New Inheritance Tax threshold for couples

missmee_2

Hmm, this is very confusing.....My father died 7 weeks ago, my mother died in 1994. They were married and nobody benfited from the estate at the time of my mothers death. So is the new ruling only from today...Does this mean the new threshold doesn't apply in our case because it was only brought in yesterday and my dad died before the new threshold was set in place? Does any one know????

tipsychick

missmee wrote: »

Hmm, this is very confusing.....My father died 7 weeks ago, my mother died in 1994. They were married and nobody benfited from the estate at the time of my mothers death. So is the new ruling only from today...Does this mean the new threshold doesn't apply in our case because it was only brought in yesterday and my dad died before the new threshold was set in place? Does any one know????

I'm pretty sure that you've understood correctly and it won't apply in your case. Very unfair.

(Sorry to hear about your father).

Cook_County

tipsychick wrote: »

How would I go about finding out the details of my father's will from 1984? Is it registered somewhere and still on record?



Thanks very much.

The Probate Registry will have a complete copy you can get for a small charge. You might it interesting and of course sad to read after this time. Just search for them; I am sure they will be very helpful.

noh

worldwheeler wrote: »

Nigel, I would wait for the full wording of this supposed "policy". I suspect this is just the Labour party making public what any decent account would have told couples " to making individual wills leaving each's share of their estate to their children" This means that when each parent dies the £300,000 allowance is valid. Thus Labour has tried to pass this off as a "doubling gift to the public". I wouldn't trust the Labour party to advise on what date is Christmas. Brown has raided the pensions of billions and all immigration controls were dropped to increase the UK's population to keep the housing market rising and inflate the credit bubble to Hindenburg proportions.

Its already been published. Here's the guidance notes and some examples. http://www.hmrc.gov.uk/pbr2007/it-nil-rate-band.pdf
Nigel

localhero

What the government have actually provided is a straightforward way for a married couple to use their IHT allowances.

Of course, for the ones that have already obtained professional advice what's been offerred is nothing new.

bristol_pilot

It appears that some of us who have already taken professional advice may have shot ourselves in the foot.

My father died in 2000, leaving everything to my mother. After taking advice, she did a deed of variation and nil rate sum trust to make use of my father's IHT allowance in that tax year (which was about £240,000 I think), so that she would be able to use his allowance as well as her own when she eventualy dies (an amount of his assets equal to the nil rate band at that time was paid into the trust, then loaned to my mother). As well as costing money to set up, we (the trustees) have the minor inconvenience of having a meeting each year etc to run the trust.

Am I now to understand that if she had not done this, she would have had a full 'double' £600k IHT allowance (this year, and increasing in future years), so that the beneficiaries of her will will be at least 40% of 60,000 worse off than if the trust had not been set up?

I have looked for answers to this question all over the web and have not found an answer. Can the trust and deed of variation be undone so that she can get the full double alllowance?

Anyone know?

DavidLaGuardia

Tiggs wrote: »

but is now VERY important that those people change their Wills as maximising allowances is now INEFFECENT! You are better of giving your spouse 100% of the FUTURE allowance when they die, a LARGER amount!

and the amount is limited to two nil rate bands to allow for re-married people, etc (its all in the HMRC notes)

This is NOT necessarily the case.

The IHT limit has not risen in line with inflation (let alone asset growth especially that of property).

Here's 2 realistic example of someone losing out IF the double couples' had been in force ten years ago

Example A (better off couple)

Scenario 1:

Couple have house ten years ago worth £250,000.
Husband dies that year
House now worth £1,000,000
Wife dies today.

IHT on property alone is now (£1,000,000 less 600,000) x 40% = £160,000

Scenario 2:

As tenant in common before death (or after through DOV) husband passes half property £125,000 to three kids. which was below nil rate band at time
House in wife's name = £500,000
Wife dies today

IHT on property is now (£500,000 less 300,000) x 40% = £80,000

Assuming property then sold (and it may not be)
Gain = 500k less 125 k = 375k
Taper relief then takes this to
225k
Three kids, assume all married able to do inter-spouse transfers before disposal.
allowances of £9,200 x 6 to use = £55,200
Taxable Gain reduced to 169,800
Assume 3 of 6 40% tax payers and other 3 an average of £20k below 40% bracket i.e. 60k to be taxed at 20%
(£60,000 x 20%) + (109,800 x 40%) = 12,000 + £43,920 = £55,920

So £80,000 IHT + £55,920 CGT = 135,920

This is a saving of £24,080 before we have used any clever CGT planning tools or existing losses that could reduce the liability much much further.

Example B (simpler)

1.
House worth £ 250,000 NOW
Husband dies
Wife goes down hill (against expectations) and goes into care home after
House sold £125,000
House sold
Most Spent

2.
House worth £ 250,000 NOW
Husband dies passes on £125,000 to avoid "potential" IHT
Spent
£125,000 safe.
Note: NOT deprivation of assets as clear intent for plausible alternative reason before the event cpould have been known

localhero

Hi Bristolpilot,

Assuming your dad had not used any of his nil rate band allowance, then yes your mother would have twice the prevailing nil rate band at her disposal when she dies.

Since the trust has been in operation a while, I don't think it's possible for the two allowances to be used in the same way - though I may be wrong.

What is clear, is that if the trust had been in existence for less than 2 years and the trustees had made an outright gift of the whole sum to your mother, then it would have been regarded as if your dad had gifted it to her himself. In which case she would have the double allowance.

I'm sorry that your tax planning has been scuppered and I can't give you a more positive answer.

Tiggs_2

DavidLaGuardia wrote: »

This is NOT necessarily the case.

I stand by my comment. It was made in direct response to this post:
"People are therefore usually advised, if they have a large estate, to use their £300k tax free band to gift to their children or relatives without them incurring tax, with the remainder to their surviving spouse who incurs no tax on this. Therefore when the other partner dies they will have an additional £300k that they can give to children etc, tax free on their death. This is known as maximising your allowances and is easy peasy so long as you know the rules but not if you don't."

Your examples of people with small estates are correct but not what i was referring to. Anyone with a large estate that is able to pass £300k out to children would now be better advised to NOT do that in nearly all cases. The £300k can now be passed to the spouse who can keep it, give it away as a PET or hold in within a Loan Trust to cap the growth on it. There is no need for examples as the benefits are obvious.

In your examples the estates are small and a gift of £300k to children is not possible, hence the need to start chopping up the house (poor persons IHT planning)


oh, and in recent years (and in the next few years) IHT is increasing at a very acceptable rate.

harryhound

DavidLaGuardia wrote: »

This is NOT necessarily the case.


Scenario 2:

As tenant in common before death (or after through DOV) husband passes half property £125,000 to three kids. which was below nil rate band at time
House in wife's name = £500,000
Wife dies today

IHT on property is now (£500,000 less 300,000) x 40% = £80,000

Assuming property then sold (and it may not be)
Gain = 500k less 125 k = 375k
Taper relief then takes this to
225k
Three kids, assume all married able to do inter-spouse transfers before disposal.
allowances of £9,200 x 6 to use = £55,200
Taxable Gain reduced to 169,800
Assume 3 of 6 40% tax payers and other 3 an average of £20k below 40% bracket i.e. 60k to be taxed at 20%
(£60,000 x 20%) + (109,800 x 40%) = 12,000 + £43,920 = £55,920

So £80,000 IHT + £55,920 CGT = 135,920

This is a saving of £24,080 before we have used any clever CGT planning tools or existing losses that could reduce the liability much much further.

How long ago was the Capital Gains Tax relief, for a dependant relative, withdrawn from estates subsequently created ?