First death uses up more than half IT allowance.

Numbersup

Id like help to clear up a scenario Im curious about  please. 

Im aware that  in cases where the first to die  doesnt use up their £500k inheritance tax    allowance , the unused part can pass to the surviving spouse . But does the opposite apply? 

ie  couple can leave 1 million between them, free of tax.  . Lets say first deceased leaves  £600,000k inc value of half the home ( £150k) to spouse -  is the £100k  which went over the first deceased's half of the million,   deducted  from  the remaining spouses allowance  when they die  ie   they get taxed on anything over £400k inc the value of  home (300k)   ?

Keep_pedalling

If they leave everything to a surviving spouse it is covered by spousal exemption, so none of the NRBs are used and are transferable to the spouse regardless of how their wealth is split between them. The first to die may not even own a share of the matrimonial home, the transferable RNRB is still available.

Numbersup

Wow, surprised thanks,  that seems overly generous  -  so ideally   if  you're pretty sure   one of you is going to die  first, you should  transfer as much as poss into their name ? (As long as you know   a nursing home  isnt going to be needed for them) 

Even if  first to die  left 2million to  their spouse    - still  no immediate tax on it, the remaining one  still gets their £500k allowance   having blown  1.5 m  ?    (this isnt me  btw lol ,just trying to get my head round it in principle)

poseidon1

Numbersup said:

Wow, surprised thanks,  that seems overly generous  -  so ideally   if  you're pretty sure   one of you is going to die  first, you should  transfer as much as poss into their name ? (As long as you know   a nursing home  isnt going to be needed for them) 

Even if  first to die  left 2million to  their spouse    - still  no immediate tax on it, the remaining one  still gets their £500k allowance   having blown  1.5 m  ?    (this isnt me  btw lol ,just trying to get my head round it in principle)

1st spouse to die could leave £10 million, 100 million , £1 trillion ( unlimited if you get my drift) to surviving spouse IHT free - spouse exemption is extremely generous.  Its on  the 2nd death of surviving spouse when IHT can raise its ugly death on estates exceeding £1 million for married couples at that point..

FrugaiMacDugal

Numbersup said:

Wow, surprised thanks,  that seems overly generous

Aye it is, it's the single folks with over the £325k that have to pay 40% on anything above that, just be happy if you're in the million £ clan.

Numbersup

Not sure I HAVE understood --  what I thought Keep Pedalling meant , was  that  the remaining spouse after the first death,   still keeps their OWN  £500k allowance complete ,  even though OH had exceeded theirs    and  I thought  that was generous!  Are you saying that  actually not only is  the surviving spouses  allowance left  intact , but  they still get the  deceased spouses   full £500k intact as well?  Surely not ??

Keep_pedalling

Numbersup said:

Not sure I HAVE understood --  what I thought Keep Pedalling meant , was  that  the remaining spouse after the first death,   still keeps their OWN  £500k allowance complete ,  even though OH had exceeded theirs    and  I thought  that was generous!  Are you saying that  actually not only is  the surviving spouses  allowance left  intact , but  they still get the  deceased spouses   full £500k intact as well?  Surely not ??

Not sure who you are replying to there, but to clarify, if a married couple have £1M between them (including a marital home worth £350k or more) it does not matter who owns what and in what order they die, as long as the surviving spouse inherits everything, their estate will have the full £1M of exemptions available.

Even if the first to die only had £100 in a bank account and the survivor owned everything else it applies. Even if the surviving spouse sold up to move into care, and both of them died not owning a home at the time of their death both RNRBs could still be claimed under the downsizing rule.

It would be unfair to do it any other way.

Numbersup

Thanks Keep Pedalling,    and if on the first death   it doesnt   ALL  go to the   spouse   lets   say   deceased left  100k between their offsprings -  does that change the rules ? 

bobster2

Numbersup said:

Thanks Keep Pedalling,    and if on the first death   it doesnt   ALL  go to the   spouse   lets   say   deceased left  100k between their offsprings -  does that change the rules ? 

It uses up £100k of the first spouse's NRB allowance.

RAS

Basically it means that when the second parent dies IHT allowance is reduced accordingly and the estate has to pay (more) IHT if it exceeds the reduced limit.

Might have been better to gift £100k to the offspring whilst alive and live the required 7 years.

Marcon

FrugaiMacDugal said:

Numbersup said:

Wow, surprised thanks,  that seems overly generous

Aye it is, it's the single folks with over the £325k that have to pay 40% on anything above that, just be happy if you're in the million £ clan.

Single folks can still have children to whom they could leave a property and their estate would get up to another £175K free of IHT.