UK Inheritance tax threshold

sanfairyanne

I think I'm right in saying that the UK inheritance tax threshold is currently £325,000. My wife and I both have share portfolios valued at around that figure. While I have a will my wife does not. 

I she dies I will inherit her estate. My will leaves my estate to our children. I'm concerned though, if my wife dies first I will have an estate valued at around £700k. This would (assuming I'm correct) mean that upon my death my children would pay 40% on anything I leave over £325,000. 

If my wife was to set up a will she could leave £325,000 of her money to our children without them incurring any inheritance tax. Assuming I also leave £325,000 the same would apply.

Can anyone please confirm I am correct. I had heard that the threshold figure could be transferred from wife to husband and vice versa. Maybe this is false.

Thanks you kindly

DT2001

https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold
The link above explains the options/calculations for utilising both your and OH’s £325k relief. Do you own a property as there is further relief available for that?

Malthusian

No house? No other assets than your share portfolio?

If she dies I will inherit her estate.

Not if your children are hers by birth or legal adoption. Under England and Wales intestacy laws, you would get £270k plus half the remainder, and the other half would be shared out between the children. (If any children predecease, their children inherit in their place.) Scotland and NI have their own rules.

My will leaves my estate to our children. I'm concerned though, if my wife dies first I will have an estate valued at around £700k. This would (assuming I'm correct) mean that upon my death my children would pay 40% on anything I leave over £325,000.

No. Let's assume at this point that she makes a Will leaving everything to you on the first death. Her unused nil rate band would be transferred to you so if your estate was £700k on death, there would be no IHT as it would fall within the combined NRB of £700k.

There is also a "residential nil rate band" but based on your post you don't have a house, so it isn't relevant. (However the RNRB can still apply if you had one and sold it, in specific circumstances.)

 If my wife was to set up a will she could leave £325,000 of her money to our children without them incurring any inheritance tax.

That sentence seems to imply that she does have assets other than the £325k?

sanfairyanne

Thank you both (Malthusian + DT2001) for the fast response. I shall read through your link DT2001. Sorry I forgot to mention we do have a house, its value is probably around £325,000.

Malthusian

sanfairyanne said:

Thank you both (Malthusian + DT2001) for the fast response. I shall read through your link DT2001. Sorry I forgot to mention we do have a house, its value is probably around £325,000.

If you both qualify for the residential nil rate band there will still be no IHT - assuming no other assets have been forgotten - as you each have an extra £175,000 residential nil rate band to use against the house, which can also be transferred to the spouse if unused. But in your case the available RNRB to use is £325,000 between you, the value of the house.

If the share portfolios go up even a penny, you will be liable for IHT as the RNRB can only be used up to the value of the house.

Is the house owned as joint tenants or tenants in common? If joint tenants it passes automatically to your wife on death, if tenants in common the deceased's share is dealt with as per their Will or intestacy. Which in your case means the children would inherit your share of the house and your wife might be forced to move out.

sanfairyanne

Thanks Malthusian,

I confess I had never heard of joint tenant v's tenants in common. I read a little about it and can say for certain that we are joint tenants. If our share portfolio's rise maybe we could think about taking a well deserved vacation, of course the way things are going with Covid we will probably be pushing up the daisies before that can happen!

Thanks you very much for your advice. 

Marcon

Maybe she should get on and write that missing will with the help of a solicitor, who would also be able to explain other things which would be relevant and helpful to you both. If any of your children are still under the age of 18, it's crucial that you have guardianship arrangements set out (including catering for the worst possibility - they lose both their parents at the same time).

cfw1994

Malthusian said:

sanfairyanne said:

Thank you both (Malthusian + DT2001) for the fast response. I shall read through your link DT2001. Sorry I forgot to mention we do have a house, its value is probably around £325,000.

If you both qualify for the residential nil rate band there will still be no IHT - assuming no other assets have been forgotten - as you each have an extra £175,000 residential nil rate band to use against the house, which can also be transferred to the spouse if unused. But in your case the available RNRB to use is £325,000 between you, the value of the house.

If the share portfolios go up even a penny, you will be liable for IHT as the RNRB can only be used up to the value of the house.

Is the house owned as joint tenants or tenants in common? If joint tenants it passes automatically to your wife on death, if tenants in common the deceased's share is dealt with as per their Will or intestacy. Which in your case means the children would inherit your share of the house and your wife might be forced to move out.

I recently read something that suggested tenants in common could be a good way to pass half the house to children whilst giving the survivor the right to live out their days there if they wanted (from an IHT perspective)
An old article here stated:

With tenants in common one member of a couple can pass on their share of the home on death, say to their children, while the other member of the couple can continue to live there, passing on their half on death

Tenants in common can also prevent you having to sell your home if you need to go into long-term care.