Fathers estate / Inheritance tax

BoxerfanUK

Hi everyone,

Just posting this on behalf of my 87 year old father regarding inheritance tax and what he can do with his estate when he dies.  The rules appear to have changed slightly a while ago and he is confused, as am I.  I have read about the ‘Nil Rate Band’ etc but don’t totally understand it!

Ideally he would like to go and see a Solicitor for up to date advice but due to the current Covid situation that’s not possible, particularly due to his age I have told him to stay at home for the time being. 

 

He and my stepmother had made a will some years ago but sadly my stepmother passed away in February this year following a very long battle with Vascular dementia.  She was looked after at home by my father right until the end and he deserves a medal for his patience, love and compassion.

They owned their own property, current value approx 430K as tenants in common 50/50.  My stepmother left her share of the house and her personal savings of approx 75K to my father in her will + 50% of her private pension.

Currently therefore, he owns a property worth around 430K and now has total savings of around 300K bringing the total estate to around 730K current value.

I am my fathers’ only son from his first marriage to my mother, and my stepsister is my fathers stepdaughter following his remarriage to my stepmother in the late 1960's.  I have two grown up children (one by previous marriage and one from my current marriage) my stepsister has never married and has no children.

My father would like to know;

1)  If he left his entire estate 50/50 between my stepsister and I, would any inheritance tax be due? and….

2)  Can he leave sums of money direct to his grandchildren in his will free of tax?  He seems to think he can’t but I think he maybe can!

As a side issue, my dad has also mooted the idea that he could leave a larger percentage share of his estate to me so that I can pass some of this on to my own children.  He said that he is concerned that my stepsister, being unmarried (and unlikely ever to be so) with no children or direct descendants would have no-one to leave her estate too, and he would rather that a proportion of his estate could directly (or indirectly through me) benefit some of his grandchildren as well.  Whilst I do understand his reasoning, I do feel very uncomfortable about this and have told him so!  Comments about this issue welcome.

Both myself and my stepsister are financially sound, have our own independent sources of income and both of us own our own properties mortgage free so in reality neither of us are in any great need financially. However, it would be nice for my own children to benefit in some way.

Thanks in anticipation.

xylophone

Re nil rate band and transferable nil rate band.
https://www.nlfm.co.uk/blog-post/all-you-need-know-about-transferable-nil-rate-band
There is also the main residence nil rate band.
https://www.afhwm.co.uk/news/story/residence-nil-rate-band/
Would your father consider varying his late wife's will so as to direct the £75,000 to your stepsister now?
He might then prefer to pass  his estate to his grandchildren rather than to you?

sarahjane1408

Hello

Every person has a nil rate band of £325,000.  If a predeceasing spouse leaves their whole estate to their spouse, then on the second spouses death, the executors can claim the additional nil rate band to bring the nil rate band to £650,000.  If the estate is left to you and your step sister, then your dads estate should also be able to claim the residence nil rate band and transferable residence nil rate band.  Children, grandchildren and step children are considered as direct descendent a for the purpose of residence nil rate band so there is no issue there.  

Lifetime gifting and potentially exempt transfers all have an effect on the nil rate band.

You can leave gifts of a set sum of money to grandchildren and stipulate the gift should be free of tax.

If they owned the property as tenants in common, then the executors of your step mother’s estate woul need to get a grant of probate to get the property transferred into your dads sole name.  

Hope that’s helpful.

Dox

The easiest way (OK, relatively easy!) to take this forward is for your father to set out what he would like to happen in terms of who benefits from his assets when he dies. It's his estate, after all. Forget IHT for the moment; just go for the plain English version. Then get a solicitor to put that into a valid will, with a clear request to minimise IHT wherever possible. Given the size of the estate, and the fact that his wife doesn't seem to have used any of her IHT allowance, that allowance transfers to him (much simpler than trying to vary her will), and there is also an additional slice of 'nil rate IHT' (the links above relate), so unless things alter significantly, there shouldn't be any IHT to pay if the house is left to you/your stepsister/the grandchildren.

Bobziz

Others will provide better financial advice on this, but I just wanted to agree with your comment about your dad deserving a medal. I have direct experience of looking after someone with dementia, so I know how hard it can be. You must be very proud of him.

BoxerfanUK

Thanks for all your comments.  I would be grateful if anyone could break it down for me so that I can explain it to my dad.

Stepmothers date of death was 12/02/2020 so is it just her £325K NRB that passes to him, or does she also have the 'residence' band (150K in tax year 2019/20) that passes to him as well?

What I'm getting at is; were he to pass away (god forbid) this tax year would his tax free threshold for passing down to his heirs be as follows;

His NRB 325K + 175K residence nil rate band

My stepmothers NRB transferred to him 325K + her residence nil rate band transferred to him £150K

Total £975K

I know that his estate is valued at less than the above figure, but even at his age he is still very 'particular' about certain things and he wants to know what his maximum IHT allowance for him to pass down would be!

Brynsam

Have a look at the link Xylophone gave in the first reply to your post: https://www.afhwm.co.uk/news/story/residence-nil-rate-band/

That gives you all the info you need.

BoxerfanUK

Brynsam said:

Have a look at the link Xylophone gave in the first reply to your post: https://www.afhwm.co.uk/news/story/residence-nil-rate-band/

That gives you all the info you need.

Thanks Brynsam, I thought I'd looked at the first link but hadn't... doh!

Edit 2: having read the link now totally confused I must be thick as two short planks!! :-:smile:  People posting the links are of course very helpful and I do appreciate it but having read through again and again I just seek some clarification as to if my workings out are correct or not.  It may well be clear to some, or indeed most folk, but unfortunately not to me, so please can someone who understands it better than I please clarify if the below is correct or not.

Stepmother passed away 12/02/20. 

Property worth 430K owned with my dad as Tenants in common.  My dad now has probate through btw.
IHT ALLOWANCES:
Stepmother NRB 325K + RNRB 175K transfers to my dad.
Dad also has NRB 325K + RNRB 175K
If my dad were to pass away in this tax year then he could pass a total of up to 1 million pounds of his estate IHT free (if he had that much).... Yes?

Bobziz

Almost there. The rnrb when your stepmother passed was £150k not £175k, so £975k in total.

BoxerfanUK

Bobziz said:

Almost there. The rnrb when your stepmother passed was £150k not £175k, so £975k in total.

Ah I did wonder that actually.  Thanks for clarifying

BoxerfanUK

Bobziz said:

Others will provide better financial advice on this, but I just wanted to agree with your comment about your dad deserving a medal. I have direct experience of looking after someone with dementia, so I know how hard it can be. You must be very proud of him.

Btw, thank you for your comment, yes I am indeed very proud of him. 

Fortunately he is quite a fit, sprightly and healthy 87 year old and luckily my stepmother never became aggressive or challenging in that way.  She really was an absolute angel who sadly for the last few years had no quality of life at all and my poor dad didn't fare much better as it took all of his time up, as you will obviously know only too well. 

Her passing, sad though it is has at least given my dad some sort of normal life back, albeit sadly on his own. 

Best wishes in these challenging times.