Inheritance Tax Split Help

9876abcd

Just after some advice, I have a solicitor handling everything so I presume it will all be done correctly but I wanted to get opinions on this as I have tried googling and struggling to find an answer

Inheritance tax is due on my fathers estate, he had a partner (not wife or civil partnership). The split is 60% to me 40% to the partner

As I understand it we are entitled to the Nil Rate Band £325,000 before inheritance tax is calculated and I as the only child, am entitled to the Residence Nil Rate band £175,000 as his direct decedent.

My Question is, is the inheritance tax worked out after the £325,000 relief, then split between us and then I am entitled to the Residence Nil Rate band £175,000 relief. 
Or is it all worked out as both Nil Rate Band and Residence Nil Rate Band - so the partner also benefits from the £175,000? I hope someone understand what I am trying to ask as I am struggling to even word it!!

Basically it doesn't seem legally right that the partner also benefits from the £175,000 relief before getting their 40% share. Hope that makes sense. If someone can help explain it to me, I will be flagging with my solicitor but want to have my head wrapped around it before I do.

Googling it I can only find about splitting between siblings! 

Thank you in advance. 

Keep_pedalling

Was your father widowed from your mother? 

I have asked for this to me moved to a more appropriate board.

p00hsticks

As I understand it the reliefs are for the estate, not allocated to individual beneficiaries. 
 
So if the estate includes a property worth at least £175k that is being left to descendants, then the total relief for the estate is £500k. Anything above this will have IHT due, and once that it paid then the residue will be distributed as a 60/40 split, if that is what the will says. 

Your percentage of the estate will be calculated after IHT is deducted. Your percentage won't be higher just because the fact that you are a beneficiary means that there is an additional relief that can be claimed - both you and your fathers partner will benefit from that due to less IHT being paid. 

9876abcd

9876abcd said:

Just after some advice, I have a solicitor handling everything so I presume it will all be done correctly but I wanted to get opinions on this as I have tried googling and struggling to find an answer

Inheritance tax is due on my fathers estate, he had a partner (not wife or civil partnership). The split is 60% to me 40% to the partner

As I understand it we are entitled to the Nil Rate Band £325,000 before inheritance tax is calculated and I as the only child, am entitled to the Residence Nil Rate band £175,000 as his direct decedent.

My Question is, is the inheritance tax worked out after the £325,000 relief, then split between us and then I am entitled to the Residence Nil Rate band £175,000 relief. 
Or is it all worked out as both Nil Rate Band and Residence Nil Rate Band - so the partner also benefits from the £175,000? I hope someone understand what I am trying to ask as I am struggling to even word it!!

Basically it doesn't seem legally right that the partner also benefits from the £175,000 relief before getting their 40% share. Hope that makes sense. If someone can help explain it to me, I will be flagging with my solicitor but want to have my head wrapped around it before I do.

Googling it I can only find about splitting between siblings! 

Thank you in advance. 

No my mother is still alive, my mother and father were not together, the partner he had at time of death had only been in his life the last 3 years.

9876abcd

Thanks for the replies, so it does seem as though IHT is paid before the split, it just seems the partner is benefitting from the direct descendent allowance on her split. It just seems for tax purposes like it isn't quite right.

Just to check this is right in my brain, calculations below, sorry it has been a hard few years to get to this stage so my brain is a little fried!

The will technically isn't even being taken into account anymore as we had to attend mediation to get to the decision we have. 

Estate value is £600,000 
allowance £325,000
direct dependents allowance £175,000
This leaves £100,000 subject to IHT.
40% of £100,000 is paid out of the estate

Once IHT is paid, the money is then split 60% to me and 40% to the partner? IO am sure the solicitor handling it all is correct, but I just need to wrap my head around it.

bobster2

9876abcd said:

Thanks for the replies, so it does seem as though IHT is paid before the split, it just seems the partner is benefitting from the direct descendent allowance on her split. It just seems for tax purposes like it isn't quite right.

Just to check this is right in my brain, calculations below, sorry it has been a hard few years to get to this stage so my brain is a little fried!

