Ways To Reduce IHT - Adding Daughter To Deeds?

jumpingjaq

Hi there,

First time posting here, so please go gentle on me! I am looking for advice about reducing the amount of IHT my daughter will have to pay when I pass away.

I own a property outright, worth around £325k. I also have some money from a recent house sale, which is currently £180k. This will reduce as I am renovating my home.
I am about to write my will, but would also like to minimise the tax my daughter will pay when I eventually die. My daughter will be the sole beneficiary (although I also have a son). I have heard about people transferring part of their property to family members, and was wondering if this was a way to reduce the amount of IHT that will be payable. If so, can it be split more than two ways (eg to my daughter and also my son in law), reducing the size of my estate further? I am in average health, but fully expect to live for more than seven years (fingers crossed!). I also wish to gift my daughter and her family a five-figure sum, to help them with their own house renovation. 

Any advice or other ideas would be much appreciated, thank you.  

xylophone

Are you widowed?  if so, did your late spouse leave his entire estate to you?  You intend to leave your home to your daughter?

If so, on your death,  if you have no made non exempt gifts in the previous seven years, there is the potential for your exor to claim your full  nil rate band (currently £325,000), your Residence Nil Rate band (currently £175,000), and the transferable NRB and RNRB from a deceased spouse.

This means the potential for up to £1mn to be passed on tax free.
If you make a gift to your daughter of a five figure sum and you die within seven years, the valu of the gift will be deducted from your NRB.

My daughter will be the sole beneficiary (although I also have a son).

You do not anticipate a claim against the estate from your son?

Owain_Moneysaver

If your daughter is not resident in your home, she may be liable for Capital Gains Tax on the increase in value in her share.
If your daughter were to divorce, go into bankruptcy, or have any other legal claim on her assets, that might include her share of your home, and you might be forced to sell so she can pay her share to her creditors. 
If you were to die within 7 years, both CGT and IHT might be payable. 
Also for completeness, although this won't apply if your daughter already owns a home, being gifted a share of yours might mean she'd ineligible for first-time-buyer incentives such as lower stamp duty if she wishes to buy in future. 

Carrot007

To put people's advice to you in plain english.

You mean wellm, hoever you are setting your daughter up for a lot of painful problems when you die. You won't care you'll be dead. She won't be (well hopefully, who knows what choas brings), play by the rules unless you are under 50 the time to do anything has passed.

Sorry I know you don't want to hear that. It can even cause issues while you are alive. Such is life.

All the best.

jumpingjaq

xylophone said:

Are you widowed?  if so, did your late spouse leave his entire estate to you?  You intend to leave your home to your daughter?

If so, on your death,  if you have no made non exempt gifts in the previous seven years, there is the potential for your exor to claim your full  nil rate band (currently £325,000), your Residence Nil Rate band (currently £175,000), and the transferable NRB and RNRB from a deceased spouse.

This means the potential for up to £1mn to be passed on tax free.
If you make a gift to your daughter of a five figure sum and you die within seven years, the valu of the gift will be deducted from your NRB.

My daughter will be the sole beneficiary (although I also have a son).

You do not anticipate a claim against the estate from your son?

Thanks for the reply.

Widowed? I wish! No, just divorced.
Yes, I intend for my daughter to inherit my entire estate, and not my son. My son may try and make a claim against the estate, but that is why I am writing a will. I definitely do not want him having any of my estate.
I had not heard of the Residence Nil Rate Band. Am I understanding this correctly? Only money over £175k will be liable to IHT when I die, on top of the £325k that my home is worth?

xylophone

On your death, assuming that you have made no non exempt gifts in the seven years  before you die, your exor can claim your nil rate band and (as you are leaving your property to your direct descendant), your Residence Nil Rate Band to set against your estate.
See
https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band
If you make non exempt gifts in the seven years before you die, these would be set against your nil rate band.
You say that your savings are currently due to diminish as you intend to  refurbish your house.
You want to make a gift to your daughter.

