Confused re Inheirtance tax

maisie1234

My Father is now in a care home and I am in the process of selling his house worth just over £1m. When he passes is inheritance tax not payable on first £325k AND main residence allowance of £125k even though he won’t actually own the house when he dies.

His will leaves everything bar some cash gifts to his 3 children. In total his overall estate is worth circa £1.6 m. He is self funding his care.

We are near to exchanging contracts and expect to complete in a few weeks.

I keep getting different answers and hope someone can help or point me in the right direction.

Keep_pedalling

The main residence nil rate band went up to £150k on April 6th, and will increase to £175k on April 6th next year, so currently he’s combined nil rate bands come to £475k. If your father is a widower then any nil rate band his wife did not use up can be transferred to his estate and he will be able double the residence nil rate band as well. Selling the house to move into residential care does not stop you claiming those allowances..

getmore4less

Does your father still have capacity?

Some IHT planning could save a good chunk of tax if he lives long enough.

maisie1234

Hi All, thanks for the response. I was told by a IFA that definitely he will lose the residence band rate as the house will no longer be his. I suspect that because he once owned his house AND he has left his assets to his three children that it comes back into the mix doesn't it?


Also, yes he still has capacity although I have been his POA for a few months now. For both Health and Finance. I have already taken some advice as he is in his 80's (I know very late to start planning tax savings - huge back story but we are where we are!).


Got Triple Point investment product where he only needs to live for 2 years. He has plenty of money to fund his home largely from the interest from the investment.

maisie1234

Just spoken to HMRC and they confirmed too! Thank you all. Why an IFA would state that I just don't know - maybe they didn't know and tried to pretend they did!

Keep_pedalling

maisie1234 wrote: »

Just spoken to HMRC and they confirmed too! Thank you all. Why an IFA would state that I just don't know - maybe they didn't know and tried to pretend they did!

Or maybe they were not an IFA. There are a lot of FAs out there who are anything but independent, and have limited products to sell.

maisie1234

They are properly registeted etc. This is their job - to know this sort of thing and have info at their finger tips! I am a mere layman and found it out just by chance when someone mentioned something relating to IRT and I put two and two together.


HMRC were very helpful. Knew immediately. IRT, probate etc especially when someone has just died (which isnt the case here) is complex enough without duff info being given out. I would have found out in the end anyway when I came to probate but still....


Is there anything I can do in advance. My Father had a number of bank accounts and I am consolidating them down which is going well.


He has plenty to fund his care for the rest of his life. He needs little extra bar the care home fees. I am the Exector along with my two siblings. I will be doing the bulk of the estate. I presume I will need a solicitor/accountant to assist? I have sold some shares although they broke even so apparently a tax return needs to be filled in

getmore4less

The downsizing rules are not the easiest to get your head round it takes a while with some examples.



Work out how much nil rate band there will be,

If both transferable available heading towards £1m.

With £1.6m to play with there is a IHT bill of £240k+ looming(more if lower NRB totals)

Gifting £600k now and living 7 years gets that much closer to zero.
(there are other options get a new advisor)

You can get insurance products to cover the IHT on any PET.

Plenty left to avoid deprivation issues.

How did you end up with Triple Point any other investigations done.

Are you sure you understand the scope and risks of the business relief after 2 years.

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with this amount coming down through the family multi generation planning is needed.

Keep_pedalling

The sort of products that potentially allow you to reduce IHT by only holding for 2 years tend to be very high risk. The danger is you don’t survive 2 years and the investments tanks, so you get hit by big losses on top of IHT.

Using a regulated advisor does not mean they are independent. IFAs offer advice on products across the whole market, a restricted FA is basically salesmen with a limited number of offerings that he is going to push you into.

SeniorSam

If you are considering life insurance relating to gifts being made, remember they should be 'decreasing tern assurance', which is far cheaper than normal insurance for 7 years (the gifting exemption period). The first 3 years would equate to the IHT amount on the gift, but then a reducing amount would be needed to cover that tax on death until the 7th year after which it is IHT free.

I had several clients that went along that route when I was in practice. The comment on qualified advisers suggesting ways to mitigate IHT and perhaps not 'knowing it all', is most appropriate. When I became a qualified IFA, I was licensed to advise on IHT, but it was several years later that I became fully competent in those particular matters as Trusts and Wills are a huge minefield . Many IFA's, as well as solicitors not qualified as STEP solicitors, also offer advise but are greatly limited in the full knowledge that is needed to put together correct strategies, so be wary of this.

Do check with the HMRC about the additional housing allowance because although your father may not own a house when he passes on, the reason for this is due to care and the house may fully qualify. That could possible enable the £1,000,000 full allowance of both to help considerably.

I have not practiced for over 8 years, so some areas are dimmer than they should be, but any STEP qualified solicitor should be 'on the ball' in these things. Also, with assets that produce interest, income tax will need to be monitored, but Non income producing assets (Funds) generally produce growth, not income.
I hope this helps a little.
Sam

relaxtwotribes

Keep_pedalling wrote: »

The sort of products that potentially allow you to reduce IHT by only holding for 2 years tend to be very high risk. The danger is you don’t survive 2 years and the investments tanks, so you get hit by big losses on top of IHT.

Not tend to be very high risk, but can be very high risk, illustrating the importance of diversification. Although the central tenet of the investment tanking still holds good (although 40% of the loss is borne by HMRC).
My FIL put £10k into an AIM share some years ago and that investment is now worth more than £700k. Needless to say I have some of the same.