The will technically isn't even being taken into account anymore as we had to attend mediation to get to the decision we have. 

Estate value is £600,000 
allowance £325,000
direct dependents allowance £175,000
This leaves £100,000 subject to IHT.
40% of £100,000 is paid out of the estate

Once IHT is paid, the money is then split 60% to me and 40% to the partner? IO am sure the solicitor handling it all is correct, but I just need to wrap my head around it.

See my post above - estate may not have the full RNRB available. Maybe only £105,000 so in the above scenario £170,000 would be subject to IHT - £68,000 IHT rather than £40,000 IHT if full RNRB was available.

But this may only make a small difference to you - e.g. receiving £319,200 instead of £336,000

[EDITED TO ADD - sorry I got this mixed up - see the correction below]

However, just saw you added this....

9876abcd said:

The will technically isn't even being taken into account anymore as we had to attend mediation to get to the decision we have. 

Not sure what you mean by this? What is the process by which the will is not being followed - have all parties agreed a deed of variation? What did the original will say - and what has been agreed? How the final results is being achieved could have implications for what allowances are available.

9876abcd

bobster2 said:

9876abcd said:

Thanks for the replies, so it does seem as though IHT is paid before the split, it just seems the partner is benefitting from the direct descendent allowance on her split. It just seems for tax purposes like it isn't quite right.

Just to check this is right in my brain, calculations below, sorry it has been a hard few years to get to this stage so my brain is a little fried!

The will technically isn't even being taken into account anymore as we had to attend mediation to get to the decision we have. 

Estate value is £600,000 
allowance £325,000
direct dependents allowance £175,000
This leaves £100,000 subject to IHT.
40% of £100,000 is paid out of the estate

Once IHT is paid, the money is then split 60% to me and 40% to the partner? IO am sure the solicitor handling it all is correct, but I just need to wrap my head around it.

See my post above - estate may not have the full RNRB available. Maybe only £105,000 so in the above scenario £170,000 would be subject to IHT - £68,000 IHT rather than £40,000 IHT if full RNRB was available.

But this may only make a small difference to you - e.g. receiving £319,200 instead of £336,000

However, just saw you added this....

9876abcd said:

The will technically isn't even being taken into account anymore as we had to attend mediation to get to the decision we have. 

Not sure what you mean by this? What is the process by which the will is not being followed - have all parties agreed a deed of variation? What did the original will say - and what has been agreed? How the final results is being achieved could have implications for what allowances are available.

Thank you for responding. Yes a deed of variation has been signed.

The original will left everything to my dads partner and stated nothing to me, he had been diagnosed with dementia, tried to fight it as best I could with a solicitor, without going to court we had to settle with mediation, given the evidence we had gathered already (but also not wanting to risk going to court) we settled on 60% to me and 40% to the partner. This has been ongoing since July 2023, we are finally almost getting there!

bobster2

9876abcd said:

Thank you for responding. Yes a deed of variation has been signed.

The original will left everything to my dads partner and stated nothing to me, he had been diagnosed with dementia, tried to fight it as best I could with a solicitor, without going to court we had to settle with mediation, given the evidence we had gathered already (but also not wanting to risk going to court) we settled on 60% to me and 40% to the partner. This has been ongoing since July 2023, we are finally almost getting there!

Ah I see. Sorry it's been so hard - and glad you have something sorted.

I just realised I garbled my earlier response. When a residence is included in the residue of the estate - and the residual beneficiaries are a mixture of direct descendants and others - the residence is deemed to have been split in the proportion that the residue is split.

But I was wrong earlier - with the 60/40 split this does not mean the estate only has 60% of the RNRB available. It means that you would be deemed to have inherited 60% of the value of the residence. And so long as 60% of the value of the property > £175k (i.e. the property is worth > £291k) then the estate can claim the full RNRB.

Sorry if I worried you unnecessarily.

See the example here...

https://techzone.aberdeenadviser.com/public/iht-est-plan/residence-nil-rate-band-guide