Basic IHT question

pacman21

Hi, new to the forum and just need clarification on something. My Dad passed away and I’ve been helping Mum sort everything out. Dad has an ISA for £75k which Mum doesn’t “need”. She suggested giving it to me as a gift. Her estate would be worth around £750k and with my Dads tax free amounts for personal and property, between them they have the £1m tax free amount ? If my Mum didn’t live for 7 years would I have to pay tax on it or would it be added to her estate £750k + £75k = £825k which is under £1m and therefore no IHT to pay ? This is my current understanding rightly or wrongly ! Any help muchly appreciated or if it’s a bad idea please let me know ! Thanks 

Keep_pedalling

No need to worry about IHT, even if your mum’s estate was in IHT territory any tax due would come out of the residual estate not from your gift. In this case however you are correct there will be no IHT to pay under the current rules.

If your mother has savings sitting outside ISAs she has the option of using the inherited ISAs to move an additional £75k into ISAs using the additional allowance provided to a spouse who inherits from their deceased spouse. She can still do this if she gifts your £75k.

pacman21

Keep_pedalling said:

No need to worry about IHT, even if your mum’s estate was in IHT territory any tax due would come out of the residual estate not from your gift. In this case however you are correct there will be no IHT to pay under the current rules.

If your mother has savings sitting outside ISAs she has the option of using the inherited ISAs to move an additional £75k into ISAs using the additional allowance provided to a spouse who inherits from their deceased spouse. She can still do this if she gifts your £75k.

Thanks very much for your answer 

poseidon1

To be clear she can give you the cash value of the isa but not the isa itself.

 Potentially seems a shame for her to cash it in since she can keep it ( in specie ), and enjoy the tax free income going forward ( would take her almost 4 years to accumulate the same amount in her own isa).

Has she inherited any other cash or realisable assets she could give you instead?

Keep_pedalling

poseidon1 said:

To be clear she can give you the cash value of the isa but not the isa itself.

 Potentially seems a shame for her to cash it in since she can keep it ( in specie ), and enjoy the tax free income going forward ( would take her almost 4 years to accumulate the same amount in her own isa).

Has she inherited any other cash or realisable assets she could give you instead?

It doesn’t matter if she cashes that ISA in the additional allowance will still be available to her to use in her own ISA.

pacman21

Thanks both, great advice 

Grumpy_chap

pacman21 said:

Hi, new to the forum and just need clarification on something. My Dad passed away and I’ve been helping Mum sort everything out. Dad has an ISA for £75k which Mum doesn’t “need”. She suggested giving it to me as a gift. Her estate would be worth around £750k and with my Dads tax free amounts for personal and property, between them they have the £1m tax free amount ? If my Mum didn’t live for 7 years would I have to pay tax on it or would it be added to her estate £750k + £75k = £825k which is under £1m and therefore no IHT to pay ? This is my current understanding rightly or wrongly ! Any help muchly appreciated or if it’s a bad idea please let me know ! Thanks 

Instead of Mum inheriting and then gifting the OP the £75k, if Mum prepares a DoV (Deed of Variation) to the Will, the £75k can pass direct to the OP without ever being in Mum's Estate.  It would mean that the amount of transferable NRB is reduced.

Keep_pedalling

Grumpy_chap said:

pacman21 said:

Hi, new to the forum and just need clarification on something. My Dad passed away and I’ve been helping Mum sort everything out. Dad has an ISA for £75k which Mum doesn’t “need”. She suggested giving it to me as a gift. Her estate would be worth around £750k and with my Dads tax free amounts for personal and property, between them they have the £1m tax free amount ? If my Mum didn’t live for 7 years would I have to pay tax on it or would it be added to her estate £750k + £75k = £825k which is under £1m and therefore no IHT to pay ? This is my current understanding rightly or wrongly ! Any help muchly appreciated or if it’s a bad idea please let me know ! Thanks 

Instead of Mum inheriting and then gifting the OP the £75k, if Mum prepares a DoV (Deed of Variation) to the Will, the £75k can pass direct to the OP without ever being in Mum's Estate.  It would mean that the amount of transferable NRB is reduced.

The fact that the TNRB will be reduced makes it a pointless exercise, and in larger estates where the surviving spouse lives for another 7 years would actually increase the amount of IHT payed on the second death.

A deed of variation has no tax advantages for a surviving spouse.

pacman21

thanks for the info regarding the deed of variation. It’s something I did consider use of. The scenario has added another thing now as well which is transfer of half her house to me (I’d inherit eventually anyway). I’m sure it has some plus and negative points but generally would this be a good idea and again I presume would be handled as a gift ? Thanks again in advance.