IHT tax threshold

Kster

Hi,

So, I know we should seek expert advice on this, but I'm currently having a disagreement with my co-executor about the IHT tax threshold that applies to the estate we are executing (we're also both the children, and also co-inheritors). But I suspect it isn't that hard to figure out for someone with experience and knowledge in these matters.

To explain, my married parents owned a house together, as well as savings, i.e. the familial home. There wasn't anything special arranged with regards to the ownership of the house to minimise IHT risk, which I think is possible, but I know for certain that wasn't the case. But instead the house was either in just my dad's name, or, I think almost certainly, from what I recall, it was in both my mam and dad's names.

About 10 years ago my dad died without a will, and all assets and the house naturally passed to my mum without any IHT paid, which I think is the standard rule.

Sadly, recently, my mum also passed, so the familial home and all other assets have been left to me and the other executor, 50/50. The value of everything might be close to £500k, possibly slightly over depending on how things are valued.

So, the disagreement is, I believe, that the IHT threshold for the estate is £500k, the regular £325k limit + £175k because it's a familial home, so we need to be careful to avoid hitting the threshold, in my opinion.

The other exec/inheritor thinks it's £650k, and thinks there's nothing to worry about. I know there is also some sort of £650k higher limit in certain circumstances, but I confess I don't quite know them. I think it could be for when the estate passes to a spouse, only, or if you've made some sort clever tax arrangement?

Based on the information I've provided, which do you think it is? Opinions, please!

Naturally I accept these opinions are exactly that, I will probably seek additional professional advice, and will hold no blame if anyone is wrong. If I've omitted a significant detail, please let me know.

Thank you.

Savvy_Sue

I think it could be up to £1million.

https://www.gov.uk/inheritance-tax

Keep_pedalling

Savvy_Sue said:

I think it could be up to £1million.

https://www.gov.uk/inheritance-tax

Absolutely you are both wrong you have 2x NRB and 2 RNRB that can be used which would give you a £1M exemption if it was required. In this case you only need the former.

As the estate is a long way off IHT territory don’t make the mistake of undervaluing the house, as you could end up with a CGT liability if it sells for significantly more after you have obtained probate.

SeniorSam

As the estate is a long way off IHT territory don’t make the mistake of undervaluing the house, as you could end up with a CGT liability

That's the best advice you will ever get, so keep the price higher value as there is plenty of room to spare with allowances.

If the death was after 1st January this year, you will only need form PA1P to complete (not IHT205 if before that date) and send the original Will and death certificate. Remember to have several certified copies of both for banks and financial institutions.

Kster

Keep_pedalling said:

Savvy_Sue said:

I think it could be up to £1million.

Absolutely you are both wrong you have 2x NRB and 2 RNRB that can be used which would give you a £1M exemption if it was required. In this case you only need the former.

As the estate is a long way off IHT territory don’t make the mistake of undervaluing the house, as you could end up with a CGT liability if it sells for significantly more after you have obtained probate.

Keep_pedalling said:

Savvy_Sue said:

I think it could be up to £1million.

Absolutely you are both wrong you have 2x NRB and 2 RNRB that can be used which would give you a £1M exemption if it was required. In this case you only need the former.

As the estate is a long way off IHT territory don’t make the mistake of undervaluing the house, as you could end up with a CGT liability if it sells for significantly more after you have obtained probate.

Thanks for the replies.

I'm not quite sure what the difference is between NRB and RNRB, but I think what you guys are saying is my dad's £175,000 familial home, extra allowance (although did that come in after his death? I assume that doesn't matter) can be added to the £175,000 for my mam and the standard £325,000, so the threshold is at least £675,000 in this case, which means we're pretty safe from IHT? I mean if it's even more than that, I'm not quite sure how happens, but great! All the better.

Thanks.

SeniorSam

Both IHT allowance of £325,000 and the Residential allowance of £175000 is for each of your parents. That is why the £1,000,000 is thge most before any tax is payable.

shiraz99

Kster said:

Keep_pedalling said:

Savvy_Sue said:

I think it could be up to £1million.

Absolutely you are both wrong you have 2x NRB and 2 RNRB that can be used which would give you a £1M exemption if it was required. In this case you only need the former.

As the estate is a long way off IHT territory don’t make the mistake of undervaluing the house, as you could end up with a CGT liability if it sells for significantly more after you have obtained probate.

Keep_pedalling said:

Savvy_Sue said:

I think it could be up to £1million.

Absolutely you are both wrong you have 2x NRB and 2 RNRB that can be used which would give you a £1M exemption if it was required. In this case you only need the former.

As the estate is a long way off IHT territory don’t make the mistake of undervaluing the house, as you could end up with a CGT liability if it sells for significantly more after you have obtained probate.

Thanks for the replies.

I'm not quite sure what the difference is between NRB and RNRB, but I think what you guys are saying is my dad's £175,000 familial home, extra allowance (although did that come in after his death? I assume that doesn't matter) can be added to the £175,000 for my mam and the standard £325,000, so the threshold is at least £675,000 in this case, which means we're pretty safe from IHT? I mean if it's even more than that, I'm not quite sure how happens, but great! All the better.

Thanks.

The NRB is the IHT threshold of £325,000, the RNRB is the extra allowance of £175,00 you have for passing on the property to direct descendants. Each married partner has their own allowance and can inherit and pass on the others unused portion, which is why potentially the estate can reach £1,000,000 before any IHT kicks in.