IHT Calculator - Confusion for Probate

dan411

All 

I am about to apply for probate and I am struggling with some of the questions as it’s not coming out how I would expect. 

Person A has died recently and their husband/wife died before them in 2002c which they left person A everything. With this in mind, then this would mean that they have their own allowance of £325k and their husband/wife of £325k = £650. As they both owned a property there would also be double residency allowance of £350k. So 1 million overall. 

So the questions are: 

What was the value of tax free allowance the person who died inherited? This would be £325k 

Have they left all assets to a surviving husband, wife or civil partner? Answer would be No. 

What was the value of the assets left to a surviving husband, wife or civil partner? The answer would be 0. 

I can tell if them final 2 questions are being asked about the first death or the new death. If I answer them how I have then it says tax is due, but there shouldn’t be. 

Am I answering them right, and if not then how should I be. 

Thank you 

polar_pig

I believe it works this way....

The final two questions are being asked about the new death, so your answers seem correct.

The "Inheritance Tax Result" of £669k only includes the inherited £325k from the spouse and not the £325k from the new death. This reduces the amount to £344k.

If the property is being inherited by a direct descendent then the estate can claim a further 2x£175k = £350k. This further reduces the amount to effectively zero. However the RNRB has to be claimed requiring IHT400 and associated forms.

poppystar

Surely the question about all assets left to spouse relates to what happened on the first death and therefore your answer should be yes?

polar_pig

poppystar said:

Surely the question about all assets left to spouse relates to what happened on the first death and therefore your answer should be yes?

There is a previous Q in the calculator "What was the value of the tax free allowance the person who died inherited" that covers covers the death of the first spouse. My understanding is that this later question covers spousal exemption for the new death.

dan411

Thank you for your reply. 

So even though the calculator says you need to pay tax, and I know we don’t, you still have to do the IHT400 along with other forms that are needed. So when it says about an IHT reference number when you need to pay tax…I won’t need this as there is no tax to pay because of the double allowances? 

@poppystar that’s how I took the questions because it follows on from the tax question, but going by what @polar_pig says then actually my questions are answered correctly, I have to do the forms to show my workings and then that will be fine. 

So as the calculator is miles out because of the figures and without the allowances, when you have to put these figures in the form, you just put them as they say at the end of the calculation? 

So the calculator doesn’t include the allowances for the new death? That comes in the form itself? 

polar_pig said:

poppystar said:

Surely the question about all assets left to spouse relates to what happened on the first death and therefore your answer should be yes?

There is a previous Q in the calculator "What was the value of the tax free allowance the person who died inherited" that covers covers the death of the first spouse. My understanding is that this later question covers spousal exemption for the new death.

polar_pig

"Your Inheritance Tax result is £669,000" is not the amount of IHT the calculator is claiming you need to pay. As the text after "This is the value of the Estate before Inheritance Tax Threshold is applied" suggests, however you may need to pay the IHT on the value above the £325k threshold. But, it also doesn't include the potential reduction for the inherited RNRB from the former spouse. In your case you need to fill in the IHT400 (plus others) and do the calculations from there which will also allow the inherited RNRB to be claimed. This should give you the actual IHT value that needs to be paid.

Edited for a couple of corrections.

dan411

Ah thank you, that makes sense now. Thank you for your help, really appreciated. 

You never know I may be back with another question at somepoint. 

Thank you 

dan411

Hi @polar_pig, a question which I am hoping you can help with, when it come to IHT on gifts. 

If a gift was given as 1 cheque but for 2 people, so help with a deposit for a house, then can you take of 2x £3000 as it was for both of them, or because it only went in one account, you can only do 1? 

Thank you 

Notepad_Phil

dan411 said:

Hi @polar_pig, a question which I am hoping you can help with, when it come to IHT on gifts. 

If a gift was given as 1 cheque but for 2 people, so help with a deposit for a house, then can you take of 2x £3000 as it was for both of them, or because it only went in one account, you can only do 1? 

Thank you 

An individual only has an exemption of £3000 of gifts per tax-year regardless of how many people the account belongs to. Though you can carry forward any unused annual exemption from one tax-year to the next (but only for one tax-year).

So you possibly can deduct £6000 from the estate value, but only if you've not used the previous years exemption, and it wouldn't matter whether it was to an account with a sole owner or with two or more joint account holders.

dan411

Thank you for your reply @Notepad_Phil

That makes sense, I suppose I was seeing if money was given to say put a deposit on a house, and it was for you and your wife, would you be able to claim £3000 each for this tax year and backdate £3000 each for last year if it was used. So technically you could get £12000 gift allowance? 

I hope this makes sense. 

Notepad_Phil

dan411 said:

Thank you for your reply @Notepad_Phil

That makes sense, I suppose I was seeing if money was given to say put a deposit on a house, and it was for you and your wife, would you be able to claim £3000 each for this tax year and backdate £3000 each for last year if it was used. So technically you could get £12000 gift allowance? 

I hope this makes sense. 

I can see what you're hoping will happen, but unfortunately it won't as it doesn't work that way, the amount doesn't change depending on the number of people.

So in the case above, the most that could be subtracted from the estate value would be £6000 and that is only if no exemption has been claimed for the previous tax-year.

From https://www.gov.uk/inheritance-tax/gifts

Annual exemption

You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.

You can carry any unused annual exemption forward to the next tax year - but only for one tax year.

But do have a look at the link to see whether there are other allowances that could be used, e.g. gifts for weddings etc.