Inheritance Tax

Matilda1975

Hello everyone

I am very new so I hope this is the right place to post. And I hope no-one falls asleep before the end of the post!

I have a query about Inheritance Tax.

EDIT: All sorted now. Thank you for your help!

Jeremy535897

If your father's estate including non-exempt gifts in the previous seven years are below his nil rate bands, why worry?

Is your father's income sufficiently in excess of his expenditure to qualify for the normal expenditure out of income exemption? Does he have a large pension perhaps?

Jeremy535897

My first sentence says that if his estate, including the gifts he made in the seven years up to now, are less than the nil rate bands, it doesn't matter about any unused exemption from your mother. As to his income, I asked because your question could be understood to say that he has reduced his savings to make the gifts, and that wouldn't be within the normal expenditure out of income exemption. As I said, though, it doesn't seem to matter.

Jeremy535897

Yes, so long as there is an estate of sufficient size to use it. Each individual has a nil rate band of £325,000 and a potential residential nil rate band of £175,000. The more complex RNRB transfer is explained here:
https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

Brie

Sounds like he's fairly well off so unlikely deprivation of assets will be an issue should he need care assistance.  More likely I guess you and he would agree to sell his home if he needed to go into care and needed more funds.

Keep_pedalling

A married couple with a home worth £400k can leave £1M IHT tax free using their NRBs and residential NRBs so even taking into account the gifts IHT is not an issue.

You say your mother left her half of the house to her children, did her will also give your father a life interest in her share or did she simply leave it to you. Without a life interest trust in place her share will be subject to CGT when the house is eventually sold.

Jeremy535897

Keep_pedalling said:

A married couple with a home worth £400k can leave £1M IHT tax free using their NRBs and residential NRBs so even taking into account the gifts IHT is not an issue.

You say your mother left her half of the house to her children, did her will also give your father a life interest in her share or did she simply leave it to you. Without a life interest trust in place her share will be subject to CGT when the house is eventually sold.

If there was a life interest trust, it is hard to see the point of it as the whole house would still be in his estate. Not that it would matter for inheritance tax, given the numbers.

Keep_pedalling

Matilda1975 said:

Mum left her half of the family home to us. I dont think there was a life interest. So that half now belongs to me, my brother and my daughter

Not using a trust does not make ant difference as far as IHT is concerned but it does have some down sides. When the house is eventually sold the three of you may face a CGT liability on any increase in value between the value used for your mother’s probate and the sale value for your share.

If your daughter does not currently own her own house the lack of a trust meets she has lost her first time buyer status. 

Jeremy535897

See https://www.gov.uk/capital-gains-tax/rates

Yes, the base cost of father's half will be the value at the date of his death.