Inheritance Tax, new rules.

fineclaret

With pensions being considered part of the IHT estate from 2027, I need to revisit my arrangements. This will take me over thresholds I had thought myself under.

Presently, my wife is leaving everything to the kids in her will; I have split it 50% to her, a sixth each to those same 3 kids. But it strikes me that we both ought to leave everything to each other, beyond charitable gifts, to maximise the exemptions - no IHT on the 1st death, 2x£500,000 in cumulative nil rate on the second death. On 2nd death, the kids would get the lot.

There are other things we can do - eg £3000 pa in gifts we don't have to survive 7 years to lock in at full value. But revising the wills seems the biggie. Is this a reasonable understanding?

Albermarle

Not a will expert but I think the norm is to do mirror wills, which leave everything to the Spouse, but with provisions if you were both to die at the same time.
However everybody's circumstances are different.

I think the way you are currently doing it would mean that if she died first, the kids would get money earlier, but there could be IHT to pay earlier as well, depending on amounts. 

The easiest way to avoid paying IHT are;
Spend more
Give more to charity
Make large gifts to family and hope you survive 7 years ( if you do not you have not lost anything as such, just be back where you were) 
Use the £3K allowance each year .

Keep_pedalling

Leaving everything to your children on the first death means none of it is covered by spousal exemption so you could be creating an unnecessary IHT liability. It is also unwise to leave your share of your home to your children on the first death as this is likely going to create a CFT liability down the line, far better to have a will that creates an immediate post death interest trust giving the surviving spouse a life interest.

fineclaret

Just to mention, we own the property jointly. I don't think either of us can 'will it away' from under the other. Only the survivor can leave it to the kids. My comments relate to the estate value outside of the property - though it will obviously add to the final IHTable sum, it's not optional as to where it goes until sole ownership is reached.

Albermarle

fineclaret said:

Just to mention, we own the property jointly. I don't think either of us can 'will it away' from under the other. Only the survivor can leave it to the kids. My comments relate to the estate value outside of the property - though it will obviously add to the final IHTable sum, it's not optional as to where it goes until sole ownership is reached.

If you are Joint Tenants that is correct. On first death the house will automatically be 100% owned by the survivor, regardless of any will. 

DRS1

If you are worried about pensions becoming subject to IHT then you don't need to look at your Wills you need to look at your beneficiary nomination forms.
Pensions will NOT become part of your estate under the proposals.
By all means look at your Wills (and do a holistic approach to your IHT planning) but do NOT think that the Wills will control what happens to your pensions.

Oh and on the house check to see if you have severed the Joint Tenancy.  If you have some document that says you hold as tenants in common then the Will does control what happens to the relevant part of the house.

fineclaret

DRS1 said:

By all means look at your Wills (and do a holistic approach to your IHT planning) but do NOT think that the Wills will control what happens to your pensions.

No, I don't think that; it's more that my SIPP will take me over thresholds, so I think we need to change Wills to maximise nil rates. At the moment, my wife's leaves me nothing (which is OK!) but if she dies first, this reduces the proportion of her exemptions I would inherit.

On joint ownership, we have done nothing about that in the 35 years since we bought it, so I am confident it is not held 'in common'. The deeds make no mention of 'Form A' arrangements, which I understand is diagnostic. (Its absence is not diagnostic the other way, but I can't see any reason we would have made any special arrangements, even through the mists of time).

Albermarle

fineclaret said:

DRS1 said:

By all means look at your Wills (and do a holistic approach to your IHT planning) but do NOT think that the Wills will control what happens to your pensions.

No, I don't think that; it's more that my SIPP will take me over thresholds, so I think we need to change Wills to maximise nil rates. At the moment, my wife's leaves me nothing (which is OK!) but if she dies first, this reduces the proportion of her exemptions I would inherit.

On joint ownership, we have done nothing about that in the 35 years since we bought it, so I am confident it is not held 'in common'. The deeds make no mention of 'Form A' arrangements, which I understand is diagnostic. (Its absence is not diagnostic the other way, but I can't see any reason we would have made any special arrangements, even through the mists of time).

Yes it would do that, but the first £325K of the money she leaves to the kids would be IHT free. However if it was above that her estate would have to pay some IHT, which could have been deferred until your death, if she instead left everything to you.
You would still 'inherit' her Residential nil rate band of £175K and so your estate would have allowances of £325K + £175K + £175K , assuming you left the house to your children.