IHT and the 'extra' exemption of the £175k 'uplift' - question please!

bobster2

CalJo99 said:

Thank you for all the answers - I think I was worried that our 'normal' £325k exempt allowance HAD to be used first on a main home, and the main home also HAD to be applied to the £175k extra.

Huh? This still sounds very confused. If you could just describe a hypothetical estate (value of main residence + value of other assets) - then someone can explain how it works for you.

CalJo99 said:

Still seems simpler though for the government just to have a flat rate £235+175 = £550k exemption. 

You keep garbling this - it's 325 + 175 = 500

CalJo99

ou keep garbling this - it's 325 + 175 = 500
**

So it is - a nice round figure!

**

Ok, if my main residence is worth £500k, and my second home is worth £300k, and I keep both, then I would assume (???) that when I peg out, then my standard £325k Nill rate band will be deducted against my main home, and so will the £175k - ie, that my main home will be 'IHT-free'. BUT that my second home, at £300k will be hit by the full 40% IHT bill.

So far so easy (I think?) to understand.

But, if I sell my (eg overlarge) main home, and downsize to a smaller, retirement home costing £300k (still keeping my second, holiday home), then how does the IHT play out? (Let's assume I blow the £200k CGT tax-free profit from selling my main home!).

I now have two properties worth £300k each - total of £600k. So do I then get the same £325k + £175k = £500k IHT exemption, even though that is now spread across two properties, not just vested in my main residence? (I'd still have to pay 40% on the non-exempt residue of £100k?)

uknick

I think you're over thinking this.

If you die with 2 properties worth £300k each and no cash, as you suggest, then you have the following IHT liability;

Main residence IHT liability is £300k less £175K leaving £125k which could be liable for IHT

Add this £125k to the other property of £300k and you get an estate now valued at £425k

Against this you have your £325k NRB, therefore you are left with £425k less £325k = £100k liable for IHT

Or, a much easier way of doing it as your main residence is over the RNRB amount;

Estate value at death £600k
Less NRB of £500K
Leaving £100k for IHT