Confused by new £500k inheritance tax rules

dogo1995

Apologies in advance if I need to do this somewhere else. My mum died in April and 13 days later my dad died. The will is to split 50/50 between me & my brother. If the estate is over £325k does the 40% inheritance tax apply as have seen something about the main residence of £175k so the new allowance is £500k? 

getmore4less

It can be up to £1m  for a couple before any IHT is due..

you start by working out the estate value   then working out which exemptions apply the initial ones a re nil rate band and residential(additional) residential nil rate band.

it becomes a lot clearer when you work through the IHT forms and read the notes that explain everything

What did the will say because that can be critical to how the estates are distributed if there are survivor clauses.

Did they have a house how much was that worth.

dogo1995

I think the estate passed to my dad (at this point very poorly with terminal cancer) so we didn't have time to do anything before he died. Then everything passed to me and my brother on a 50/50 basis. The house has been valued at 290k but could sell for 330k so the full estate will probably be more than the 325k 

xylophone

Was the property owned as joint tenants? Or as T-i-C?

If as joint tenants, then the property passed to your  father by survivorship regardless of the will.

If as T-i-C, it appears that the beneficial interest was left to your father.

Your mother died in April leaving all her estate to your father but to you and brother if he predeceased her?  She had made no  non exempt gifts in the previous seven years?

Your father's will left all his estate to your mother but to you and brother if he predeceased her?
Your mother predeceased your father - he inherited her full estate.

Your father has now died. He made no non exempt gifts in the seven years before he died?

You have his nil rate band, your mother's  main residence NRB transferred to your father, your father's  nil rate band and his MRNRB as the property passes to his direct descendants.

https://www.inheritancetaxsolutions.co.uk/inheritance-tax-a-guide-to-transferring-unused-nil-rate-band/#:~:text=For%20deaths%20occurring%20on%20or,for%20use%20on%20their%20death.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/residence-nil-rate-band-rnrb-facts/

Mojisola

dogo1995 said:

My mum died in April and 13 days later my dad died. The will is to split 50/50 between me & my brother.

dogo1995 said:

I think the estate passed to my dad (at this point very poorly with terminal cancer) so we didn't have time to do anything before he died. Then everything passed to me and my brother on a 50/50 basis.

As getmore4less said - was there a survivorship clause in the first will?

Our wills say that the spouse has to survive for 30 days in order to inherit.

If your parents' wills say the same, you will have to process both wills because you will have inherited from both wills, not just your father's.

getmore4less

Survivorship clauses can change the tax treatment but it is looking like that won't be an issue as the end result will be the same  50:50 split no IHT on either estate through either exemptions or nil rate bands.

It will become a paper exercise to to get stuff in the right order. 

I would review the valuations at DOD if it is now £40k more, not sure how HMRC will treat low value as as the place was unsalable due to covid at the time a £40k rise is into CGT unless you live there .

*Cherry*

This may not be relevant to the OP, but is there any difference in the rules if the mum and dad were not married?  

xylophone

but is there any difference in the rules if the mum and dad were not married?  

Yes. https://www.thisismoney.co.uk/money/experts/article-5718413/Weve-17-years-arent-married-pay-inheritance-tax.html

dogo1995

Hi thanks everyone for your advice so far. The property was owned in joint names, the wills do have the 30 day bit in but says that if that fails to happen then me and my bro are appointed executrices and trustees. Both wills look identicale. Thanks

xylophone

The property was owned in joint names,

As joint tenants? Then it passed to your father by survivorship, regardless of any will.

Since other assets will pass to you and your brother, you will need to work out the percentage of your mother's NRB that remains (if any) that can be transferred to your father.

 It seems to me that your father's estate  then has his RNRB, your mother's RNRB, his NRB and any percentage of your mother's NRB not used in the legacies to you that have arisen as the result of the survivorship clause.