Inheritance tax

SeniorSam

ImranQ. Inheritance tax works on the basis that everyone has a nil rate allowance before tax. If your father died and his estate passes to your mother, then she has the two allowances - 325,0000 x 2 before inheritance tax would be claimed. No inheritance tax is claimed until both of the married couples has died (not due on first death). The 7 year rule only counts in respect of decreasing a potential liability, so with 6 years already gone, if your father or mother died within the 7 years of making a gift, then only part of that gift would be added to the estate value when calculating any tax.

Therefore, unless your parents have assets in excess of a joint nil rate bane allowance, plus an additional allowance for property they live in, then no taxes will be due. There is also not tax on any gift due from the person who receives that gift.

I hope this helps you

Sam

Keep_pedalling

Cook_County wrote: »

Sounds like a GROB to me (and has deprivation of assets problems too if relevant). The 7 year rule is not in play unless your parents paid you a full market rent.

As the house is also the OPs home, the 7 year rule does apply as long as they have paid their share of the household bills. While it is also the OPs mothers home the house is also discarded as far as assessment for care costs are concerned so that is not an issue either.

Tom99

SeniorSam wrote: »

ImranQ. Inheritance tax works on the basis that everyone has a nil rate allowance before tax. If your father died and his estate passes to your mother, then she has the two allowances - 325,0000 x 2 before inheritance tax would be claimed. No inheritance tax is claimed until both of the married couples has died (not due on first death). The 7 year rule only counts in respect of decreasing a potential liability, so with 6 years already gone, if your father or mother died within the 7 years of making a gift, then only part of that gift would be added to the estate value when calculating any tax.

Therefore, unless your parents have assets in excess of a joint nil rate bane allowance, plus an additional allowance for property they live in, then no taxes will be due. There is also not tax on any gift due from the person who receives that gift.

I hope this helps you

Sam

[FONT=Verdana, sans-serif]That's not correct if the father has gifted over £3k pa in the past 7 years.[/FONT]
[FONT=Verdana, sans-serif]For example if the 1/6th gift of house 6 years ago was worth £200k at that time then the father's nil rate band would be reduced by £200k to £125k so mother will inherit and additional £125k NRB plus the £125k RNRB.[/FONT]
[FONT=Verdana, sans-serif]If it was a very valuable property and the 1/6th was worth in excess of £325k then some IHT would be payable on the excess over £325k even if all the remaining father's estate was left to mother. Taper relief would apply to the excess gift over £325k.[/FONT]

xylophone

Sounds like a GROB to me (and has deprivation of assets problems too if relevant). The 7 year rule is not in play unless your parents paid you a full market rent.

See post 9 above and link.

SeniorSam

Tom99. Sorry, you are wrong. The gift of the property value (44% owned) was gifted, but the benefit was retained. Therefore it will not count when the calculation for IHT is made. Therefore the 44% of the value of the property at time of death is the amount that will count.

Any seperate gift up to £3000, can be made in each tax year and would be out of the estate at that time, but the OP is not talking about individual gifts, but one gift of the property, where the benefit was retained.

Sam

Tom99

SeniorSam wrote: »

Tom99. Sorry, you are wrong. The gift of the property value (44% owned) was gifted, but the benefit was retained. Therefore it will not count when the calculation for IHT is made. Therefore the 44% of the value of the property at time of death is the amount that will count.

Any seperate gift up to £3000, can be made in each tax year and would be out of the estate at that time, but the OP is not talking about individual gifts, but one gift of the property, where the benefit was retained.

Sam

I think the OP said they live in the property with parents so I don't think it counts as a gift with reservation but as a PET subject to the 7 year rule.

ImranQ

SeniorSam wrote: »

Tom99. Sorry, you are wrong. The gift of the property value (44% owned) was gifted, but the benefit was retained. Therefore it will not count when the calculation for IHT is made. Therefore the 44% of the value of the property at time of death is the amount that will count.

Any seperate gift up to £3000, can be made in each tax year and would be out of the estate at that time, but the OP is not talking about individual gifts, but one gift of the property, where the benefit was retained.

Sam

Sam, Thanks for your reply. Can I ask where the figure of 44% comes from?

ImranQ

SeniorSam wrote: »

ImranQ. Inheritance tax works on the basis that everyone has a nil rate allowance before tax. If your father died and his estate passes to your mother, then she has the two allowances - 325,0000 x 2 before inheritance tax would be claimed. No inheritance tax is claimed until both of the married couples has died (not due on first death). The 7 year rule only counts in respect of decreasing a potential liability, so with 6 years already gone, if your father or mother died within the 7 years of making a gift, then only part of that gift would be added to the estate value when calculating any tax.

Therefore, unless your parents have assets in excess of a joint nil rate bane allowance, plus an additional allowance for property they live in, then no taxes will be due. There is also not tax on any gift due from the person who receives that gift.

I hope this helps you

Sam

Thanks for your detailed reply Sam.
Are you saying the IHT would be applied on the pro rated remaining period (out of the 7 years) on the gifted value?

getmore4less

In the absence of other relevant gifts/transfers

As you lived there(with 2 parents) up to 1/3 could have been gifted with no GWR/GROB and as at the time there were no imminent health issues(accident was after) no deprivation issues unless something else not mentioned.

Exact details will depend on the numbers where 44% comes from I have no idea(best assumption 33% was meant).

if owned by both parents at the time 1/6th gift from each(probably each eligible for a 2*£3k reduction if not used)

Unless a seriously expensive house taper relief won't apply to 1/6th as that applies to the tax liability and there won't be any if the gift is under £325k(where a transferable NRB is availalbe this can be upto £650k)

HMRC manual covers this with plenty of examples the following pages describes it well enough
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14611



As a failed PET it reduces the NRB,

What happens next will depend on what happens to the 1/3 the father owned...


(All the above assumed no mortgage although I think the IHT issues stay the same, the numbers would change)

ImranQ

getmore4less wrote: »

In the absence of other relevant gifts/transfers

As you lived there(with 2 parents) up to 1/3 could have been gifted with no GWR/GROB and as at the time there were no imminent health issues(accident was after) no deprivation issues unless something else not mentioned.

Exact details will depend on the numbers where 44% comes from I have no idea(best assumption 33% was meant).

if owned by both parents at the time 1/6th gift from each(probably each eligible for a 2*£3k reduction if not used)

Unless a seriously expensive house taper relief won't apply to 1/6th as that applies to the tax liability and there won't be any if the gift is under £325k(where a transferable NRB is availalbe this can be upto £650k)

HMRC manual covers this with plenty of examples the following pages describes it well enough
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14611



As a failed PET it reduces the NRB,

What happens next will depend on what happens to the 1/3 the father owned...


(All the above assumed no mortgage although I think the IHT issues stay the same, the numbers would change)

Thanks for your reply getmore4less. Very useful information.

Regarding the 1/3 my father currently owns, there is a will to take account of that. I was wanting to get information on my liabilities.