Inheritance Tax question

Keep_pedalling

getmore4less wrote: »

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.

At least the vast majority of us will never have to worry about such complications

getmore4less

Keep_pedalling wrote: »

At least the vast majority of us will never have to worry about such complications

How many think by gifting the IHT starts to reduce at 3 years?
quite a lot I suspect and many of them don't realise they probably have zero IHT anyway and limit gifts to the £3k.

Keep_pedalling

getmore4less wrote: »

How many think by gifting the IHT starts to reduce at 3 years?
quite a lot I suspect and many of them don't realise they probably have zero IHT anyway and limit gifts to the £3k.

Because of the shoddy info on the HMRC website probably very many, and I used to be one of those until my IFA corrected my ignorance.

evergreen

Thanks all. It is a lot clearer now, and my husband and I will act accordingly.

kidmugsy

evergreen wrote: »

Thanks all. It is a lot clearer now, and my husband and I will act accordingly.

Hold on. The property nil rate band applies only if you leave the property direct to descendants - leaving it to a trust won't attract the relief. Whereas financial assets can be left to a trust without an IHT penalty.

Beware, though, tax rates on trusts are high, both income tax and Capital Gains Tax. There's also a special levy every ten years, depending on how much capital is in the trust. You need to see a suitably qualified lawyer.

Keep_pedalling

kidmugsy wrote: »

Hold on. The property nil rate band applies only if you leave the property direct to descendants - leaving it to a trust won't attract the relief. Whereas financial assets can be left to a trust without an IHT penalty.

Beware, though, tax rates on trusts are high, both income tax and Capital Gains Tax. There's also a special levy every ten years, depending on how much capital is in the trust. You need to see a suitably qualified lawyer.

I don’t think the OP was planning to do that, they are simply looking at providing cash gifts to their grand children, the property nil rate band won’t be affected by that, as it won’t be utilised until the OP dies.

Assuming the GC are minors then there is the issue of how that is held, and that does need to be looked at carefully.

Cardew

Another area where HMRC are vague is on the exemption from IHT of surplus income.

I have read advice in the financial publications, but has anyone experience of how this is interpreted by HMRC. Surely many couples with no mortgage and modest outgoings have huge surplus income which they are happy to pass to their children each year.

Keep_pedalling

Cardew wrote: »

Another area where HMRC are vague is on the exemption from IHT of surplus income.

I have read advice in the financial publications, but has anyone experience of how this is interpreted by HMRC. Surely many couples with no mortgage and modest outgoings have huge surplus income which they are happy to pass to their children each year.

Not sure about many couples having huge surplus income to give away. Any couple with surplus income would need in excess of £6,000 surplus income to take advantage of this, as below that level you would be covered by your annual exemptions (which are counted as normal expenditure)

Normal expenditure also includes big ticket items that you have to raid your savings, most people don't pay for things like new cars or major expenditure on their home from income.

Tom99

Keep_pedalling wrote: »

Not sure about many couples having huge surplus income to give away. Any couple with surplus income would need in excess of £6,000 surplus income to take advantage of this, as below that level you would be covered by your annual exemptions (which are counted as normal expenditure)

Normal expenditure also includes big ticket items that you have to raid your savings, most people don't pay for things like new cars or major expenditure on their home from income.

[FONT=Verdana, sans-serif]I think the 1st £6,000 can come from capital, I can't see anywhere a statement that it has to come from surplus income.[/FONT]

Keep_pedalling

Tom99 wrote: »

[FONT=Verdana, sans-serif]I think the 1st £6,000 can come from capital, I can't see anywhere a statement that it has to come from surplus income.[/FONT]

Yes, it can come from from capital, but is still counted as expenditure, as is everything else that comes out of your savings. Surplus income is simply income less any expenditure, and expenditure includes gifts. So if any of your annual allowance is used up any surplus income is reduced by the same amount.