Inheritance Tax question

evergreen

I wonder if anyone can help. My OH has been diagnosed with a terminal illness. We have discussed our finances and want to give our 4 grandchildren money for university or whatever when they are older. As the inheritance tax allowance are in the process of changing, if as our wills says we leave everything to our spouse, does that mean that my OH full allowance will go to me and increase in line with mine to the full amount in 2020, providing I do not die prior to that date.. If that is so presumably it would be better for me to make the gift to a trust set up for the grandchildren. To be honest I really don't want to think about all this but my OH is insistent we get it sorted. We would appreciate any thoughts.

Tom99

[FONT=Verdana, sans-serif]Yes your OH leaving everything to you I think is the best way forward. You can then gift to the grandchildren. Although he could give £6,000 to the grandchildren now if he has not use his £3,000 pa gift allowance for last year.[/FONT]
[FONT=Verdana, sans-serif]I am not sure about trusts but others may comment. I think it depends on the amount you are giving as to whether its worthwhile to set up.[/FONT]
[FONT=Verdana, sans-serif]Using 4 x JISA you could gift over £16,000 pa[/FONT]

Keep_pedalling

Really sorry you find yourself in this position. Your husband is absolutely right to be trying to put his affairs in order while he can, and it will probable give him a great deal of comfort to be able to do so.

First off with any gifts you and your husband give, you need to make full use of your annual allowances. This will allow you to give a joint gifts totalling £6,000 now which falls straight out of your estate. If you did not use last years allowance you can double that. If he survives beyond 5th April then you can again make joint gifts of £6,000, and you can carry this on using your £3,000 allowance for as long as you wish.

Any money you give over that amount would be better to come from you as this will maximise the amount of nil rate band that can be transferred to your estate. Theses gifts would also drop out of your estate if you survive 7 years after making those gifts. Make sure you keep a record of all these gifts and keep them where your executor can easily find them when the time comes.

Although I am currently healthy I have given a great deal of thought on this subject myself. Some might think it morbid, but I prefer to think of it as a practical and comforting thing to do. I also know that it is going to make things far easier for those left behind once I have gone.

evergreen

Thank you for your help. Am I right in thinking that with the increase in IHT allowance, although my OH may not be around when the full increase comes in, if he has not used any allowance his allowance which will passed to me will increase to the new full amount. Thanks.

Keep_pedalling

evergreen wrote: »

Thank you for your help. Am I right in thinking that with the increase in IHT allowance, although my OH may not be around when the full increase comes in, if he has not used any allowance his allowance which will passed to me will increase to the new full amount. Thanks.

Yes, the primary residence nil rate band can be passed in full regardless of the date the first to die. Even people who have been widowed, years or even decades before this was implemented can use both allowances.

Cardew

The above posts do not mention that the increase in IHT to a joint £1million is dependant on selling the family property and the proceeds to be part of the estate;* also that there is a ceiling of £2million.

On the question of trusts, our old wills each set up a trust of £325k(2017/18) for our children on the death of husband or wife. On the advice of our solicitor we have changed our wills so the surviving spouse inherits everything. Were we not to do so the £1million condition would not apply.

As mentioned above if you survive 7 years any gifts fall out of the estate. However it is also pertinent to point out that if you survive more than 3 years, and less than 7 years, IHT will be charged on a sliding scale.

* the property can be sold before either party is dead.

Keep_pedalling

Cardew wrote: »

The above posts do not mention that the increase in IHT to a joint £1million is dependant on selling the family property and the proceeds to be part of the estate;* also that there is a ceiling of £2million.

On the question of trusts, our old wills each set up a trust of £325k(2017/18) for our children on the death of husband or wife. On the advice of our solicitor we have changed our wills so the surviving spouse inherits everything. Were we not to do so the £1million condition would not apply.

As mentioned above if you survive 7 years any gifts fall out of the estate. However it is also pertinent to point out that if you survive more than 3 years, and less than 7 years, IHT will be charged on a sliding scale.

* the property can be sold before either party is dead.

It is not dependant on selling the property. It could be sold but it could also passed directly to children or grand children, although that is usually not practical where several offspring are involved.

The sliding scale is only appropriate for very large gifts and only applies to the portion of gifts over the nil rate band (£325k). Unfortunately the HMRC website does not make this clear, so many people are misled on this.

