Parents IHT situation

StevieD54

Any advice appreciated.......This example is quoted from this very site, MSE.......
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Mr and Mrs Youngatheart have assets worth £1 million between them. Mr Y dies first in 2021/22 – leaving everything to Mrs Y – so his £325,000 tax-free allowance is passed on, as well as his £175,000 main residence allowance. In total, this means Mrs Y may have up to a £1 million tax-free allowance: her allowance, plus her inherited allowance from her deceased husband.
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So in this example it this looks as if Mrs Y also gets a £500k Allowance, but is that actually the case?
Mr Y has passed on his £175k to her, but how can she do the same, as there’s no spouse to pass it on to?  Surely she doesn’t get a £500k allowance also?  (i.e. £1m in total when she dies?)

I'm interested in this because of the wording in this example.  It implies that these allowances are only valid if Mr Y leaves everything to his wife.  However, my Dad has left his share of their bungalow to my Mum, then one or two small specified sums to friends, and then split the remainder of his estate 50:50 between my sister and I.  My question is: how does this affect his allowances with regard to IHT?  e.g. are allowances different because he hasn’t left everything to Mum? 

Keep_pedalling

Yes a married couple can leave up to £1M to their direct dependence, and if the survivor inherits everything on the first death then all 4 allowances can be used on the second death.

If the first to die leaves £325k to their children and the rest to their spouse then there will still be no 
iHT on the first death, but only the RNRB will be transferable, so on the second death the IHT exemption would be reduced to £675k.

If your father has made gifts worth over £325k to anyone other than his wife then IHT will be due on his estate. This can be avoided through a deed of variation by you and your siblings giving your mother a larger share. You can’t claim his residential NRB as that has passed to his wife, and there are very good reasons not to change that, an CGT bill when the house if eventually sold being the main one.

StevieD54

Thanks KP.

I have a follow up question (amongst many!)

If my Mum dies first, she tells me she has left all her assets (cash) to my sister and I (approx £150k), and nothing to my Dad.  So because he owns the bungalow, does that mean she doesn’t get the NRB £175k allowance, and it therefore can’t pass to my Dad?  Additionally, because she has left nothing to my Dad, does that mean he can’t inherit what would remain of her £325k allowance?  

Regarding his will, I have since read-up on the Deed of Variation you mentioned and it looks like the way we’ll have to go, as my Dad is now incapable of rewriting his will to leave some cash to my Mum in order to avoid IHT.

Keep_pedalling

Even though you mother does not own a share in the home her RNRB is still available to transfer.

You said your father has left the home to your mother, so how much would be left to you and your sister? If it is over £325k (including the small gifts to friends) then yes, you and your sister can make a deed of variation to take avoid IHT on his death.