Basic inheritance tax question

dsddsddsd

Hi,  inheritance tax rules (England) get me confused.  So I've come here to ask :- 
My parents are both 80 years old, with 3 children.    House ( paid off) is roughly £500k.  Bank account £600k.  No other assets. 

Everything is split 3 ways in will . Although it first goes to surviving parent. 

Would inheritance tax be paid on this?

tetrarch

As it stands - almost certainly - yes

Govt IHT checker is here:

https://www.gov.uk/valuing-estate-of-someone-who-died/estimate-estate-value#use-the-online-inheritance-tax-checker

but your question depends on whether an estate management is undertaken over the next few years and the rather nastier question of when the deaths occur

Regards

Tet

dsddsddsd

So even if parents planned now, wouldn't one of them have to live for another 7 years  for it to count?

dsddsddsd

I spoke to my dad and he is under the impression that his will splitting the estate between 3 of us means he doesn't pay inheritance tax. 

Is that right?   No trusts etc..

poppystar

dsddsddsd said:

I spoke to my dad and he is under the impression that his will splitting the estate between 3 of us means he doesn't pay inheritance tax. 

Is that right?   No trusts etc..

IHT is assessed on and paid by the estate not beneficiaries so it doesn’t matter how the estate is split. You will be able to get the residence nil rate band in addition to the usual iHT nil rate band because the estate is being left to direct descendants (you and your siblings).

dsddsddsd

Thanks,   so a basic  will isn't inheritance tax planning/ avoiding?

Robert_McGeddon

dsddsddsd said:

Thanks,   so a basic  will isn't inheritance tax planning/ avoiding?

Correct.

Is the value of the estates increasing or decreasing? If increasing (as may be expected with inflation) the IHT payable will likely grow over time.  If their income exceeds expenditure then making recurring gifts out of income may mitigate the issue. If the value is decreasing then the IHT will reduce over time.  In either scenario they could each make gifts of £3K p.a. (plus one year carryforward) free of IHT implications.

Mojisola

dsddsddsd said:

inheritance tax rules (England) get me confused.  So I've come here to ask :- 
My parents are both 80 years old, with 3 children.    House ( paid off) is roughly £500k.  Bank account £600k.  No other assets.

At the moment, the estate wouldn't be liable if the survivor's estate was under £1m.

Are they in a position to give a lump sum to the three of you now to reduce the final value?

Deprivation of assets won't be an issue considering the amount they will have left after gifting.

While they will have to guess at increases in value through house price rises and investments, they may also reduce the final size of the estate if they need to pay for care in their later years.

poppystar

dsddsddsd said:

Thanks,   so a basic  will isn't inheritance tax planning/ avoiding?

No, but a Will is a much better idea than no Will, so it’s good to have one. 

Mojisola

dsddsddsd said:

Thanks,   so a basic  will isn't inheritance tax planning/ avoiding?

No.  But without a will, the surviving spouse wouldn't inherit everything - the spouse would only get £270,000 and half of the remainder of the estate; the other half would go to the children.

Keep_pedalling

Mojisola said:

dsddsddsd said:

Thanks,   so a basic  will isn't inheritance tax planning/ avoiding?

No.  But without a will, the surviving spouse wouldn't inherit everything - the spouse would only get £270,000 and half of the remainder of the estate; the other half would go to the children.

And with a joint estate of £1.1M IHT is likely to be payable on the first death which won’t happen if everything goes to the surviving spouse.

If both parents died tomorrow there would be about £40k of IHT to pay on the estate so it would be worth the parents gifting some of that cash to potentially bring the amount to under £1M. At least one of them would need to survive 7 years to see any significant reduction in IHT but if neither does it won’t negatively effect the amount that would need paying.

if their current income exceeds their outgoings then they should consider making further gifts from excess income to avoid it going over £1M again.

When you say £600k in a bank account, I hope you don’t mean held in a single account. If that is the case they need to move the majority of that to other institutions to obtain full FSCS protection.

https://www.fscs.org.uk/what-we-cover/banks-building-societies/