Suppose that you use up £ 25,000 of your savings on the renovations  and give £20,000 to your daughter and then  fall off the twig within a couple of years.

Your will leaves your remaining savings  and home to your daughter.

You have £135,000  left in savings and your house is worth £325000. Total £460,000.

Your exor can claim your RNRB and your NRB (less the gift to your daughter). 

There would be no IHT to pay. 

pphillips

jumpingjaq said:

xylophone said:

Are you widowed?  if so, did your late spouse leave his entire estate to you?  You intend to leave your home to your daughter?

If so, on your death,  if you have no made non exempt gifts in the previous seven years, there is the potential for your exor to claim your full  nil rate band (currently £325,000), your Residence Nil Rate band (currently £175,000), and the transferable NRB and RNRB from a deceased spouse.

This means the potential for up to £1mn to be passed on tax free.
If you make a gift to your daughter of a five figure sum and you die within seven years, the valu of the gift will be deducted from your NRB.

My daughter will be the sole beneficiary (although I also have a son).

You do not anticipate a claim against the estate from your son?

Thanks for the reply.

Widowed? I wish! No, just divorced.
Yes, I intend for my daughter to inherit my entire estate, and not my son. My son may try and make a claim against the estate, but that is why I am writing a will. I definitely do not want him having any of my estate.
I had not heard of the Residence Nil Rate Band. Am I understanding this correctly? Only money over £175k will be liable to IHT when I die, on top of the £325k that my home is worth?

Gifts on death:
 NRB of £325,000 + RNRB of £175,000 if qualifying residence left to direct descendant.
Therefore, IHT payable on your estate above £500,000.

Lifetime gifts:
PETs = any amount, resets every 7 years but excludes gifts made within 7 years of death.
Annual  allowance = £3000 per tax year, possible backdating to previous year 
Small gift allowance to other people = £250 per person per tax year.

jumpingjaq

xylophone said:

Suppose that you use up £25,000 of your savings on the renovations  and give £20,000 to your daughter and then  fall off the twig within a couple of years.

Your will leaves your remaining savings  and home to your daughter.

You have £135,000  left in savings and your house is worth £325000. Total £460,000.

Your exor can claim your RNRB and your NRB (less the gift to your daughter). 

There would be no IHT to pay. 

By ‘exor’ I’m assuming you are referring to the Executor of my will, is that right?

Forgive my ignorance, but where you say:
”Your exor can claim your RNRB and your NRB (less the gift to your daughter).”

how is the gift to my daughter factored into the calculations with regards to NRB/RNRB?

Emmia

Your son could still make a claim, even if you have a will - I'd discuss this with the solicitor, would you make a token (£100? £1000?)  bequest to reduce the risk of a successful challenge against your daughter.

pphillips

jumpingjaq said:

xylophone said:

Suppose that you use up £25,000 of your savings on the renovations  and give £20,000 to your daughter and then  fall off the twig within a couple of years.

Your will leaves your remaining savings  and home to your daughter.

You have £135,000  left in savings and your house is worth £325000. Total £460,000.

Your exor can claim your RNRB and your NRB (less the gift to your daughter). 

There would be no IHT to pay. 

By ‘exor’ I’m assuming you are referring to the Executor of my will, is that right?

Forgive my ignorance, but where you say:
”Your exor can claim your RNRB and your NRB (less the gift to your daughter).”

how is the gift to my daughter factored into the calculations with regards to NRB/RNRB?

You remaining NRB is £305,000 if you have reduced it by £20,000.
However, Xylophone's example ignores the annual gift allowance.

pphillips

Emmia said:

Your son could still make a claim, even if you have a will - I'd discuss this with the solicitor, would you make a token (£100? £1000?)  bequest to reduce the risk of a successful challenge against your daughter.

I don't see how a token gift reduces the risk of a successful challenge.