Cardew

Keep_pedalling wrote: »

It is not dependant on selling the property. It could be sold but it could also passed directly to children or grand children, although that is usually not practical where several offspring are involved.

The sliding scale is only appropriate for very large gifts and only applies to the portion of gifts over the nil rate band (£325k). Unfortunately the HMRC website does not make this clear, so many people are misled on this.

The point I was making is that to benefit from the eventual £1million IHT exemption, the family house value - either sold or transferred at an HMRC agreed value - is taken into account. i.e. if there was/is no house to be considered the limit for a couple is twice the nil rate band currently £650k.

As for gifts qualifying from the sliding scale of IHT rates, I don't know what you mean by people misled. There is nothing that I can see that limits the sliding scale to 'very large gifts'. Clearly the £3k annual exemption, and any gift from surplus income are exempt IHT.

However I would be interested in any official definition of 'very large gifts' that you have. For instance if I give each of my 12 children!(not really) £1k, £2k, £10k, £50k from savings and live more than 3 years, are those gifts fully IHT exempt on the grounds that they are not 'very large gifts' or do they qualify for the sliding scale reduction in IHT rates; or are they subject to the full IHT rate.

noh

Cardew wrote: »

The point I was making is that to benefit from the eventual £1million IHT exemption, the family house value - either sold or transferred at an HMRC agreed value - is taken into account. i.e. if there was/is no house to be considered the limit for a couple is twice the nil rate band currently £650k.

As for gifts qualifying from the sliding scale of IHT rates, I don't know what you mean by people misled. There is nothing that I can see that limits the sliding scale to 'very large gifts'. Clearly the £3k annual exemption, and any gift from surplus income are exempt IHT.

However I would be interested in any official definition of 'very large gifts' that you have. For instance if I give each of my 12 children!(not really) £1k, £2k, £10k, £50k from savings and live more than 3 years, are those gifts fully IHT exempt on the grounds that they are not 'very large gifts' or do they qualify for the sliding scale reduction in IHT rates; or are they subject to the full IHT rate.

Gifts always use up the Inheritance Tax threshold first before any other assets of the estate.
Taper relief only comes into play when the cumulative total of the gifts exceeds the nil rate band.
Taper relief only reduces tax on that portion of gifts over the IHT threshold.

Therefore for taper relief to apply the total of gifts must have been large ie greater than £325000 in the case of an individual.

Keep_pedalling

Cardew wrote: »

The point I was making is that to benefit from the eventual £1million IHT exemption, the family house value - either sold or transferred at an HMRC agreed value - is taken into account. i.e. if there was/is no house to be considered the limit for a couple is twice the nil rate band currently £650k.

As for gifts qualifying from the sliding scale of IHT rates, I don't know what you mean by people misled. There is nothing that I can see that limits the sliding scale to 'very large gifts'. Clearly the £3k annual exemption, and any gift from surplus income are exempt IHT.

However I would be interested in any official definition of 'very large gifts' that you have. For instance if I give each of my 12 children!(not really) £1k, £2k, £10k, £50k from savings and live more than 3 years, are those gifts fully IHT exempt on the grounds that they are not 'very large gifts' or do they qualify for the sliding scale reduction in IHT rates; or are they subject to the full IHT rate.

What I meant by saying HMRC mislead people can be seen in the following link.

https://www.gov.uk/inheritance-tax/gifts

What that page misses out is that sliding scale only applies to gifts over £325,000, you have to delve into the manuals to get that info.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14611

So if I give my children £500,000 then die at some point 3 years to one day under 7 years, £325,000 of that gift is fully counted as part of my estate and the remaining £175,000 is reduced by the sliding scale.

In your examples only the £50k (x12) gift would be subject to the sliding scale, and then only about 45% of that amount. All the rest would remain in your estate for the 7 rears with no reduction other than than the first £3000 which would be exempt from day one.

getmore4less

Main confusion that comes from how taper relief works is that many think it is the gift that gets taper relief when it is the tax on the gift and the tax does not start till the gift is over the nil rate band.

As I understand it includes any transferable nil rate band so can be considerably more than the £325k standard one and if there is a house involved could also include RNRB.