Inheritance tax and nil rate band advice

qprjames

Hopefully someone might be able to advise on this.... and hopefully it doesn't sound too morbid, but I am trying to ensure the money that my dad earned from working so hard for all those years, isn't taxed to the hills, and that we keep as much money as we can in the family.

I was worried that in the event of my my mums future death (hopefully a long long long time from now) that the long timeframe will mean that bank records etc, will be lost and because we won't be able to trace that far back, and that we would be unable to 'prove' the gifts he made were 'out of income' and NOT subject to Inheritance tax.  I posed this question to an accountant ......who advised me to ask a more senior accountant to prepare a 'transferable nil rate band claim pack' that is placed with the survivors own Will. 

Context : My dad died only a few years ago. There was no inheritance tax (IHT) payable on my dad’s death because the entire estate passed to my mum and was therefore spouse exempt from IHT.  My dad made lifetime gifts in the 7 years before his death of around £300,000, all out of income. My mums current assets are a house (950k) and savings of 400k both of which were passed on from my dad. With such an amount, it would seem obvious that my dad's original nil rate band will therefore prove an important factor to help reduce the total combined nil rate band amount.

 

(The IHT to be paid across both estates will only be calculated after my mum dies; at that point all of the available nil rate bands will be accumulated and offset against the total estate value, with the balance over the nil rate band amount taxed at 40%.

The maximum nil rate band amount available would be £1m across the 2 estates if there had been no lifetime gifting (Nil Rate Band of £325K x 2, Residence Nil Rate Ban of £175K x 2).

 

The detailed analysis of how much of my dad’s lifetime gifting could be claimed as gifts out of income (which are 100% exempt from IHT) does not form part of dealing with my dad’s estate administration.  That only becomes relevant when the executors of my mum’s Will are dealing with her estate, and calculating the available nil rate band amount. My solicitor can assist with this analysis.

where should we go from here? is this something we should look at doing now, or..... should it be left to say 10-20 years from now when my mum passes on ?

again, sorry to be so matter of fact. I just wasn't sure what to do.

 

Jeremy535897

While you still have them, you should make a list of your father's gifts, dates and amounts, showing which exemptions cover which gifts, and in the case of the normal expenditure out of income exemption, you need to show he had sufficient net income that he did not spend, and why the expenditure was "normal". I think there have been other threads recently that go into this in some detail.

Keep_pedalling

You should have claimed these exemptions when applying for probate on his death. Did you actually do that? If not you are going to have an near impossible task of sorting it on your mother’s death.

getmore4less

The life time gift exemptions should have been done as part of your dads estate administration with all the necessary records to show that gifts made were part of the deceased’s normal expenditure out of their income 

IHT403 question 20
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/917890/IHT403-05-20.pdf

Keep_pedalling

I just found your thread from June where you make no mention of gifts from income, so it sounds like this is a desperate afterthought. Your mum inherited £300K of shares so you must have completed probate, so if you did not claim GFI at the time that ship has sailed and most of his NRB will have been used up.

In addition to her assets she apparently has £40k pa income which is way more than she spends, so rather than this amateurish approach to IHT planning she really needs to spend a tiny fraction of that on some professional advice.

qprjames

Keep_pedalling said:

I just found your thread from June where you make no mention of gifts from income, so it sounds like this is a desperate afterthought. Your mum inherited £300K of shares so you must have completed probate, so if you did not claim GFI at the time that ship has sailed and most of his NRB will have been used up.

In addition to her assets she apparently has £40k pa income which is way more than she spends, so rather than this amateurish approach to IHT planning she really needs to spend a tiny fraction of that on some professional advice.

I was actually trying to understand the situation and possible scenario that I must face before going blindly into seeing the solicitor. That way, I could get some rough background and advice on here, take that to the accountant and then finally onto the solicitor who dealt with the initial probate. so apologies if it appears like an amateurish approach trying to skip paying out on legal fee's.

the solicitor might suggest certain things, and if I don't understand what they are suggesting then it will be a bit pointless.

also, what does GFI stand for? I tried to look it up but google came back with nothing.

Jeremy535897

I assume it is Gifts from income.

getmore4less

yep - Gifts from Income.(pretty obvious as that's what the post is about.

My dad made lifetime gifts in the 7 years before his death of around £300,000,

These should have been included on dads IHT return 

That would have required IHT400 forms as they exceed the limits for IHT205  GFI  of £150k.

You may want to review that £300k worth to see if all of  qualifies as  gifts out of income. it needs to meet some fairly important criteria.