Inheritance tax

onwards&upwards

Angelaeve said:

onwards&upwards said:

Angelaeve said:

Keep_pedalling said:

As you have given no information about the value of the property or your sister’s marital situation no one is going to have a clue, and in 40 years time IHT rules are like to have changed somewhat.

Yes I know things will probably change in 40 years time, but I am going by the rules now. My sister is single with 4 children. We are not trying to avoid paying tax. Just wanted to know if my sister lived in the property until she dies would her son have to pay tax again.

Her son will never have to pay inheritance tax.  Nobody alive ever does.  Inheritance tax comes from the estate of a deceased person if the value of assets - debts is above the threshold at the time.  

Yes but when my sister dies she will leave the house to her son. Won’t he have to pay inheritance tax. This is where we are confused 

Angelaeve said:

onwards&upwards said:

Angelaeve said:

Keep_pedalling said:

As you have given no information about the value of the property or your sister’s marital situation no one is going to have a clue, and in 40 years time IHT rules are like to have changed somewhat.

Yes I know things will probably change in 40 years time, but I am going by the rules now. My sister is single with 4 children. We are not trying to avoid paying tax. Just wanted to know if my sister lived in the property until she dies would her son have to pay tax again.

Her son will never have to pay inheritance tax.  Nobody alive ever does.  Inheritance tax comes from the estate of a deceased person if the value of assets - debts is above the threshold at the time.  

Yes but when my sister dies she will leave the house to her son. Won’t he have to pay inheritance tax. This is where we are confused 

Inheritance tax, if due, is paid by the estate of a deceased person.  The beneficiaries then inherit after tax (and outstanding debts) are paid.  

To keep it simple, let's say the house is worth 1million, there are no debts, and inheritance tax is £50,000.   After the owner of the house dies, the executor of her will is responsible for first paying the tax, then for distributing the remaining estate of £950,000 to the beneficiaries.  The beneficiary never sees the money that goes to pay the tax, it is never theirs. 

pphillips

onwards&upwards said:

pphillips said:

onwards&upwards said:

getmore4less said:

Probably worth looking into IHT mitigation measures now.
IHT is considered a voluntary tax by those that don't plan ahead. 

Not by those with morals, who don't wish to shirk their duty to contribute to the public services that benefit everybody.

I don't think avoiding tax is always a question of morals though especially when sometimes it is even encouraged and facilitated by the government. Whether its was by lifetime giving, paying into an isa, claiming the marriage allowance or taking the maximum tax free lump sum out of their pension; should people really feel guilty about paying less tax? 

Inheritance tax?  Yes they should.   

Its not like they even earned the money after all. 

But usually they have earned the money and are avoiding or reducing IHT liability through lifetime giving. Unless you're talking about the beneficiaries agreeing a post death variation that reduces the current IHT bill or one that is likely to arise in the future.

onwards&upwards

pphillips said:

onwards&upwards said:

pphillips said:

onwards&upwards said:

getmore4less said:

Probably worth looking into IHT mitigation measures now.
IHT is considered a voluntary tax by those that don't plan ahead. 

Not by those with morals, who don't wish to shirk their duty to contribute to the public services that benefit everybody.

I don't think avoiding tax is always a question of morals though especially when sometimes it is even encouraged and facilitated by the government. Whether its was by lifetime giving, paying into an isa, claiming the marriage allowance or taking the maximum tax free lump sum out of their pension; should people really feel guilty about paying less tax? 

Inheritance tax?  Yes they should.   

Its not like they even earned the money after all. 

But usually they have earned the money and are avoiding or reducing IHT liability through lifetime giving. Unless you're talking about the beneficiaries agreeing a post death variation that reduces the current IHT bill or one that is likely to arise in the future.

I meant that the people who inherit haven't earned the money they inherited. 

Its it was earned, it was by someone who can't use it anymore, and has presumably had all the use of it that they wanted/needed before they died. 

xylophone

IHT may or may not be due on mother's estate, depending on its total value at death after the  deduction of any reliefs and allowances.

If she bequeaths her house to her daughter,  it then becomes the property of the daughter and so falls into  the daughter's estate at death.

IHT may or may not be payable depending on the total value of the daughter's death estate after the  deduction of any reliefs and allowances.


Tom (a childless bachelor) leaves his property and cash to his friend Sam who is also  childless and a bachelor.  The property is worth £ 400,000 and  Tom has cash in the bank of  £325,000.

The nil rate band is £325,000 so IHT  of £160,000 is  payable.  Sam gets the house and £240,000.

 Five years later, Sam dies.  The house has increased in value to £440,000 and the legacy (which Sam  saved) has grown to  £ 260,000 after the addition of interest.

Sam's estate is valued at £ 700,000.   It has been left to his cousin Mary.

