Basic inheritance tax question

dsddsddsd

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.

So if dad dies and mum.gets everything.  And then she dies and leaves it to us 3 sons ,  we don't pay IHT on £1.1 mill. ( just£ 40/50k)? 

Does this dying within 7 years off the other spouse come into it?

Like I wrote earlier, my dad seems to  think a will giving everything to surviving spouse and after they die passed to children means you avoid IHT ( both times).   Didn't think that sounded correct,  so that's why I'm asking. 

PS: I think majority of money is in 2 year bond

RAS

Dying within 7 months doesn't come into it either. In both circumstances the IHT bill, will be the same.

The 7 years rule only applies to gifts which haven't been made from excess income.

So if your parents' income currently exceeds their expenditure and their estate value is increasing, they can gift the excess to anyone they want and it doesn't affect the IHT liability.

It doesn't however seem like your dad has a very good grasp of current IHT rules, so it maybe worth him getting advice from someone he trusts.

The only way of avoiding paying any IHT given their current situation is to gift £100k now-ish.

So they'd have to give up all that capital so their estate potentially avoid a £30-40k IHT bill if they survive 7 years. If they need care, that capital is likely to have reduced below the IHT limit anyway. 

If they want to make that gift, it might be wise to do so when the 2 year bond ends? So they still have plenty of flexible cash?

Keep_pedalling

dsddsddsd said:

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.

So if dad dies and mum.gets everything.  And then she dies and leaves it to us 3 sons ,  we don't pay IHT on £1.1 mill. ( just£ 40/50k)? 

Does this dying within 7 years off the other spouse come into it?

Like I wrote earlier, my dad seems to  think a will giving everything to surviving spouse and after they die passed to children means you avoid IHT ( both times).   Didn't think that sounded correct,  so that's why I'm asking. 

PS: I think majority of money is in 2 year bond

Anything left to a spouse is exempt from IHT and none of the deceased NRB are used up and can be passed to the surviving spouse. So if we assume each has an estate of £550k on the first death there is no IHT to pay but the surviving spouse now has an estate worth £1.1M. When they die their executor can apply their nil rate band (NRB) and residential NRB which gives an exemption of £500k. Because none of the NRBs were used on the first death these can also be transferred gai I’ve a total exemption of £1M.

This leaves £100k of non-exempt estate that is subject to IHT @ 40%. potentially that could be avoided by gifting that amount now, and if both survive 7 years that £40k could be saved , 

p00hsticks

Keep_pedalling said:

dsddsddsd said:

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.

So if dad dies and mum.gets everything.  And then she dies and leaves it to us 3 sons ,  we don't pay IHT on £1.1 mill. ( just£ 40/50k)? 

Does this dying within 7 years off the other spouse come into it?

Like I wrote earlier, my dad seems to  think a will giving everything to surviving spouse and after they die passed to children means you avoid IHT ( both times).   Didn't think that sounded correct,  so that's why I'm asking. 

PS: I think majority of money is in 2 year bond

This leaves £100k of non-exempt estate that is subject to IHT @ 40%. potentially that could be avoided by gifting that amount now, and if both survive 7 years that £40k could be saved , 

Or alternatively they could just spend it on themselves - world cruise anyone ?

NannaH

They could easily get rid of £50k by treating all the family to a holiday.  Even a Med cruise for a dozen people could easily cost that.  
Personally,  I’d just start withdrawing £1000 in cash every month and divvy it up,  nice and untraceable. Days out can be verrrry expensive 😉  

They can also each give away £6000 this year by using last year’s allowance too.  That’s what we did when gifting our  Daughter £20k 2 years ago for a house deposit. 

Sea_Shell

p00hsticks said:

Keep_pedalling said:

dsddsddsd said:

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.

So if dad dies and mum.gets everything.  And then she dies and leaves it to us 3 sons ,  we don't pay IHT on £1.1 mill. ( just£ 40/50k)? 

Does this dying within 7 years off the other spouse come into it?

Like I wrote earlier, my dad seems to  think a will giving everything to surviving spouse and after they die passed to children means you avoid IHT ( both times).   Didn't think that sounded correct,  so that's why I'm asking. 

PS: I think majority of money is in 2 year bond

This leaves £100k of non-exempt estate that is subject to IHT @ 40%. potentially that could be avoided by gifting that amount now, and if both survive 7 years that £40k could be saved , 

Or alternatively they could just spend it on themselves - world cruise anyone ?

Sounds like it really is time for 1st Class everything!!    (If they're not currently spenders)

Plus gifting some.

theoretica

If they most want to avoid paying IHT they could leave a chunk to charity to bring the amount going to children below the IHT limit. 

Username03725

Seems fairly clear then...

A will isn't IHT planning, it exists to ensure that the deceased's assets are distributed according to his or her express wishes rather than how intestate laws require. It makes life simpler for the survivor and for the executor if mirror wills are in place, but there may be reasons in your family not to do that. Be guided by professional advice.

IHT is paid out of the estate before assets are distributed, so splitting the estate between any number of beneficiaries doesn't resolve that question.

Assuming both parents are on their first marriage and haven't used any of their nil rate bands, the residential nil rate band of £175,000 per person and additional NRB of £350,000 for each spouse applies on first death, transferable to the surviving spouse. No IHT is payable on first death if all goes to spouse.

2 x 175 + 2 x 350 = £1m; the estate at £1.1m is over that threshold so IHT would be payable on second death on the amount over (£100,000), from the estate prior to distribution. So to avoid IHT being a factor in the estate's value its total value needs to reduce by £100,000. Gifting, donations to charities, spending it on themselves or on the family seems like the ideal way. They should enjoy it. Put aside £100k and see how much enjoyment they can get out of it. The rainy day fund will still be more than adequate at £400k. 

poppystar

Username03725 said:

Seems fairly clear then...
2 x 175 + 2 x 350 = £1m; the estate at £1.1m is over that threshold so IHT would be payable on second death on the amount over (£100,000), from the estate prior to distribution. So to avoid IHT being a factor in the estate's value its total value needs to reduce by £100,000. Gifting, donations to charities, spending it on themselves or on the family seems like the ideal way. They should enjoy it. Put aside £100k and see how much enjoyment they can get out of it. The rainy day fund will still be more than adequate at £400k. 

NRB @ £325000. 

2x£175k + 2x £325k = £1m

Username03725

poppystar said:

Username03725 said:

Seems fairly clear then...
2 x 175 + 2 x 350 = £1m; the estate at £1.1m is over that threshold so IHT would be payable on second death on the amount over (£100,000), from the estate prior to distribution. So to avoid IHT being a factor in the estate's value its total value needs to reduce by £100,000. Gifting, donations to charities, spending it on themselves or on the family seems like the ideal way. They should enjoy it. Put aside £100k and see how much enjoyment they can get out of it. The rainy day fund will still be more than adequate at £400k. 

NRB @ £325000. 

2x£175k + 2x £325k = £1m

Correct. I knew that, typed the wrong numbers. Thanks for correcting it.