Tax, gifts & IHT and forward planning

diystarter7

A friend of ours worries more than me and I find that incredible.

The husband and wife gifted cash to three of their children about 4 years ago.
The friends are boht aged 70-ish and look physically fit and are able-bodied.
However, one has got a medical condition diagnosed a couple of months ago
and there is no real treatment for it but managed best as one can

They are both 20% tax rate payers.
They live in an apartment in Kent worth about 450k (joint names) no mortgage
He said they have cash in banks, inc premium bonds of just over 125k.
They gifted 250k in cash dived between their three children, varying amounts. (Both of the couple gifted equal amounts)
They rent out 2 other apartments in Kent, the total market valuation for the two is about 500k - . (joint names) No mortgages.

If one of our friends was to go to the other side before the 7 years, they are aware the surviving OH is entitled to a tax-free.

Questions: If the OH was to receive everything before the 7 years was up (they are aware re sliding scale of tax/gifts) what amount of tax free allowance will the remaining
OH get?  

I've told them if they did not sell the rentals as they are in joint names and  atm tax rules mean no CGT on the rentals.
I've told them re the sliding scale on gifts and allowances.
I've told them re deprivation of assets etc and from what I can see they are able and they don't want to transfer anyhting else to their children atm.

They are both old school and do not like professionals for advice or paying them and often seek advice from people like me and family.

What would be the best, cost-effective way to deal with the cash and rentals if one was to go to the other side before the 7 years as things stand re taxes etc.




I've tried to be clear as I can as the chap rang me and asked if I had more info, hence my post.

Thanks

Jeremy535897

Their current assets appear to be worth about £1.025m (£512,500 each). In addition each gave £125,000 to three children.

The current nil rate band total for a married couple living together with a home they live in worth at least £375,000 is £1 million. If they both live seven years after making the gifts, the inheritance tax will (on current figures) be modest. If one dies within seven years leaving everything to the surviving spouse, their transferable inheritance tax nil rate band will be £512,500 - £125,000 (this £125,000 figure might be reduced by exemptions like the annual exemption of £3,000). There is no "sliding scale" in these circumstances, whether the donor dies 4 years after making the gifts or 6 years and 364 days after making them. That is because no tax is payable on the gifts, because they are within the nil rate band. On the second death, assuming everything remains the same and the survivor lives for seven years after they made their gifts, inheritance tax would be payable on £150,000 or so, depending on the exemptions available on the first gifts. This is £1,025,000 less £(1,000,000-125,000). If both die within seven years of making their respective deaths, inheritance tax would be payable on £275,000 when the survivor dies.

If they retain all their assets, half of the assets will be rebased to market value on the first death, and if the survivor keeps them all, they will all be rebased to market value on the survivor's death.

diystarter7

Jeremy535897 said:

Their current assets appear to be worth about £1.025m (£512,500 each). In addition each gave £125,000 to three children.

The current nil rate band total for a married couple living together with a home they live in worth at least £375,000 is £1 million. If they both live seven years after making the gifts, the inheritance tax will (on current figures) be modest. If one dies within seven years leaving everything to the surviving spouse, their transferable inheritance tax nil rate band will be £512,500 - £125,000 (this £125,000 figure might be reduced by exemptions like the annual exemption of £3,000). There is no "sliding scale" in these circumstances, whether the donor dies 4 years after making the gifts or 6 years and 364 days after making them. That is because no tax is payable on the gifts, because they are within the nil rate band. On the second death, assuming everything remains the same and the survivor lives for seven years after they made their gifts, inheritance tax would be payable on £150,000 or so, depending on the exemptions available on the first gifts. This is £1,025,000 less £(1,000,000-125,000). If both die within seven years of making their respective deaths, inheritance tax would be payable on £275,000 when the survivor dies.

If they retain all their assets, half of the assets will be rebased to market value on the first death, and if the survivor keeps them all, they will all be rebased to market value on the survivor's death.

Hi

Many thanks for the very help and very easy to read post
I will call them later tonight and then run through it again when we see them. Looks like either way there is not a lot to pay.
Thanks

diystarter7

Btw, the 275k if both pass on - as gifts made at least 4 years ago will there be a sliding element to these re IHT?
No worries if you dont have the time etc to come back and post - thanks again

Jeremy535897

No. There is only a taper relief if the gift itself exceeds the nil rate band, which it clearly does not in this case. The gift in this case simply increases the amount of the second estate chargeable to tax if a donor dies within seven years of making the gift.

Where I said the nil rate band would be £512,500 - £125,000 in my earlier post I should have said £500,000 - £125,000.

lindabea

Jeremy - can you please clarify something you send in your earlier post about the property value needing to be £375000.  Are you implying that the RNRB of £175000 can only apply if the property is valued > than £375000?  And what happens for a couple who own the property as tenants in common as a 50-50 split.  Does each one have a proportion of the £175000

Jeremy535897

Slip of the keyboard. I meant £350,000. I don't think it matters for RNRB whether the property is owned as joint tenants or tenants in common, although owning as tenants in common gives the chance of using one RNRB on the first death. More detailed guidance on RNRB here:
https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band