After deduction of the NRB,  tax is payable of  £150,000

Mary gets the house and cash of  £110,000.

Angelaeve

xylophone said:

IHT may or may not be due on mother's estate, depending on its total value at death after the  deduction of any reliefs and allowances.

If she bequeaths her house to her daughter,  it then becomes the property of the daughter and so falls into  the daughter's estate at death.

IHT may or may not be payable depending on the total value of the daughter's death estate after the  deduction of any reliefs and allowances.


Tom (a childless bachelor) leaves his property and cash to his friend Sam who is also  childless and a bachelor.  The property is worth £ 400,000 and  Tom has cash in the bank of  £325,000.

The nil rate band is £325,000 so IHT  of £160,000 is  payable.  Sam gets the house and £240,000.

 Five years later, Sam dies.  The house has increased in value to £440,000 and the legacy (which Sam  saved) has grown to  £ 260,000 after the addition of interest.

Sam's estate is valued at £ 700,000.   It has been left to his cousin Mary.

After deduction of the NRB,  tax is payable of  £150,000

Mary gets the house and cash of  £110,000.

Many thanks, you realised what I was trying to ask. It all makes sense now 

Savvy_Sue

Angelaeve said:

Many thanks, you realised what I was trying to ask. It all makes sense now 

And what xylophone didn't cover at all is the current reliefs and allowances. 

Currently, your mother has an IHT allowance of £325,000. If she leaves the house to her direct descendants (you / your sister / other siblings, even grandchildren I think), then there is an even larger allowance.

If your father died before your mother, and was married to her at the time of his death, and he left everything to her, then your mother has both her own and your father's IHT allowance of £325,000, ie £650,000. Plus, as before, if she leaves the house to her direct descendants, then there is an even larger allowance. 

So are you still sure your mother's ESTATE will be liable to IHT? If you are, this is where the IHT planning comes into effect. Wills written some years ago will not always be written to make best advantage of the current situation. Does your mum have a current will? Does your sister? Do you? Each of them should cover the 'what if' situations: you say the house will go to your sister: what if she dies before your mother? You say your sister will leave the house to her son, but she has four children: what if he dies before her? (And she can't, in any case, leave a house to anyone if it's not actually hers, which it isn't, and it may never be hers.)

getmore4less

Only around 4% of estates ever pay IHT.
Most estates are just not big enough with the nil rate bands. 

Others have given you some ideas on that. 

Planning can stop your mum and sister joining that elete group or reduce any potential liability if they have more. 

Although IHT is per person's estate there are extra reliefs for quick succession, where someone who inherits assets that IHT was paid their estate get a bit off their bill. 

Where an estate is likely to be liable there are often simple ways to reduce or eliminate that liability. 

Often a simple tactic is to skip a generation for some or all the assets to avoid an intermediate person accumulating to much. 

The other is give it away long enough before you die that is no longer taxable. 

If it is something the family is concerned about some research is in order to see if any extra planning is needed. 

xylophone

And what xylophone didn't cover at all is the current reliefs and allowances. 

You will notice that my example covered a pair of childless bachelors - I was just attempting an illustration to  demonstrate that paying IHT on person 1's  estate would not necessarily prevent IHT from being levied on the estate of person 2, to whom I's estate had been bequeathed.

It was on that aspect that the OP's original question centred.

When my mum dies ( not for a long time yet) we will have to pay inheritance tax on her estate. This can be done with her savings, so the house will be going to my sister. The question is when my sister dies ( hopefully not for about 40 years) do we have to pay inheritance tax on the house again. I believe we do as it has gone into different ownership!! Thanks 

Savvy_Sue

xylophone said:

And what xylophone didn't cover at all is the current reliefs and allowances. 

You will notice that my example covered a pair of childless bachelors - I was just attempting an illustration to  demonstrate that paying IHT on person 1's  estate would not necessarily prevent IHT from being levied on the estate of person 2, to whom I's estate had been bequeathed.

It was on that aspect that the OP's original question centred.

When my mum dies ( not for a long time yet) we will have to pay inheritance tax on her estate. This can be done with her savings, so the house will be going to my sister. The question is when my sister dies ( hopefully not for about 40 years) do we have to pay inheritance tax on the house again. I believe we do as it has gone into different ownership!! Thanks 

Fair point, BUT I think a lot of people assume they will have to pay IHT when in fact they need not, especially if they do a bit of advance planning. 

The situation the OP described was one of those where there's a house going to direct descendants: it's got to be a pretty special house (or in central London ...) before IHT territory is reached these days. 

JGB1955

Likewise, in the 'shires', plenty of us with houses worth around £360K but with additional inheritances/shares/assets bringing us to over the £1M.  I need to get spending!