Potential Inheritance Tax issue?

MrsAngry

Hi,

I'm seeking advice re inheritance tax and I hope this is the most appropriate forum. My partner inherited £90k+. We wish to pass this on to our two children. We have invested it in an easy access account with the intention of passing on all/some of their share when required - house purchase for instance. They each know of this arrangement.
My query is - could inheritance tax come into play in this scenario and if so what is the best way to avoid/lessen the impact of this on their money? Would there be any change if my partner and I married? We are both in our 60's with grown-up children.

Thanks, MrsAngry

Keep_pedalling

If the person your partner inherited the £90k from died within the last 2 years then she can pass this on to your children using a deed of variation. This would effectively mean the money never formed part of her estate.and therefore not be subject to IHT on her death. You can’t hold the money back though it must actually be given to them.

From an IHT position getting married would be a sensible thing to do if either estate is likely to be in IHT
territory.

I hope you both have wills in place, if not sorting that should be a priority especially if you plan to stay unmarried.

getmore4less

How big are your estates?

MrsAngry

Keep pedalling - we do have wills in place covering each other but they are out of date inasmuch as drawn up when the kids were little. But, in terms of passing assets to each other the will would still stand.

The death occurred over two years ago - do you know what the implication of this is please? Our two children were not mentioned in the will - nothing malicious in this - just the unspoken intention is for assets to be passed down the generations.

getmore4less - not entirely sure of the size of our estates - we have a house in joint names worth maybe £400-450k and maybe assets around 150k and 100k respectively - but I would need to do some investigation to be sure.

Just to be clear - my question is - should we say want to pass £45k of the money onto one of our children tomorrow for say a house purchase - would they incur inheritance tax or any other sort of tax in such a scenario?

I am very grateful for you both taking the time to respond, thank-you

uknick

First, any IHT that may be due on the gifts comes from your partner's estate if they pass away within 7 years of the gift. If there is enough in the estate to pay the IHT then there is no impact on the receivers of the gift. If the estate doesn't have enough to cover the IHT bill, then it can be recovered from them.

Next, from what you've said about your partner's assets, at the moment the estate won't attract IHT taking into account current nil rate band levels. Their estate gets £325K to set against assets excluding main residence, plus £175k to cover the main residence if left to their direct descendents, i.e. children. Ths gives a total of £500k before any IHT is due. Of course, any increase in house prices from time of gift to time of death may affect this.

getmore4less

Gifts are free of tax at the point of giving and become PETS on your own estates(s)

GIfts do not incur more tax than if you had not given the money away.

Your estates are probably too low(just) for now as you have a nil rate band of £0.5M from April, but with house prices changing etc. you are close enough to have a full review ASAP.

As you are not married there are no transferable nil rate bands so any will that give your assets to each other needs review as your combined estates are over £0.5m

Keep_pedalling

As you are unmarried their is a risk that IHT may be payable on both the first and or second death as there is no spousal exemption and no ability to transfer unused nil rate bands.

As a married couple your joint estates would be well below £1M so IHT would not be a concern and no planning is really required.

You definitely need new wills, if for no other reason than to make your now adult children executors. So it would seem the best thing to do would be to make new wills in contemplation of marriage then get married.

MrsAngry

uknick, Getmore4less and Keep pedalling - I thank you all for your advice and recommendations.

It seems a new will is definitely essential, and a civil partnership to cover the 'marriage' advantages would be desirable. Finally, it would seem prudent for us to gift the monies to our children now, and for them to invest in their own names, thus hopefully avoiding the 7 year rule, if it were to come into play.

I think I may have to take advantage of Feb 29th, conveniently this year, to press the issue!

I thank you all once again for your speedy and considered replies. :beer:

EdSwippet

MrsAngry wrote: »

The death occurred over two years ago - do you know what the implication of this is please? Our two children were not mentioned in the will - nothing malicious in this - just the unspoken intention is for assets to be passed down the generations.

Just that more than two years after the death, a deed of variation is no longer an option. Using one to pass the £90k onwards would have avoided it becoming part of your partner's estate for possible later inheritance tax issues. Too late now, though.

https://www.gov.uk/alter-a-will-after-a-death

This two year limit seems a bit arbitrary. For example, I am currently tangentially involved in sorting out an inheritance where the deceased had no will. It has taken the probate solicitor over two years to sort out, and is still (glacially) ongoing. So far some of the beneficiaries have not yet even been identified, let alone informed. For them, a deed of variation will have been taken off the table even before they had any idea it might have been on the table. For some, this could turn out to be very annoying indeed.

Keep_pedalling

MrsAngry wrote: »

uknick, Getmore4less and Keep pedalling - I thank you all for your advice and recommendations.

It seems a new will is definitely essential, and a civil partnership to cover the 'marriage' advantages would be desirable. Finally, it would seem prudent for us to gift the monies to our children now, and for them to invest in their own names, thus hopefully avoiding the 7 year rule, if it were to come into play.

I think I may have to take advantage of Feb 29th, conveniently this year, to press the issue!

I thank you all once again for your speedy and considered replies. :beer:

As you seem quite happy to go down the marriage / CP route that is probably not necessary, but I would certainly look at gifting them an annual sum for them to start (or top up) a lifetime ISA. £4000 each now and another £4000 after April the 5th will effectively give them £10,000 towards a house deposit after the government chips in an extra £2,000.

https://www.moneysavingexpert.com/savings/lifetime-isas/