Inheritance Tax

honey1

My mum owns a house that will take her over the IT threshold. She also owns some savings/investments, so these will be taxed at 40% on her death. My brother, sister and I are the Beneficiaries.

1) I believe money passed to a spouse is not subject to IT, so if the savings /investments were passed to our dad, they would be exempt (at least for the time being). Is this correct?

2) I believe Beneficiaries can choose not to inherit and to direct the inheritance elsewhere. Is this correct?

3) If 1) & 2) are correct, could we, the Beneficiaries (and also Executers) agree to give the money to dad, and postpone any IT liability?

4) If dad then made equal gifts to each of us of the money he inherited, then provided he lived a further 3 years (or 7) the IT on that money would be reduced (or avoided).

Is my thinking correct?

edit: dad also owns a house so will also have IT to pay.

bryanb

I don't think it works like that. (3)

Mojisola

honey1 wrote: »

My mum owns a house that will take her over the IT threshold. She also owns some savings/investments, so these will be taxed at 40% on her death. My brother, sister and I are the Beneficiaries.

1) I believe money passed to a spouse is not subject to IT, so if the savings /investments were passed to our dad, they would be exempt (at least for the time being). Is this correct?

2) I believe Beneficiaries can choose not to inherit and to direct the inheritance elsewhere. Is this correct?

3) If 1) & 2) are correct, could we, the Beneficiaries (and also Executers) agree to give the money to dad, and postpone any IT liability?

4) If dad then made equal gifts to each of us of the money he inherited, then provided he lived a further 3 years (or 7) the IT on that money would be reduced (or avoided).

Is my thinking correct?

edit: dad also owns a house so will also have IT to pay.

Is the house you are inheriting the family home where your father will be living? If so, could he give the house he owns to you three now and your mother leave the family home to him? If he is likely to live for 7 years, that would be free of IHT.

getmore4less

If they both hold assets independantly over £325k each then there is a need for some IHT planning or some spending.

Without a full picture it is hard to say what action would work best now.

What you are describing is a post death Deed Of family arrangement(commonly called a DOVariation).

These can be used to mitigate IHT.

Worth a rumage around the HMRC site to get a better undestanding how these work.
https://www.google.co.uk/#q=hmrc+deed+of+family+arrangement

It will become clear fairly quickly if you need specialist advice.

Also worth understanding the transferable nil rate band there are still a lot of old wills that were made prior to this(to avoid loosing the exemption) and should be reviewed.

honey1

Mojisola wrote: »

Is the house you are inheriting the family home where your father will be living? If so, could he give the house he owns to you three now and your mother leave the family home to him? If he is likely to live for 7 years, that would be free of IHT.

He lives in his house. She lives in hers. Neither property can be given away.

Mojisola

honey1 wrote: »

He lives in his house. She lives in hers. Neither property can be given away.

There are times when it's best to pay for professional advice and this is probably one of them.

G6JNS

honey1 wrote: »

My mum owns a house that will take her over the IT threshold. She also owns some savings/investments, so these will be taxed at 40% on her death. My brother, sister and I are the Beneficiaries.

1) I believe money passed to a spouse is not subject to IT, so if the savings /investments were passed to our dad, they would be exempt (at least for the time being). Is this correct?

2) I believe Beneficiaries can choose not to inherit and to direct the inheritance elsewhere. Is this correct?

3) If 1) & 2) are correct, could we, the Beneficiaries (and also Executers) agree to give the money to dad, and postpone any IT liability?

4) If dad then made equal gifts to each of us of the money he inherited, then provided he lived a further 3 years (or 7) the IT on that money would be reduced (or avoided).

Is my thinking correct?

edit: dad also owns a house so will also have IT to pay.

The various parties would be well advised to get paid for professional advice. It should save far more than it costs. It is not a task to DIY or just take advice from here.

Crabapple

Just to clarify - your parents live separately but are still legally married?

Each individual has an IHT allowance of £325k, a couple who are legally married or in a civil partnership can transfer some or all of this to the survivor so between them they have £650k.

What advantage do you see in not having to pay IHT on each estate but delay until the second death? If they have separate assets there does not immediately seem to be a need as you could liquidise sufficient to pay the tax bill without making life difficult for the surviving spouse.

As others have said, see a specialist to take some advice so you can discuss what you hope to achieve and why.

getmore4less

One thing to be aware of is a DOV is still a deprivation of assets so can impact anything means tested.

You also have to be careful as some actions can result in assets getting taxed in multiple ways(IHT & CGT).

getmore4less

One benefit of delaying through the use of spouse exemptions is time to spend but there are plenty of other issue to consider.

honey1

Crabapple wrote: »

Just to clarify - your parents live separately but are still legally married?Correct

Each individual has an IHT allowance of £325k, a couple who are legally married or in a civil partnership can transfer some or all of this to the survivor so between them they have £650k.Agreed

What advantage do you see in not having to pay IHT on each estate but delay until the second death?
See post 1 above: "If dad then made equal gifts to each of us of the money he inherited, then provided he lived a further 3 years (or 7) the IT on that money would be reduced (or avoided)."

If they have separate assets there does not immediately seem to be a need as you could liquidise sufficient to pay the tax bill without making life difficult for the surviving spouse.
The aim is not to find a way to pay the IT bill, but to minimise the bill. The surviving spouse would need to write 3 cheques.....

As others have said, see a specialist to take some advice so you can discuss what you hope to achieve and why.

Thanks for the advice to see a specialist :beer: