Inheritance Tax and allowances

Gavvy_2

Hi

i would be very grateful if anyone could help me clarify the position with regards to whether or not my late Mum’s estate will attract IHT. I don’t believe it will but I’ve done so much reading around the subject that I’m now not sure!

Initially, my siblings and I were planning on dealing with probate ourselves but it has become apparent that the process is more complex than we initially thought so we will probably instruct solicitors to apply for probate. 

I don’t believe the estate will attract IHT on the basis that my late Dad’s will left everything to my Mum so his residence and nil rate relief will carry over to Mum. However, I would very much appreciate some clarity on that. 

The estate is made up of:-

£225k cash in banks/building societies 

£145k shares 

£275k property (which is rented out)

£250k property which was Mum’s residence (left to her children in her will)

There are no outstanding debts/liabilities. 

I know Mum can benefit from Dad’s £175k residence relief plus his £325k relief but given that their residence is worth £250k and the remaining assets amount to £645k or so, are we close to needing to pay IHT or can we essentially use the balance of the residence relief if the other assets do amount to more than £650k?

Apologies if I have made this sound more complicated than it needs to be but my mind is frazzled! 

Bobbie320

As far as I can see, there is no IHT to pay. Mum and Dad each get £325k, plus, as the main house is left to the children, they each get £175k RNRB, making a total of £100k. I have dealt with 3 probate applications, one of which was of two properties, but all were straightforward. You can save a lot of money by doing everything yourself. You can also charge the estate for any expenses incurred. The gov.uk web site is very helpful and the forms are straightforward. If you are nervous, prepare everything and then seek a short interview with a solicitor to check it all; will be cheaper than leaving all the donkey work to them.

Gavvy_2

Bobbie320 said:

As far as I can see, there is no IHT to pay. Mum and Dad each get £325k, plus, as the main house is left to the children, they each get £175k RNRB, making a total of £100k. I have dealt with 3 probate applications, one of which was of two properties, but all were straightforward. You can save a lot of money by doing everything yourself. You can also charge the estate for any expenses incurred. The gov.uk web site is very helpful and the forms are straightforward. If you are nervous, prepare everything and then seek a short interview with a solicitor to check it all; will be cheaper than leaving all the donkey work to them.

Thank you! 

Keep_pedalling

Bobbie320 said:

As far as I can see, there is no IHT to pay. Mum and Dad each get £325k, plus, as the main house is left to the children, they each get £175k RNRB, making a total of £100k. I have dealt with 3 probate applications, one of which was of two properties, but all were straightforward. You can save a lot of money by doing everything yourself. You can also charge the estate for any expenses incurred. The gov.uk web site is very helpful and the forms are straightforward. If you are nervous, prepare everything and then seek a short interview with a solicitor to check it all; will be cheaper than leaving all the donkey work to them.

Not quite, the residential house is only worth £250k so total exemption available are £900 rather than £1M, so the total assets only just within those limits. For that reason it is important to get accurate valuation on the properties. Get paid for RICS valuations rather than using the average of three estate agents. 

bobster2

Total assets = £895k

Exemptions = £900k (2 x NRB plus 2 x RNRB up to value of property)

If there are no estate expenses at all - you have £5k subject to IHT so IHT = £2k.

But funerals are often close to £5k - so there may be no IHT at all.

(However, have you taken into account gifts during the previous 7 years? These could increase the value of the taxable estate).

[edited because I got the numbers back to front! 895 - 900 is clearly not 5!!]

Keep_pedalling

bobster2 said:

Total assets = £895k

Exemptions = £900k (2 x NRB plus 2 x RNRB up to value of property)

If there are no estate expenses at all - you have £5k subject to IHT so IHT = £2k.

But funerals are often close to £5k - so there may be no IHT at all.

(However, have you taken into account gifts during the previous 7 years? These could increase the value of the taxable estate).

Assets £5k below the exemption rather than above, assuming valuations are accurate.

bobster2

Keep_pedalling said:

bobster2 said:

Total assets = £895k

Exemptions = £900k (2 x NRB plus 2 x RNRB up to value of property)

If there are no estate expenses at all - you have £5k subject to IHT so IHT = £2k.

But funerals are often close to £5k - so there may be no IHT at all.

(However, have you taken into account gifts during the previous 7 years? These could increase the value of the taxable estate).

Assets £5k below the exemption rather than above, assuming valuations are accurate.

Yes of course!! Sorry - got the numbers back to front!

Gavvy_2

Thanks all. I have a much better understanding now. Given how close we are to the IHT threshold, I think we will get a more detailed valuation of the non residential property just to be on the safe side. The residential property valuation is well within the £350k RNRB. 

Keep_pedalling

Gavvy_2 said:

Thanks all. I have a much better understanding now. Given how close we are to the IHT threshold, I think we will get a more detailed valuation of the non residential property just to be on the safe side. The residential property valuation is well within the £350k RNRB. 

It is still important to get a solid valuation for the home. Although it won’t impact IHT as as you rightly say it will all be covered by the RNRB, undervaluing it could lead to a CGT liability when it is sold so if anything it is better to aim on the high side rather the low.