Inheritance Tax

andysweats

My mother has inherited £450,000, but wants to gift the money (after a house sell) to my sister and myself. Is there any reason to pursue to cut the IHT due or is it like death, Inevitable….

Keep_pedalling

To prevent the inheritance entering her estate she should make a deed of variation, which in effect changes the will and have the inheritance jump a generation. This has to be done within 2 years of the death of the testator (she does not have wait for house sale to do this)

This will avoid the gift falling under the 7 year rule for IHT purposes, however it is still a gift and would be treated as deliberate deprivation of assets if your mother was on means tested benefits or if left her with insufficient assets to self fund care if she needed it at some point in the future.

Is the executor a solicitor or a lay person?

tetrarch

A Deed of Variation is a way to effectively change the distribution of an estate by agreement between the affected beneficiaries. In normal circumstatnces this can only happen within the 2 year Executor period

From my understanding this is a completely legitimate way to avoid the gifting (with its 7-year limitations)

A warning though - In theory a DoV does not enable a beneficiary to escape deprivation of assets rules regarding care home fees and benefits entitlements

Regards

Tet

andysweats

Can the inheritance be redirected into a trust?

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81900193#Comment_81900193

it could be, but you would need a very good reason to do so such as a beneficiary (not your mother) who has mental or physical disabilities. Trusts are not a magic formula for avoiding IHT and can be subject to eye watering levels of taxation.

Keep_pedalling

What is your mother’s current marital status and net worth without the inheritance? Depending on the answer to the first question she could be worth up to £1M before her estate would be liable to IHT.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81900193#Comment_81900193

Who would the beneficiaries of the trust be, and why would you ( or your mother) want their entitlements from a DOV of the deceased estate controlled by trustees?

Keep_pedalling

Just to say I have rather assumed that this inheritance is not from a spouse or civil partner because if it is then a deed of variation is not appropriate.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81900193#Comment_81900193

Contrary to popular opinion, trusts are not a very good option in most circumstances, although it does not stop some solicitors promoting them as it is good business for them.

andysweats

The executors are my MUM and a Solicitor