Double inheritance tax conundrum

markb1_2

My aunt (93) has sold her house and is now living in a nursing home that is fully funded, her estate is worth around £1.1m. She wants to gift most of the proceeds to myself, my sister and my mother (88), the split being £380k/£380k/£280k. We are aware of the inheritance tax liabilities on these sums. However, my mother has assets of £750k (before the gift), so her estate will be liable to inheritance tax also. Therefore, my aunts gift to my mother will be liable to inheritance tax upon her death, become part of my mother’s estate and then be liable to inheritance tax a second time upon my mothers death. So my question is, in this scenario, what would be the most prudent tax planning for the portion to be gifted to my mother to minimise this double inheritance tax liability?

NorthYorkie

See IHTM22041 - Quick succession relief: summary - HMRC internal manual - GOV.UK which might help. Otherwise, does mother have grandchildren? Perhaps consider a Deed of variation on your Aunt's will to benefit them to some extent, instead of your mother (And maybe you and/or your sister. By 'skipping a generation' you will push the second IHT charge further into the future.

Grumpy_chap

markb1_2 said:

My aunt (93) has sold her house and is now living in a nursing home that is fully funded, her estate is worth around £1.1m. She wants to gift most of the proceeds to myself, my sister and my mother (88), the split being £380k/£380k/£280k. We are aware of the inheritance tax liabilities on these sums. However, my mother has assets of £750k (before the gift), so her estate will be liable to inheritance tax also. Therefore, my aunts gift to my mother will be liable to inheritance tax upon her death, become part of my mother’s estate and then be liable to inheritance tax a second time upon my mothers death. So my question is, in this scenario, what would be the most prudent tax planning for the portion to be gifted to my mother to minimise this double inheritance tax liability?

What do you mean by the nursing home is fully funded?
Has your Aunt purchase an annuity that is covering the cost?
With assets of the level she has, state funding would not normally be available.

If I have done the sums correctly, after making the gifts that are proposed, your Aunt will be left with £60k.  That won't last long if she needs to contribute to her own care fees and would almost certainly be deemed deprivation of assets if these gifts were made now.

Ultimately, if your Aunt wishes to make the gifts as proposed and does so, that is her prerogative.  Once your Mother has received the gift, you mother can immediately gift the amount on to her Grandchildren.  If the amount is subject to IHT twice, the Grandchildren still have a tidy sum far more than most at their ages.

Keep_pedalling

Seems foolish in the extreme to give virtually all your assets away and leave the estate without the ability to pay any IHT due. You say she is fully funded but there will usually be a requirement to contribute from income and her income will greatly be reduced by giving away over £1M so could be deemed as deprivation of assets.

what is the marital status of your aunt and Mother? 

poseidon1

There is an aspect of your Aunt's proposed gifting not covered here.

Per your post a couple of years ago ( below), did your Aunt proceed with the gift of the half share of home your mother occupies, and if so when? 


https://forums.moneysavingexpert.com/discussion/6448333/getting-removed-for-a-joint-tenants-ownership#latest


If that gift occurred, what was the value of the property at the time, and did your Aunt pay the inevitable CGT bill arising at the time? You intimated a £650k house value which infers a £325k gift ( if it happened).

Given your Aunt's age has anyone attempted to calculate the total IHT payable if she fails to survive 7 years from all these past and proposed gifts, and how each gift recipient is going to pay the tax ( personally), if your Aunt dies within the 7 year window?

Best to flag the fact that the intial gift of share of the house ( if it occurred), will have already likely used your Aunt's NRB, so unless she survives the 7 year countdown,  the burden of IHT thereafter falls on the cash gifts now under discussion. This would give your mother an advantage over her siblings. You say you are aware of the tax, is this the basis calculations were conducted?

Frankly this form of extreme IHT mitigation requires precise and accruate appraisal of all gifting 7 years previously and  a proper understanding of where the burden of tax falls, if the 7 year survival period is not met.

Grumpy_chap

If the Aunt has an Estate of £1.1m and IHT allowance has already been used up, it would be prudent not to gift any more than the potential IHT liability that may arise.