Leaving 10% to charity in a Will

Keep_pedalling

StevieD54 said:

So the property has to be included in the total estate valuation, but when it comes to the IHT bill and the remaining taxable amount, surely the property is excluded?  I understand it’s exempt if its value is less than the 2x spouse RNRB’s (2x £175k).

No it is not excluded.

So to quote my Mum’s actual situation………Cash £400k, property £220k, Total estate = £620k.  She then leaves 10% to charity……£62k.
Once that bequest is made, her cash assets would be reduced to £338k, just £13k above her £325k allowance.  So what is the IHT bill?  36% of £13k?  Or is the property ‘valuation’ taxed as well, even if it has not been sold?

If your mother inherited all your father’s estate then as well as her NRB she will have his full transferable NRB giving a total NRB exemption of £650k so no IHT to pay whether she leaves money to a charity or not. The residential NRBs will not be needed at all.

If on the other hand your father used up all his NRB on bequest to people other than his wife then the transferrable NRB won’t be available and her total exemptions (NRB plus RNRB+partial transferable RNRB) are £540k. If no gift is made to charity then the IHT bill will be £32k (40% of £80k). If she gifts 10% to charity (£62k) then the IHT bill falls to £6.5k (36% of £18k).

StevieD54

Many thanks KP, this is what I needed to understand.

StevieD54

KP……your second paragraph is the relevant one as my Dad didn’t leave everything to Mum, so yes, he used up his NRB in other bequests.
Could you just break down the workings of those figures in that second paragraph please? e.g. ‘partial transferable RNRB’?

Keep_pedalling

StevieD54 said:

KP……your second paragraph is the relevant one as my Dad didn’t leave everything to Mum, so yes, he used up his NRB in other bequests.
Could you just break down the workings of those figures in that second paragraph please? e.g. ‘partial transferable RNRB’?

As your mother’s house is only worth £220k her RNRB will be used to cover £175k of that value, you will therefore only be able to use £45k of your father’s transferable RNRB, the rest will be lost unless your mother purchases a more expensive home.

StevieD54

I’m here again, 18 months later, having seen an article about this on the Saga website. I ran it past my financial advisor and he tells me it is correct.

To reiterate: Her bungalow has now been sold for £219k. She might have about £400k in cash, so her total estate is £619k.

So I think Mum’s allowances for IHT will be: NRB (£325k) + RNRB (£175k) + RNRB from my Dad (only £44k of his £175k required).

Total allowances: £544k.

£619k minus £544k = £75k………I believe this is what is known as the ‘baseline amount’ (I’d never previously heard this term)

So only £75k will be subject to IHT, and leaving at least £7.5k to charity would reduce the IHT rate to 36%. This is a huge difference to what I’d previously understood………e.g. I thought she would have to leave £61.9k to charity. This new understanding has scrambled my brain on this subject 😂. If someone can confirm these numbers, or disagrees, do let me know.

Thanks in advance.

StevieD54

From my financial advisor:
”the Nil-Rate Band (NRB) and the Residence Nil-Rate Band (RNRB) are applied before assessing whether the reduced 36% inheritance tax rate can be used”

This seems contrary to comments/opinions stated in the first few replies in this thread, which appear to say the TOTAL estate figure is used for calculating whether 10% has been left to charity. I hope my financial guy is correct, it makes a big difference to the potential IHT bill.

probate_slave

I agree that this thread contains misinformation. But I also think your FA is incorrect regarding the RNRB. Of course it doesn't help that gov.uk appears to insist that the net estate after liabilities is the baseline.

The clearest guidance is at IHT430 itself. Note 4 (below) specifically excludes the RNRB and TRNRB from the baseline calculation. Sorry I don't have time just now to go over your figures in detail.