Inheritance tax newbie questions

Speculator

user1977 said:

So are these even "gifts", or just reimbursing the costs for their accommodation?

Like I said though, they'd have to be much more substantial before any tax becomes due.

How much more substantial? Over £325K?

user1977

Speculator said:

user1977 said:

So are these even "gifts", or just reimbursing the costs for their accommodation?

Like I said though, they'd have to be much more substantial before any tax becomes due.

How much more substantial? Over £325K?

Yes, that's what I'm saying. The nil rate band only starts after whatever is inherited by the spouse. And like I said, I'm not sure they're even "gifts" anyway.

Speculator

user1977 said:

Speculator said:

user1977 said:

So are these even "gifts", or just reimbursing the costs for their accommodation?

Like I said though, they'd have to be much more substantial before any tax becomes due.

How much more substantial? Over £325K?

Yes, that's what I'm saying. The nil rate band only starts after whatever is inherited by the spouse. And like I said, I'm not sure they're even "gifts" anyway.

Now I get it. I thought the £325K nil band rate was used up by the £400K property to spouse.

The taxman won't know it's not a gift though. They would just see money transferred out to my account each month. Would I still need to inform them? (regular transfer from income)

Secret2ndAccount

First thing: A man can leave any amount to his wife, and it does not begin to use up his allowance for IHT. In fact, he gives her his IHT allowances too, to use later.
1k per month, for 7 years = 84k. This is less than 325k, so you are nowhere near having to pay IHT, even if you think that your Dad has given you an 84k gift. HMRC will not be coming after you, and you probably don't need to tell them. I say probably because there is the question of probate. Often, when a spouse leaves everything to the other spouse, it can be dealt with without the need for probate. With an overseas property, it is possible that you will need to apply for probate. Then there are some forms to fill. It's possible that the forms might ask you to list any gifts that the deceased made, outside their exemptions. Then you would have to decide how to classify the payments, put a number on the form, and be prepared to show how you arrived at that number if asked. Again, it's highly unlikely anyone will question your number when you are nowhere near IHT.

Speculator

Secret2ndAccount said:

First thing: A man can leave any amount to his wife, and it does not begin to use up his allowance for IHT. In fact, he gives her his IHT allowances too, to use later.
1k per month, for 7 years = 84k. This is less than 325k, so you are nowhere near having to pay IHT, even if you think that your Dad has given you an 84k gift. HMRC will not be coming after you, and you probably don't need to tell them. I say probably because there is the question of probate. Often, when a spouse leaves everything to the other spouse, it can be dealt with without the need for probate. With an overseas property, it is possible that you will need to apply for probate. Then there are some forms to fill. It's possible that the forms might ask you to list any gifts that the deceased made, outside their exemptions. Then you would have to decide how to classify the payments, put a number on the form, and be prepared to show how you arrived at that number if asked. Again, it's highly unlikely anyone will question your number when you are nowhere near IHT.

Thanks. That's put my mind at ease.

Keep_pedalling

Your father’s unused NRB can be transferred to your mother’s estate so there will be no IHT to pay on her estate either as it is below £659k (2x NRB). 

Although this is an excepted estate with no IHT to pay you will still need to do a full IHT return because he owned non-UK assets. 

CastleGrayskull

Hi All,

Another newbie with an IHT question, hopefully someone can clarify:

Is IHT immediately payable on gifts from one parent given over the NRB when they die, or can the IHT payable on that parent’s gifts be deferred until the second parent passes away?

E.g. let’s say both parents individually gifted me £50k each in the last year via a transfer of equity in property they jointly owned, so I’m gifted a total of £100k. Awesome for me. However, due to a prior known history of generosity to myself and others it is firmly established that if either parent passes away soon the gifts will be subject to IHT @ 40%. 

If one parent passes away before the other, would I immediately owe IHT @ 40% of £50k = £20k? Or could the IHT owed be deferred until the second parent dies and be payable when their entire remaining Estate is being settled?

Morbid scenario but necessary to understand for financial planning purposes. 

Keep_pedalling

You don’t pay IHT on gifts the estate pays it. In the case of a joint gift of £100k then it would use up £50k of their nil rate band so no IHT would be due unless they had given more than £325k in total.

bobster2

CastleGrayskull said:

Hi All,

Another newbie with an IHT question, hopefully someone can clarify:

Is IHT immediately payable on gifts from one parent given over the NRB when they die, or can the IHT payable on that parent’s gifts be deferred until the second parent passes away?

E.g. let’s say both parents individually gifted me £50k each in the last year via a transfer of equity in property they jointly owned, so I’m gifted a total of £100k. Awesome for me. However, due to a prior known history of generosity to myself and others it is firmly established that if either parent passes away soon the gifts will be subject to IHT @ 40%. 

If one parent passes away before the other, would I immediately owe IHT @ 40% of £50k = £20k? Or could the IHT owed be deferred until the second parent dies and be payable when their entire remaining Estate is being settled?

Morbid scenario but necessary to understand for financial planning purposes. 

Not sure what the sentence in bold means? "Firmly established" by who? Nobody can pay IHT on an estate where there is no IHT due.

If one parent dies and leaves everything to their spouse there will be no IHT due and the £50k gift reduces the value of the NRB that they can transfer to the surviving spouse - from £325k to £275k. So when the spouse dies the sum of the NRBs available to their estate is £600k rather than £650k. Plus both the main residence nil rate band allowances (RNRB) - i.e. 2 x £175k.

However, if the house is worth < £450k - then by gifting you £100k in equity they might have reduced the amount of the RNRB that can be use (e.g. if their share of the equity is now < £350k). 

CastleGrayskull

bobster2 said:

CastleGrayskull said:

Hi All,

Another newbie with an IHT question, hopefully someone can clarify:

Is IHT immediately payable on gifts from one parent given over the NRB when they die, or can the IHT payable on that parent’s gifts be deferred until the second parent passes away?

E.g. let’s say both parents individually gifted me £50k each in the last year via a transfer of equity in property they jointly owned, so I’m gifted a total of £100k. Awesome for me. However, due to a prior known history of generosity to myself and others it is firmly established that if either parent passes away soon the gifts will be subject to IHT @ 40%. 

If one parent passes away before the other, would I immediately owe IHT @ 40% of £50k = £20k? Or could the IHT owed be deferred until the second parent dies and be payable when their entire remaining Estate is being settled?

Morbid scenario but necessary to understand for financial planning purposes. 

Not sure what the sentence in bold means? "Firmly established" by who? Nobody can pay IHT on an estate where there is no IHT due.

If one parent dies and leaves everything to their spouse there will be no IHT due and the £50k gift reduces the value of the NRB that they can transfer to the surviving spouse - from £325k to £275k. So when the spouse dies the sum of the NRBs available to their estate is £600k rather than £650k. Plus both the main residence nil rate band allowances (RNRB) - i.e. 2 x £175k.

However, if the house is worth < £450k - then by gifting you £100k in equity they might have reduced the amount of the RNRB that can be use (e.g. if their share of the equity is now < £350k). 

Hi bob, thanks for taking the time to reply. Sorry I wasn’t clear. Let me try again:

The bold means both parents have already used up their individual £325K NRB’s in the last seven years by gifting hefty sums to various family members. So, if either one was to die in the immediate future the more recent £50k gifts to me (transfers of equity not in their main residence) should be liable for IHT @ 40%, since neither of them have any NRB left.

In this situation, where one parent passes away leaving me liable to pay IHT on a £50k gift at 40%, would I be required to pay HMRC immediately after that individual parent’s death, or do I pay IHT owed on gifts from parents only when both pass away? 

I suspect the former but wasn’t 100%.