New Inheritance Tax threshold for couples

emmalt

Tiggs wrote: »

so, drop dead in the morning and you have a £600k allowance. Good news for you!

How is this good news for John? He's dead!:rotfl:

Tiggs_2

emmalt wrote: »

How is this good news for John? He's dead!:rotfl:

Thats just being picky

Willman_Rodders

I have been reading the various threads about the proposed allowances. You might find the following link useful ....


http://www.hmrc.gov.uk/pbr2007/supplementary.htm


and scroll down to ....

Inheritance Tax: transfer of unused nil-rate band (PDF 207K)

to open a .pdf file where the Chancellor's covering notes can be read. Skip the first 11 pages (they are for the lawyers and will writers to get to grips with) but read the 'Background Notes' and then the examples on page 16. they answer many of the questions posed on this thread.

Remember; these changes are not yet law. Details may (perhaps that should read ... will) change almost certainly.

Hope that helps.

SJ1

Tiggs, completely right about the nil rate band at the time of the second death being the one used.

So all in all would be better to wait until the second death but this does depend on whether you want your children to have anything at all when the first partner dies and on the property market and how the chancellor moves this nil rate band in the future. As if the couple's assets increased above and beyond the rate of the increase in the nil rate band (which is likely given past history) then they could actually be worse off.

Assets £700k, spouse 1 dies and uses nil rate band up leaving assets of £400k for second spouse who dies a year later with the same band £300k and they pay £40,000 (£100,000 at 40%)

If couple does nothing, assets of £700k, partner 1 dies and whole estate passes on to other partner but in between the two deaths estate value goes up to £900,000 - if nil rate band only raises to say £750,000 for the two then the couple would pay tax of £60,000 (£150,000 at 40%)

So its clear, but it isn't!

SJ1

Tiggs, completely right about the nil rate band at the time of the second death being the one used.

So all in all would be better to wait until the second death but this does depend on whether you want your children to have anything at all when the first partner dies and on the property market and how the chancellor moves this nil rate band in the future. As if the couple's assets increased above and beyond the rate of the increase in the nil rate band (which is likely given past history) then they could actually be worse off.

Assets £700k, spouse 1 dies and uses nil rate band up leaving assets of £400k for second spouse who dies a year later with the same band £300k and they pay £40,000 (£100,000 at 40%)

If couple does nothing, assets of £700k, partner 1 dies and whole estate passes on to other partner but in between the two deaths estate value goes up to £900,000 - if nil rate band only raises to say £750,000 for the two then the couple would pay tax of £60,000 (£150,000 at 40%)

So its clear, but it isn't!

Tiggs_2

ahhhh.....but its simpler than that.

In your example what they should do is GIFT the £300k AFTER the 1st death to the kids. In that way the growth on the £300k is not in the esate for second death and (if 7 years goes by) the whole lots out of the estate anyway AND the double nil rate band is still there.

To use the nil band on 1st death is (in most cases) going to be a mistake...a 1st death trap, if you will

If gifting at 1st death is important to you, leave it to your spouse and ask them to give it away.

Tiggs_2

safe guarded what though? If the spouse needs the £300k they keep it in their pocket, if they dont need the growth their are plenty of simpler trusts the survivor can use after 1st death to hold the money.

I can see no reason to use a DWT - its overly complex and wont save any more money (and may save less) than having a simple mirror will leaving assets to spouses.

harryhound

jem16 wrote: »

That's always the unknown bit.



I suppose it depends on the length of time between the two deaths and how much the allowance has increased.

For example each person has £300k, total £600k.

Using the trust now and leave £300k to the children on first death instead of the spouse so 100% used. In 2010 the allowance goes to £350k each. The 2nd person dies and can pass on £350k to the children. So in total £650k was free of IHT.

However if on the first death everything was passed to the spouse, on the 2nd death the allowance would be £350k x 2 as none of the allowance was used on 1st death. So in total £700k is free of IHT.

So even in the space of less than 2 years £50k has been saved from inheritance tax.

Do you really expect the allowance to go up 16% in two years.
Let us pretend that the whole estate is just the (posh) family home worth 600K and that goes up 20% but the allowance stays at 300K ?

Tiggs_2

ignore - double post

dzug

harryhound wrote: »

Do you really expect the allowance to go up 16% in two years.
Let us pretend that the whole estate is just the (posh) family home worth 600K and that goes up 20% but the allowance stays at 300K ?

eerm part of the announcement is that it's going up to £700K (2x £350K) in 2010. So yes I really expect it.