Transferrable IHT allowance

grolley

I'm hoping to get some advice on IHT and the rules on the transfer of nil-rate band allowance between married couples. I've looked on the .gov.uk website, but the guidance - unless I'm looking in the wrong place - is vague and confusing.

The situation is that my father passed away at the end of last year, leaving everything - his half of the house and his half of their assets - to my mother. They were tenants in common.

Last week my mother also died and leaves an estate of approximately 600k - a property worth 400k and investments and savings worth approximately 200k.

On the face of it, this will incur a significant amount of IHT due - after the nil-rate band of 325k, plus a main residence allowance of 150k - meaning that IHT will be due on 125k.

Various sources suggest that for IHT purposes, my mother's estate can include any part of my father's nil-rate band that his estate did not use, but exactly how you work this out I cannot understand.

By coincidence, my father's estate totalled almost exactly (give or take a small amount) the nil-rate band at the time of his death - comprising his half of the savings and investments at 125k and his half of the property at £200k. Does this mean that my mother's estate has nothing left of his allowance to benefit from, or should his figures include a Transferrable Main Residence Allowance as well?

One further point which may or may not be relevant: one of the assets which was transferred to my mother was an insurance-based investment bond which was held jointly. Should this be included in my father's IHT figures?

I would be very grateful if anyone can advise, if only to point out some good online guidance on this - I have already found the Which? guide, but unfortunately it is only a little bit less vague than the .gov.uk website advice.

TIA!

Linton

The inheritance of someone's assets by their spouse does not affect the NRB. The NRB would be affcted if there were any other beneficiaries. So as your father passed everything to your mother, your mother has X2 NRB + an RNRB (MRB) if she left her home to her children or grandchildren. So it would appear that her estate is not liable to any IHT.



See https://www.moneyadviceservice.org.uk/en/articles/a-guide-to-inheritance-tax

grolley

Thanks for the link! I guess the thing that confuses me is the meaning of the word "unused" in the following quote from your linked article:

Couples can transfer any unused NRB when the first person died to the survivor.

As far as I can see, my father used all of his NRB when he passed his half of their property/assets to my mother.

Is this incorrect? If it is incorrect, what does the word "unused" mean in that quote?

grolley

Ah, Ok - I now understand. The NRB is not counted as being "used" at all for inheritance from husband to wife (unless the estate is greater than £1m or thereabouts).


So now I understand what you mean - it would only be "used" if there were other beneficiaries - which in this case there were not.


Thanks for the explanation!

nom_de_plume

grolley wrote: »

Ah, Ok - I now understand. The NRB is not counted as being "used" at all for inheritance from husband to wife (unless the estate is greater than £1m or thereabouts).

There is no cap on what can be inherited tax free by a spouse (or indeed to a civil partner, a charity or a community amateur sports club).


I'm guessing you've picked up the £1 million figure perhaps from what happens to intestate estates.

pphillips

grolley wrote: »

Ah, Ok - I now understand. The NRB is not counted as being "used" at all for inheritance from husband to wife (unless the estate is greater than £1m or thereabouts).


So now I understand what you mean - it would only be "used" if there were other beneficiaries - which in this case there were not.


Thanks for the explanation!

Won't reach £1 million until 6 April 2020.

The second death occurred in the tax year 2019/20, therefore:
NRB @ £325,000
TNRB @ £325,000
RNRB @ £150,000
TRNRB @ £150,000
= £950,000 plus the value of any charitable legacies.

Although joint property falls outside the estate, it is still included for IHT purposes as a notional half share.

getmore4less

The key is nil rate band is used by assets that are taxable.

Assets to spouse are exempt

Tom99

If your father made any gifts in excess of £3,000pa in the 7yrs before he died that would use some of his NRB, same would apply to your mother.