Help with IHT

Jeems

Hi all,
My dad will pass away at some point this year - terminal illness. It happens, will no longer dwell on it. A fairly long post and quite a few questions!

I feel I have a decent understand of IHT (yet to consultant a professional, but will do soon). The status currently:

Parents are married and own their home It's been paid off fully. I dont know the value as no property has been sold in their street for 10 years. However, market value for similar sized houses nearby is between £400-£500k. Lets just assume £500k for now. I will double check when I can, but I believe the house is owned under "Joint Tenant" - in which case my Dad's share will pass to my Mum without IHT? If its owned as "Tenant in Law", how will this affect the IHT status?

My Dad has roughly £90k in his savings - the accounts are all under BOTH my parents names, so am I right in staying that half of this amount (£45k) will be listed as part of his estate? Will it cause issues with HMRC if my Mum takes my Dad's name off some of these accounts to reduce the IHT?

6 years ago, my Dad (not sure if from my Mum AND Dad officially) gifted me a flat. At the time, it was bought for £280k. Under the 7 year rule, I know IHT will be liable on this. As we are entering the 7th year, I believe the tax payable is either 10 or 20%. IF it was gifted from both parents, I assume the liability will be on £140k?

Apart from his pension, he has no other income (how do we deal with whats left of his pension, does this get passed to my Mum too?)

So right now I believe his estate to be:

House - passed to my mum with no IHT
Gifted flat - £280k
Savings - £45k

Total: £325,000 so right on the threshold.

Is this correct? I plan to make use of his annual "gifting allowance" which I never knew of before. £3,000 this year and £3000 backdated to last year. Will also make sure he uses the £250pp he is able to gift on top of this to family members. Do the recipients of gifts need to declare this on their own self assessment?

I am hoping his estate legally by as much as possible. I understand his funeral costs etc will also come off his estate total.

If we can get it below the £325,000 threshold, his "share" of this will added to my Mum's total right?

I would appreciate any advice from people more in the know.

Many thanks.

xylophone

Read https://www.gov.uk/inheritance-tax/overview


You should check how your parents owned the house.

https://www.gov.uk/joint-property-ownership/overview

The joint accounts would pass by survivorship - presumably, they are held on an either to sign basis so there is nothing to prevent all the money in the joint accounts being transferred to a sole account(s) in your mother's sole name before your father's death.

Otherwise see https://www.gov.uk/valuing-estate-of-someone-who-died/assets

With regard to the gift of the flat, you should establish whether it was a sole or joint gift - don't get confused by taper relief see

http://taxaid.org.uk/guides/information/other-taxes-you-may-need-to-know-about/inheritance-tax/828-2/taper-relief-for-lifetime-gifts

Was your father in receipt of a state pension? You must advise DWP when he dies. They will sort out the situation with regard to your mother.

With regard to his private pension, you will need to advise the administrator- presumably there is provision for his widow?

It is likely that any benefits will be paid outside the estate but you will need to check this.

CLAPTON

the references xylophone has posted will be helpful; but as your understanding of IHT is rather vague I will add a few specific points

assuming your father has a will that leaves everything to your mother, then there is no IHT payable on the estate; gifts between spouses are exempt although there are consequences when your mother dies.
This is true whether or not they are joint accounts or the type of house ownership.

The gift of the flat (whether 280k or 140k) is below the 325,000 IHT allowance so no tax is payable at this time

the value of this gift will reduce the IHT allowance of your mother's estate in due course (although the government has indicated that they will change some of the rules in the future)

Savvy_Sue

If your dad can still do such things, it would be good to check his will, check ownership of the house and change it if necessary, and check that your mum is named as beneficiary of any private pensions.

Jeems

Thank you all for the replies. Yes my awareness of IHT is still rather vague, I only really started reading up on this recently!

I had a look last night at the deeds and its a strange one. It lists my parents as "Proprietors" and doesn't mention anything about Joint Tenant or Tenant in Law. I would assume the Land registry would be the best people I need to check with? The house they own is freehold if that makes any difference?

The flat gifted to me was in my Dad's name only. I assume the solicitor will not amend this to include my Mum's name either?

So it seems like the best thing to do right now is if my Dad updates his will to leave everything to my Mum. No IHT between spouses, so no issues right?

I know this will affect my Mum on her death but with the knowledge I now I have, I will plan smartly for the future. Fortunately, my Dad is still fairly independent so I will ask him to go to the bank to remove his names from the joint accounts etc.

He recieves state pension but no private pension (he was self employed).

I'm just concerned HMRC will be a little suspicious (despite us not doing anything illegal as far as I'm aware) if we declare his estate as practically 0 especially if there are records of us changing everything so close to his passing.

Thanks again for your replies.

xylophone

Re JT/TIC see http://www.beneficentlaw.co.uk/uploads/1/0/7/5/10755464/sample_title_register.pdf

If only your father made the gift then that is how it stands - he has used that much of his IHT exemption if he dies before the seven years are up.

If the joint accounts are either to sign, then there is nothing to prevent your mother from moving all the cash into
her sole account (s) - your parents can then close the joint accounts.

http://www.findlaw.co.uk/law/tax/taxes/inheritance_tax/9485.html

may be of interest.

Mojisola

Jeems wrote: »

So it seems like the best thing to do right now is if my Dad updates his will to leave everything to my Mum.

Fortunately, my Dad is still fairly independent so I will ask him to go to the bank to remove his names from the joint accounts etc.

He recieves state pension but no private pension (he was self employed).

I'm just concerned HMRC will be a little suspicious (despite us not doing anything illegal as far as I'm aware) if we declare his estate as practically 0 especially if there are records of us changing everything so close to his passing.

xylophone wrote: »

If the joint accounts are either to sign, then there is nothing to prevent your mother from moving all the cash into
her sole account (s) - your parents can then close the joint accounts.

He can leave the joint accounts in place so that his pension and DDs/SOs don't have to be changed. As above - get mother to open a new account and they can move the bulk of their money into her name while leaving the joint account functioning.

Not all estates have to go to probate. When Mum died, almost everything Mum and Dad possessed was in joint names and nothing official had to be done.

xylophone

Re probate http://www.co-operativelegalservices.co.uk/probate/what-is-probate/does-probate-apply-to-me/

If the property is held as tenants in common then probate will be required.

He can leave the joint accounts in place so that his pension and DDs/SOs don't have to be changed. As above - get mother to open a new account and they can move the bulk of their money into her name while leaving the joint account functioning.

It is not wholly clear whether the accounts in question are current accounts/savings accounts or both.

My Dad has roughly £90k in his savings

If there are joint accounts with household DDs/SOs, then it might be convenient to leave these open as Mojisola says - the bank can remove the name of the deceased when the survivor advises the death.

If your father is well enough, he might wish to discuss the whole matter with your mother.

With regard to state pension payments, this thread might be worth a look. https://forums.moneysavingexpert.com/discussion/5267554

https://www.gov.uk/after-a-death/overview

http://www.ageuk.org.uk/money-matters/legal-issues/what-to-do-when-someone-dies/what-to-do-first-when-someone-dies/

may assist.

getmore4less

If everything goes to mum(no IHT no mater how the assets are held) then the joint accounts are not an issue, they should just revert to the survivor and just a paper exercise on the IHT forms as thay fall into the exempt pot.

The real issue is the PET of the flat that will use up transferable nil rate band.

WHat does his will say now?

getmore4less

One way to get a clearer picture is download IHT205 & IHT400 and work through them.