IHT - on gifts & transferred spousal relief

tony_w_2

The attached shows the IHT calculation for the following scenario as entered on the .Gov website:

Husband & wife live in a house worth £400k (tenants in common ownership, each having a 50% share)
Husband dies leaving the house and his other cash assets totalling £90k to his wife (£85k in his own sole bank account + £5k being his share of £10k joint bank account)
Husband gave a £40k gift to his nephew less than 1 year before death

The calculator shows no IHT is payable by the estate, presumably because the estate has passed to his wife in entirety, with the exception of the lifetime gift to the nephew.

I have two questions;

1) what unused NRB is passed onto the wife ... is it £325k?
2) is the nephew now required to pay 40% IHT on £5k i.e. that part of the estate value that exceeded the NRB of £325k or does the wife receive a reduced NRB of £320k?

TIA for all replies.

bobster2

tony_w_2 said:

The attached shows the IHT calculation for the following scenario as entered on the .Gov website:

Husband & wife live in a house worth £400k (tenants in common ownership, each having a 50% share)
Husband dies leaving the house and his other cash assets totalling £90k to his wife (£85k in his own sole bank account + £5k being his share of £10k joint bank account)
Husband gave a £40k gift to his nephew less than 1 year before death

The calculator shows no IHT is payable by the estate, presumably because the estate has passed to his wife in entirety, with the exception of the lifetime gift to the nephew.

I have two questions;

1) what unused NRB is passed onto the wife ... is it £325k?
2) is the nephew now required to pay 40% IHT on £5k i.e. that part of the estate value that exceeded the NRB of £325k or does the wife receive a reduced NRB of £320k?

TIA for all replies.

1) If NRB remains unchanged - husband has used £40k of his NRB (the gift) - so there is £285k (£325k - £40k) of his NRB to be transferred to spouse. Actually slightly more because can deduct the annual tax free gift limit (£3,000) from the gift. So £288k NRB left.

2) Nephew is not required to pay anything.

(Residential Nil Rate Band can also be transferred and used by wife's estate if they have direct descendants as beneficiaries)

poseidon1

bobster2 said:

tony_w_2 said:

The attached shows the IHT calculation for the following scenario as entered on the .Gov website:

Husband & wife live in a house worth £400k (tenants in common ownership, each having a 50% share)
Husband dies leaving the house and his other cash assets totalling £90k to his wife (£85k in his own sole bank account + £5k being his share of £10k joint bank account)
Husband gave a £40k gift to his nephew less than 1 year before death

The calculator shows no IHT is payable by the estate, presumably because the estate has passed to his wife in entirety, with the exception of the lifetime gift to the nephew.

I have two questions;

1) what unused NRB is passed onto the wife ... is it £325k?
2) is the nephew now required to pay 40% IHT on £5k i.e. that part of the estate value that exceeded the NRB of £325k or does the wife receive a reduced NRB of £320k?

TIA for all replies.

1) If NRB remains unchanged - husband has used £40k of his NRB (the gift) - so there is £285k (£325k - £40k) of his NRB to be transferred to spouse. Actually slightly more because can deduct the annual tax free gift limit (£3,000) from the gift. So £288k NRB left.

2) Nephew is not required to pay anything.

(Residential Nil Rate Band can also be transferred and used by wife's estate if they have direct descendants as beneficiaries)

As above, but if husband had made no gifts at all in the tax year previous to the £40k in question, you can deduct a further £3k, therefore reducing the £40k to £34k and preserving a little bit more of his transferable NRB.

tony_w_2

Very helpful, thank you both. I had read about the £3k annual gift allowance plus 1 year c/fwd of any unused allowance, so its good to see how this would work in my scenario. Thanks again!

cherry76

I find this post very informative, thanks. Can anybody explain the net estate qualifying value at £40,000.? How this is calculated. Pl. Thanks

bobster2

cherry76 said:

I find this post very informative, thanks. Can anybody explain the net estate qualifying value at £40,000.? How this is calculated. Pl. Thanks

That was the value of the gift. So it's the part of his estate not going to his spouse.

cherry76

Thanks how come the value for probate is only £85,00. Am going through the same, just want to make sure I got the calculations right? It’s ok to use the calculations generated.? Been trying to see whether my manual calculations tally.

buddy9

cherry76 said:

Thanks how come the value for probate is only £85,00. Am going through the same, just want to make sure I got the calculations right? It’s ok to use the calculations generated.? Been trying to see whether my manual calculations tally.

Looks like the OP has entered the house share as jointly owned (perhaps incorrectly)

cherry76

buddy9 said:

cherry76 said:

Thanks how come the value for probate is only £85,00. Am going through the same, just want to make sure I got the calculations right? It’s ok to use the calculations generated.? Been trying to see whether my manual calculations tally.

Looks like the OP has entered the house share as jointly owned (perhaps incorrectly)

Looks like it, but how is the gross probate value is calculated pl? I understand the IHT calculations but not the gross probate value. Thanks

madbadrob

cherry76 said:

buddy9 said:

cherry76 said:

Thanks how come the value for probate is only £85,00. Am going through the same, just want to make sure I got the calculations right? It’s ok to use the calculations generated.? Been trying to see whether my manual calculations tally.

Looks like the OP has entered the house share as jointly owned (perhaps incorrectly)

Looks like it, but how is the gross probate value is calculated pl? I understand the IHT calculations but not the gross probate value. Thanks

Gross probate is the total assets before debts in the estate that were 100% the deceassed.  The net is those figures minus the debts.  SO deceased held a house TIC and that house was worth 700k Assuming the deceased had no other sole monies etc then his gross probate would be 350k.  Net value for IHT would therefore be 25k as the first 325k is tax free (am ignoring  the fact 325k can pass to the wife)  Then the deceased had 24k in debts the net value for IHT is 1k.  At 40 percent that is 400 pounds to pay in IHT