Where to start with inheritance tax

longwalks1

Bit of a long one, so here goes.  My partners mother is 84.  Her dad died 8 years ago, so as I understand his IHT allowance is no more. Mums house worth approx £600k, mortgage free.  Also has dads pension, and several ISA's, saving accounts and bonds.  Partners mum has recently bought up the issue, and concerned the tax man is going to take a great deal of her estate when she passes.  She's healthy, no health issues but realises she is 84.  She's asked my partner to look into how IHT is calculated, and how to minimise the amount the siblings are hit for when the time comes.  My partner is one of 4 siblings.

M-I-L was suggesting 'just giving it to the 4 of them over the next few years' but we had to explain, it isnt that easy.  

I've just come off a night shift so the above probably isnt worded as well as it could be, and I'm not asking to cheat the taxman.  I'm asking how to minimise the bill my partner and her siblings are left with in the future. 

Any advice greatly appreciated

af1963

All or part of the husband's IHT allowance would still be available if it wasn't fully used at the time ( for example, if everything was passed to the wife, so not due to pay IHT).

Also, an extra allowance of £175K, for both wife and husband, is available for passing on the family home. So potentially, the estate could be a million pounds before being liable for IHT. 

The pension - if it's a regular payment like an annuity or defined benefit scheme, it will probably just stop. If it's an invested pension fund ( defined contribution) it falls outside inheritance tax but the person/people receiving it may be liable for income tax on the payments they take from it.

https://www.which.co.uk/money/tax/inheritance-tax/inheritance-tax-for-married-couples-and-civil-partners-a1vvf7h17jpc

Budget in a couple of weeks could change any of this though!

Marcon

britishboy said:

Bit of a long one, so here goes.  My partners mother is 84.  Her dad died 8 years ago, so as I understand his IHT allowance is no more. Mums house worth approx £600k, mortgage free.  Also has dads pension, and several ISA's, saving accounts and bonds.  Partners mum has recently bought up the issue, and concerned the tax man is going to take a great deal of her estate when she passes.  She's healthy, no health issues but realises she is 84.  She's asked my partner to look into how IHT is calculated, and how to minimise the amount the siblings are hit for when the time comes.  My partner is one of 4 siblings.

M-I-L was suggesting 'just giving it to the 4 of them over the next few years' but we had to explain, it isnt that easy.  

I've just come off a night shift so the above probably isnt worded as well as it could be, and I'm not asking to cheat the taxman.  I'm asking how to minimise the bill my partner and her siblings are left with in the future. 

Any advice greatly appreciated

The good news is that you may well not need to do anything to minimise tax, because (as the previous post helpfully explains) IHT may not be payable.

Given your MIL's age, it is highly likely that her husband was in a defined benefit scheme and she automatically receives a widow's pension. That will stop when she dies. Easiest way to check what sort of scheme it is is to ask if she gets any sort of newsletter from the pension scheme (if it is a DB scheme, she'll be sent something each year called a Summary Funding Statement).

If was a different type of scheme (defined contribution), if she's receiving regular pension payments it means that your FIL 'bought' a spouse's pension at the time he retired. Again, the pension will stop when she dies. 

Beware if your MIL does try to give away her assets as a means of avoiding care home fees (never mind tax!). The gesture will be well meant, but won't work, whatever seductive advertisements she might read about the benefits of putting her home in trust.