owned the house as "joint tenants" (rather than tenants in common), then the house would not pass by will, your mother would just become the sole owner. This would be true whether they were married or not.

http://www.landregistry.gov.uk/public/guides/public-guide-18

When the second spouse dies, the nil rate band of the first to die as well as his/ her own can be set against the IHT liability.

If it seems likely that the second spouse to die will have an estate substantially in excess of the double nil rate band, the making of lifetime gifts could be worth considering.

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

Your mother has made a will?