Trying to grasp inheritance tax rules

Krissie57

I think we have a very simple set up but I still can't get my head around the possibilities! We are married with one male child. Current estate value approx £800k mainly in our property, Am i correct in saying if we each write a will leaving all to spouse there is no IHT liability? If we added a clause that should we pass together then estate passes to our son then again it would fall outside IHT? In another scenario we may gift approx £200k to son now to help him onto property ladder. If we passed within 7 years would this be subject to tax? 

HappyHarry

If your property is jointly owned and worth at least £350,000 then from the situation you describe there would be no IHT to pay on either death and you can gift as much as you like to your son now with no IHT liability. 

Brie

My first question was going to be why you thought your child's sex needed to be mentioned.  Same rules apply for female children too!!  

My second question would be how would you give your child the money you are proposing to be kept for the purpose you propose?  I'd be checking into this with someone who knows more than some of us here to ensure that it is tied up in a safe way so that it can't be splurged on a sports car as soon as possible.  Or is the child actually a young adult who may want to use it for education or a big wedding or??

claire111

AFAIK There is no such thing as 'Passing together' there will always be a different time of death for each person.

Whilst the thresholds for inheritance tax for a couple are currently £1 mil you might want to consider how you view this might change in the future and it could be  good planning to gift some money to your son now........ whilst you have more chance of living the 7 years.

[Deleted User]

claire111 said:

AFAIK There is no such thing as 'Passing together' there will always be a different time of death for each person.

Whilst the thresholds for inheritance tax for a couple are currently £1 mil you might want to consider how you view this might change in the future and it could be  good planning to gift some money to your son now........ whilst you have more chance of living the 7 years.

Perhaps the op is hinting at a survivors clause? 

Not a great idea on the figures given as one NRB could be lost. 

https://www.willwriters.com/blog/survivorship-clauses-in-wills-and-when-to-avoid-them/

Albermarle

In another scenario we may gift approx £200k to son now to help him onto property ladder. If we passed within 7 years would this be subject to tax? 

If you died within 7 years then the £200K would still be counted as being part of your estate and would be included in any IHT calculations. If your estate was still not large enough to be liable for IHT, then would be no issue.

Even if your estate was large enough to be liable for IHT, you will not in any way have increased the tax payable by gifting the £200K even if you die within 7 years, as the £200K would be included in the estate whether you made the gift or not. If you live 7 years then you have taken £200K out of your estate and helped your son.

[Deleted User]

Albermarle said:

In another scenario we may gift approx £200k to son now to help him onto property ladder. If we passed within 7 years would this be subject to tax? 

If you died within 7 years then the £200K would still be counted as being part of your estate and would be included in any IHT calculations. If your estate was still not large enough to be liable for IHT, then would be no issue.

Even if your estate was large enough to be liable for IHT, you will not in any way have increased the tax payable by gifting the £200K even if you die within 7 years, as the £200K would be included in the estate whether you made the gift or not. If you live 7 years then you have taken £200K out of your estate and helped your son.

This should be a ‘stickie’ - gifts never increase inheritance tax liability. They can only reduce it!

Grumpy_chap

Krissie57 said:

I think we have a very simple set up but I still can't get my head around the possibilities! We are married with one male child. Current estate value approx £800k mainly in our property, Am i correct in saying if we each write a will leaving all to spouse there is no IHT liability? If we added a clause that should we pass together then estate passes to our son then again it would fall outside IHT? In another scenario we may gift approx £200k to son now to help him onto property ladder. If we passed within 7 years would this be subject to tax? 

If the Estate value is £800k mainly in property, how is it proposed to release the £200k to gift to son?

Is there sufficient fluidity remaining after the gift is given to meet expenditure that will occur while living?
Day to day costs?
Leisure / holiday?
Property maintenance?
Health and care needs?  (Property may still be required for one partner even if the other partner is less fit and less healthy).

Krissie57

Grumpy_chap said:

Krissie57 said:

I think we have a very simple set up but I still can't get my head around the possibilities! We are married with one male child. Current estate value approx £800k mainly in our property, Am i correct in saying if we each write a will leaving all to spouse there is no IHT liability? If we added a clause that should we pass together then estate passes to our son then again it would fall outside IHT? In another scenario we may gift approx £200k to son now to help him onto property ladder. If we passed within 7 years would this be subject to tax? 

If the Estate value is £800k mainly in property, how is it proposed to release the £200k to gift to son?

Is there sufficient fluidity remaining after the gift is given to meet expenditure that will occur while living?
Day to day costs?
Leisure / holiday?
Property maintenance?
Health and care needs?  (Property may still be required for one partner even if the other partner is less fit and less healthy).

major downsizing exercise

Krissie57

Brie said:

My first question was going to be why you thought your child's sex needed to be mentioned.  Same rules apply for female children too!!  

My second question would be how would you give your child the money you are proposing to be kept for the purpose you propose?  I'd be checking into this with someone who knows more than some of us here to ensure that it is tied up in a safe way so that it can't be splurged on a sports car as soon as possible.  Or is the child actually a young adult who may want to use it for education or a big wedding or??

somewhere in the many examples I've looked at it mentioned daughters, didn't look into it so I was just being complete with the info. No issues on its use as he's on course for setting up his own home.