Parental home proceeds to children via surviving parent

RAS

Potential estate is over £1m so parent gives away £100k expecting it to below IHT limit when they die.

If they live 7 years, IHT might be payable on say £20k as they've not spent as much as they thought as they aged.

If they only live 3 years, IHT is payable on £100k plus a little extra savings.

If they never gave it away, IHT is payable on £100k plus the savings and probably the interest received, regardless.

evaso

to be honest, HMRC is judge and jury and whatever view they choose to take, is just how it is- likely as not just as Notepad Phil says. But my PET is hopefully safe I expect survival more than 7 years yet! but then...

Keep_pedalling

evaso said:

to be honest, HMRC is judge and jury and whatever view they choose to take, is just how it is- likely as not just as Notepad Phil says. But my PET is hopefully safe I expect survival more than 7 years yet! but then...

HMRC follow the rules made by parliament, they are not acting as judge and jury. Your thread was about your mother’s gifts which are failed PETs, by ‘my PET’ are you now talking about a subsequent non exempt gift that you have made? 

poseidon1

Keep_pedalling said:

evaso said:

to be honest, HMRC is judge and jury and whatever view they choose to take, is just how it is- likely as not just as Notepad Phil says. But my PET is hopefully safe I expect survival more than 7 years yet! but then...

HMRC follow the rules made by parliament, they are not acting as judge and jury. Your thread was about your mother’s gifts which are failed PETs, by ‘my PET’ are you now talking about a subsequent non exempt gift that you have made? 

KP, I think you've done the best you can here.

evaso

thanks for your comments chaps; as of course all rules are not without interpretation and potential subtle implications at times, I simply looked to sound out thoughts, whilst the J&J reference simply acknowledging that at the end of the day, however HMRC judges those rules to be interpreted is just how it is!

But as far as I can see from all my peering about: where an estate with sub 3-year PETs made to children added back for accounting purposes, as required by probate submission, amounts to under £400k on death of parent B,  this still falls into NRB with the two parents IHT allowances combined as they may be. In this event, it appears no IHT/Gift Tax is due from recipients?

Keep_pedalling

evaso said:

thanks for your comments chaps; as of course all rules are not without interpretation and potential subtle implications at times, I simply looked to sound out thoughts, whilst the J&J reference simply acknowledging that at the end of the day, however HMRC judges those rules to be interpreted is just how it is!

But as far as I can see from all my peering about: where an estate with sub 3-year PETs made to children added back for accounting purposes, as required by probate submission, amounts to under £400k on death of parent B,  this still falls into NRB with the two parents IHT allowances combined as they may be. In this event, it appears no IHT/Gift Tax is due from recipients?

The rules are not subject to interpretation and there are not in any way complex, you just appear to be making them so and goodness knows where you are ‘peering about’

RAS

RAS said:

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?

Rather than being evasive, if you simply answer the questions above, we can advise you sensibly.

The outcome depends on those facts and no amount of peering about changes the facts. 

You could just be making Everest out of a molehill, or possibly rendering yourselves liable for HMRC penalties. No idea unless you answer the questions clearly. No need to peer about?

evaso

study of published guidance on legal and financial sites; MSE forum threads; HMRC guidance; indeed all so simple

Nub of the  outstanding question, though clearly not succinctly put or distilled previously-

in the matter in hand, an estate with failed PETS notionally added back for total calculation, the gross tot falls well within NRB (joint NRB assayed by formula below), despite all PETS qualifying for zero taper relief.

Q: Having been assessed as all falling within total NRB, are the PETS then further assessed seperately at full IHT?

(I suspect not, from prior post that reduced IHT of 36% is due where a due portion given charity, and such rate then also applies to all PETS within an estate where it exceeded NRB: such a principle indicates potential logic of NRB 

also itself being so applicable, in a case where total estate falls below NRB?

also

from an example given on the subject from a major insurance co:

 example: 

net estate at death = X  & PETS = Y  total estate= X+Y 

IHT calculation  Y before X    so:  Y less NRB = A,  X  less any IHT due = B

Net estate after tax = A+B

(by the by- previous 'my PET' reference merely notional, reply to idea given in a response that a decline by return of gift to the giver would become another PET). The 'peering' simply a casual alternative to the word 'study').

------------------------------------------------------------------------------------------------

As an aside, copy here of  odd jotted notes from scan of web on the subject, in case anything of help to others-

Q: 'How does the nil rate band work for IHT?
In the UK, every person has a Nil Rate Band (NRB) of £325,000. That is, any assets within the NRB threshold are taxed at a nil rate of Inheritance Tax. Subject to certain exemptions and reliefs, the balance is taxed at 40%.'

Q: When did the IHT nil rate band become transferable?

Since 9 October 2007, it has been possible to transfer any unused percentage of the inheritance tax (IHT) nil rate band (NRB) from a deceased spouse or civil partner to the surviving spouse or civil partner.

Q: 'Can a transferable nil rate band be used against failed PETs?

> The nil rate band at death, including any transferable nil rate band, is used to calculate the tax on chargeable transfers in chronological order. So the earliest failed PET or CLT will get first use of the nil rate band.

Q: 'How to calculate the transferable nil rate band?

    The amount of the nil rate band available to transfer from the first death is expressed as percentage being

 E ÷ NRBMD × 100 

where E is the amount by which M is greater than VT.
    NRBMD is the single nil rate band maximum at the first death.'

https://www.gov.uk/inheritance-tax/gifts

Keep_pedalling

It would be a lot easier if you just gave us the numbers involved, but hopefully the following examples might help you get a grasp on this.

Married couple Fred and Joan own a house worth £800k (joint tenants)  have £200 each in individual savings. They also gifted their children £325k each 3 years ago. Fred dies leaving everything to his wife. His total estate for IHT purposes is £950k (50% share of the house, £200k in savings and failed PET of £325k). There will be no IHT to pay as the failed PET is covered by his NRB and the rest is covered by spousal exemption.

Joan died 5 years later, so her PET has fallen out of her estate and the total value of her estate is valued at £1.2M which is all left to their children. Her estate’s exemptions are her NRB, her residential NRB and the transferable residential NRB from Fred’s estate, total value £675k so the remaining estate of £525k will be subject to IHT at 40%.

Civil partners Thelma and Louise own a house worth £400k (joint tenants)  have £100k each in individual savings. Thelma gifted £200k to her sister 2 years ago and dies leaving everything to his Louise. Her total estate for IHT purposes is £500k (50% share of the house, £100k in savings and failed PET of £200K). Again there will be no IHT as the failed PET is well below her NRB, and the rest is covered by spousal exrmption.

Louise dies 2 years later and the total value of her estate is valued at £600k which is all left her God daughter. Her estate’s exemptions are her NRB, her residential NRB, the transferable residential NRB from Thelma’s estate and  the unused portion of Thelma’s NRB (£125k) total value £800k so no IHT payable. 

evaso

yep, that covers it clearly; clearly as you said I hadnt given near enough info! (early stage pondering issue)- thanks