IHT and 7 Year Gift Rule

Pucky89

Evening all,

I am currently applying for probate of my fathers estate. My Mum died 10 years ago. With regards to IHT are we right in thinking the threshold is £650,000 (there is no property in the estate) before IHT will come into account. Is that right?

The estate is likely to be around £525,000.

5 years ago my Father gifted both me and my brother £150,000 each which we will have to declare when filling out the IHT400 form. I assume there in box 28 it wants to know when the gift was given to work out what percentage I will need to pay pack which is 16% I think. ( I have also seen 40%  mentioned )

So when it comes to what we will need to pay back does it take into account the whole estate or just the 150,000?

Thanks in advance for your help.

HappyHarry

Pucky89 said:

Evening all,

I am currently applying for probate of my fathers estate. My Mum died 10 years ago. With regards to IHT are we right in thinking the threshold is £650,000 (there is no property in the estate) before IHT will come into account. Is that right?

The estate is likely to be around £525,000.

5 years ago my Father gifted both me and my brother £150,000 each which we will have to declare when filling out the IHT400 form. I assume there in box 28 it wants to know when the gift was given to work out what percentage I will need to pay pack which is 16% I think. ( I have also seen 40%  mentioned )

So when it comes to what we will need to pay back does it take into account the whole estate or just the 150,000?

Thanks in advance for your help.

If your mother left everything to your father then you can apply to use her nil rate band of £325,000. This means that you have £650,000 of nil rate bands available.

The £300,000 that your father gifted 5 years ago will be reduced by the annual gift allowance to either £297,000 or £294,000 if he had not made a gift the previous year.

This gift reduces your father's remaining nil rate band to either £28,000 or £31,000. There is no tapering applied as the gift was less than the nil rate band.

So you now have either £353,000 or £356,000 of nil rate bands available to apply against an estate of £525,000.

You are looking at tax of 40% on the excess, so 40% of £172,000 or 40% of £169,000.

buddy9

HappyHarry said

If your mother left everything to your father then you can apply to use her nil rate band of £325,000. This means that you have £650,000 of nil rate bands available.

This assumes that mother and father were married.

Keep_pedalling

You say there was no property involved, is that because the family home was sold for your father to move into more suitable accommodation (care home, assisted living, with family ect)? If it was you also have the ability to still claim the residential NRBs under the downsizing rules. 

HappyHarry

buddy9 said:

HappyHarry said

If your mother left everything to your father then you can apply to use her nil rate band of £325,000. This means that you have £650,000 of nil rate bands available.

This assumes that mother and father were married.

Quite right - I did assume that.

km1500

as stated above the 300, 000 unfortunately was made less than seven years ago and so the full amount will count against the IHT allowance. 

there is no tapering allowance in this case

bobster2

When you say the estate is worth £525,000 is that including the value of the gifts?

Pucky89

Thanks all for your responses. To answers some questions, yes they were married at the time of their death.

There was no property involved as this was sold to assist with his care home fees, how do we consider this in the residential NRB?

The estate mentioned is excluding the gift. So we are looking at what we have to pay based on what the value of the estate was (525,000) and the gift that was made 5 years ago of 150,000 each. 

Keep_pedalling

Pucky89 said:

Thanks all for your responses. To answers some questions, yes they were married at the time of their death.

There was no property involved as this was sold to assist with his care home fees, how do we consider this in the residential NRB?

The estate mentioned is excluding the gift. So we are looking at what we have to pay based on what the value of the estate was (525,000) and the gift that was made 5 years ago of 150,000 each. 

The RNRB and transferable RNRB will still be available under the downsizing rule. So if the family home that was sold when he went into care was sold for at least £350k then you will have the full £1M of exemptions. If the house was sold for less the maximum exemptions available will be £625k + the amount it was sold for.

It sounds like there will be no IHT to pay but you will need to do a full IHT return to be able to claim the RNRBs. 

Robert_McGeddon

Another great couple of posts from KP. IMO the OP should be VERY pleased KP went "behind the scenes" to answer more than just the direct question asked.  Should be worth a few £££s.

Pucky89

Hi again all,

Just getting back around to this again after sometime away from these things. 

We are going through the forms but one pertinent query we are still having trouble wrapping our heads around. We have two scenarios in our head currently, neither may be correct though!

1. Factoring in the below is IHT payable on the gift at 16%. With the estate being exempt as it comes under the NRB of 650k.
2.  Is there a scenario where the ‘family home allowance’ allows up to 1 million pounds before IHT is due? Would we be correct in thinking we can add the estate and the gift together? 

Nil Rate Band £650,000 (Mum and Dad combined allowance) Mum died 10 years ago left everything to Dad.

Estate £525,000 ( £315k was the sale of the 2nd house to help cover care home fees (after the family home was part gifted as part of the below gift)

Gift £300,000 split between me and my brother made in March 2019

Thanks again in advance for any help you can provide!

Cheers.