Inheritance tax for those who are single, childless

Glenys_T

Hi. I'm trying to understand the proposed inheritance tax changes for pensions and the impact on people who are single and childless versus married people with or without children. My initial understanding is that, should the changes go through, the inheritance tax threshold for single single people with no children will be £325,000 with limited opportunity to increase this. It seems much lower than the threshold for married people. 

Keep_pedalling

It amount is exactly the for married people £325k each, the big change comes when you have children when it rises to up to £500k each provided that you own your home. 

poseidon1

Glenys_T said:

Hi. I'm trying to understand the proposed inheritance tax changes for pensions and the impact on people who are single and childless versus married people with or without children. My initial understanding is that, should the changes go through, the inheritance tax threshold for single single people with no children will be £325,000 with limited opportunity to increase this. It seems much lower than the threshold for married people. 

You're right, there are zero opportunities for the  single and childless to increase their  nil rate band at death from the £325k currently available. Married couples ( with kids ) have £1 million ( between them) by contrast.

The IHT rules are stacked heavily in favour of married ( or civil partners ), with children.

Most you can do during your lifetime ( assuming you are willing) is to make lifetime gifts of whatever size ( then survive 7 years ) and or  gifts using the £3,000 and  £250 annual exemptions.

In later life, and if you have significant liquid assets, then a Discounted Gift Trust ( google it ) coupled with equity release on your home may be worth your consideration, assuming there are individuals you would particularly like to inherit your estate without a tremendous burden of IHT.

Marcon

Keep_pedalling said:

It amount is exactly the for married people £325k each, the big change comes when you have children when it rises to up to £500k each provided that you own your home. 

...and leave that home to a 'direct descendant', defined by HMRC as follows, in which case the Residence Nil Rate Band of up to £175K per person applies. If your home is worth less than £175K, then it's £325K + the home's value. 

A direct descendant is:

• a child, grandchild, great-grandchild or great-great grandchild of the deceased

And for the purpose of RNRB a ‘child’ includes:

• a child who is, or was the deceased’s step-child

• an adopted child is a child of the deceased

• a foster child is treated as a child of the deceased

• if the deceased was an appointed guardian or special guardian for a child who was under 18 at that time, the child is treated

  as a child of the deceased

  For RNRB purposes a ‘child’ does not have to be under 18 at the deceased’s date of death, and a ‘step-child’ is limited to someone whose parent is, or was, the spouse or civil partner of the deceased.

  For the purposes of RNRB a direct descendant is treated as including a spouse or civil partner of the child, grandchild or great-grandchild, (including their widow, widower or surviving civil partner, provided that the widow, widower or surviving civil partner had not remarried or entered into a new civil partnership before the deceased’s date of death).

  Direct descendants do not include nephews, nieces, siblings or other relatives not included in the list above.

  Also:

  A residence is any property that the deceased lived in as their home while it was included in their estate. It does not have to be their main home, or have been lived in or owned for a minimum period. A property that the deceased owned, but never lived in, such as a buy-to-let property, is not a residence and is not eligible for the RNRB.

Runner_Duck

You are correct about the Nil rate band. I've looked into this and it seems there are only 2 (simple) ways for single, childless people to reduce IHT, and they are Gifts out of Income and Gifting to Charity.  There has been at least 1 recent thread on the former and while it is possible it does require good record keeping.  Anything given to charity is currently exempt from IHT, and if leave them at least 10% of the taxable value of your estate you pay reduced IHT (36% instead of 40%).

Keep_pedalling

Runner_Duck said:

You are correct about the Nil rate band. I've looked into this and it seems there are only 2 (simple) ways for single, childless people to reduce IHT, and they are Gifts out of Income and Gifting to Charity.  There has been at least 1 recent thread on the former and while it is possible it does require good record keeping.  Anything given to charity is currently exempt from IHT, and if leave them at least 10% of the taxable value of your estate you pay reduced IHT (36% instead of 40%).

Gifts out of income does not reduce your IHT liability, it just stops it increasing by preventing income turning into capital. There are however other ways of reducing it. Larger one off gifts fall out of your estate after 7 years and if you do it while you are relatively young and healthy you can cover an unfortunate early demise with term life insurance.

The best way however is to actually to spend more of your wealth on yourself while you are alive instead of hoarding it all. If most of that wealth is tied up in your home then downsize or take out equity relief so it can be spent.

itwasntme001

Keep_pedalling said:

Runner_Duck said:

You are correct about the Nil rate band. I've looked into this and it seems there are only 2 (simple) ways for single, childless people to reduce IHT, and they are Gifts out of Income and Gifting to Charity.  There has been at least 1 recent thread on the former and while it is possible it does require good record keeping.  Anything given to charity is currently exempt from IHT, and if leave them at least 10% of the taxable value of your estate you pay reduced IHT (36% instead of 40%).

Gifts out of income does not reduce your IHT liability, it just stops it increasing by preventing income turning into capital. There are however other ways of reducing it. Larger one off gifts fall out of your estate after 7 years and if you do it while you are relatively young and healthy you can cover an unfortunate early demise with term life insurance.

The best way however is to actually to spend more of your wealth on yourself while you are alive instead of hoarding it all. If most of that wealth is tied up in your home then downsize or take out equity relief so it can be spent.

Sometimes this is not possible if you live in an expensive housing market area like London.  I am similar situation to OP, home worth close to £600k and other assets worth multiples of the £325k band.  Can not downsize as it would be utterly pointless to sacrifice size of home and area.

Keep_pedalling

itwasntme001 said:p

Keep_pedalling said:

Runner_Duck said:

You are correct about the Nil rate band. I've looked into this and it seems there are only 2 (simple) ways for single, childless people to reduce IHT, and they are Gifts out of Income and Gifting to Charity.  There has been at least 1 recent thread on the former and while it is possible it does require good record keeping.  Anything given to charity is currently exempt from IHT, and if leave them at least 10% of the taxable value of your estate you pay reduced IHT (36% instead of 40%).

Gifts out of income does not reduce your IHT liability, it just stops it increasing by preventing income turning into capital. There are however other ways of reducing it. Larger one off gifts fall out of your estate after 7 years and if you do it while you are relatively young and healthy you can cover an unfortunate early demise with term life insurance.

The best way however is to actually to spend more of your wealth on yourself while you are alive instead of hoarding it all. If most of that wealth is tied up in your home then downsize or take out equity relief so it can be spent.

Sometimes this is not possible if you live in an expensive housing market area like London.  I am similar situation to OP, home worth close to £600k and other assets worth multiples of the £325k band.  Can not downsize as it would be utterly pointless to sacrifice size of home and area.

Well in your case it would be pointless as you have significant other assets, but if you only had a very valuable home it would be an option and if you wanted to stay put then there is always equity release.