Parental home proceeds to children via surviving parent

evaso

Mother sold the parental home on step fathers death (below IHT threshold) and shared part proceeds with children (30K each) just under 3 years before her recent demise. Whilst I believe such proceeds direct on death of one parent may be Nil Rate, this was indirect? and may be seen as PETS (potentially Exempt Transfers) liable to IHT? I need to either declare in estate tot or as prior gifts in the latter probate application? Cannot pin down an answer anywhere on the internet!

RAS

It's not clear whether the value of the mother's estate is liable for IHT or not? 

What was the value of mother's estate in total when she died and how much of that relates to the house that was sold? How much did she give away in total 3 years ago?

Keep_pedalling

The gifts are PETs and if you need to do an IHT return need to be declared on IHT403. They also need to be added to the estate IHT valuation on the probate form. 

evaso

Mothers estate still largely comprises proceeds of sale of the parental home after fathers demise and still totals under IHT threshold; the portion of that she has already shared with children within 3 years prior to her death with between her four children is £120K. Do both parents have to die for the proceeds of the parental home to be IHT nil I wonder?! Seems a grey area

Keep_pedalling

evaso said:

Mothers estate still largely comprises proceeds of sale of the parental home after fathers demise and still totals under IHT threshold; the portion of that she has already shared with children within 3 years prior to her death with between her four children is £120K. Do both parents have to die for the proceeds of the parental home to be IHT nil I wonder?! Seems a grey area

It is not a grey area, it is actually quite simple. If step father left everything to your mother his estate is an exempt one and none of his NRB or residential BRB has been used so can be transferred to your mother’s estate. 

If that is the case and her estate (including those gifts) is below £650k then you don’t need to claim the residential NRB (RNRB) as it is covered by her NRB and the transferable NRB, which would mean no IHT return would be required.

If higher than that then both her RNRB and the transferable RNRB can be used to cover up to £1M in exemptions but to claim either of those requires a full IHT return to be completed. 

evaso

Sure sounds simple thanks, provided the share passed on by Mother prior to her later demise isn't assumed a gift by HMRC separate from it's actual source fund (earlier yield of the parental home sale), we siblings have no PET to declare!

Keep_pedalling

evaso said:

Sure sounds simple thanks, provided the share passed on by Mother prior to her later demise isn't assumed a gift by HMRC separate from it's actual source fund (earlier yield of the parental home sale), we siblings have no PET to declare!

I don’t understand what you are trying to say here, the gifts clearly are PETS so need to be included in the value of the estate for IHT purposes. 

msb1234

evaso said:

Sure sounds simple thanks, provided the share passed on by Mother prior to her later demise isn't assumed a gift by HMRC separate from it's actual source fund (earlier yield of the parental home sale), we siblings have no PET to declare!

Your mum didn’t pass on a share of the house, she gifted money. It’s irrelevant that the money came from the sale of her husband’s house. The gift needs to be declared.
https://merrantiaccounting.com/understanding-pets-for-inheritance-tax/#:~:text=A%20Potentially%20Exempt%20Transfer%20(PET,at%20the%20time%20it's%20made.

evaso

guess so.. too late now, but for anyone else: it'll be clear at some point you're going to be short of 7 years- best return the gifts at that last point in time, a late decline effectively -surely you'll be able inherit them back shortly after, free of IHT

mta999

no difference

scenario 1. Person gives 2x30K gifts and then dies three years later. At death estate value is say 200k.  Total estate value is therefore 200k plus 60k gifts ie 260k. No IHT due.

scenario 2. Above but just before death the 2 x 30k gifts are returned. Total estate value is therefore 260k plus 0k gifts ie 260k. No IHT due

Notepad_Phil

evaso said:

guess so.. too late now, but for anyone else: it'll be clear at some point you're going to be short of 7 years- best return the gifts at that last point in time, a late decline effectively -surely you'll be able inherit them back shortly after, free of IHT

That wouldn't work as per mta999 above, but there's also the fact that surely returning an amount umpteen years after receiving that amount as a gift is unlikely to be seen as a cancellation of the original gift (unless you also commit fraud and cook up some kind of loan paperwork), so all you would have done is to create a new PET for the amount that you are giving back.