Understanding Inheritance Tax

BBQBossTO · 11 January at 3:59PM

Hi,

My Mum sadly passed away recently leaving all her worldly goods and assets to myself and my brother (50/50 split) so I'm sure will be a relatively simple probate process etc. However, I wonder if anyone can clear something up for me:

Hypothetically, let's say that My Mum's total estate value is £600,000 (for ease of calculation);

1) My own understanding is that her estate has a total inheritance tax allowance of £500,000 (£325,000 Basic Inheritance Tax Allowance + £175,000 Residence nil-rate band, as she would be leaving her estate to her children). Therefore, 40% tax is payable on the remaining £100,000; leaving £560,000 to be split equally between my brother and I.

2) However, I have other people claiming that the £500,000 inheritance tax allowance is applicable to both myself and my brother as beneficiaries i.e. they believe that inheritance tax would only be payable if my Mum's estate was valued at over £1,000,000

I've phoned the Government helpline but was told to have a look at the form IHT400; I was hoping I'd be able to get a simple answer to my example above, hence me posting here.

Thank you in advance for any helpful responses.

SeniorSam · 11 January at 4:25PM

If your Father dies and left his estate to your Mother, then his inheritance tax and residential allowance can still be claimed. Therefore £1,000,000 in total before tax. Is this the way the estate moved?

If not, can you explain how your Mother's assets were obtained. The more information you give, the easier it is to try and help.

getmore4less · 11 January at 4:45PM

To be eligible for transferable nil rate band from your father they would need to have been married at the time of his death.

If still alive there are options.

As for your question 2. Gives those that say it is per beneficiary a wide berth.

Keep_pedalling · 11 January at 4:47PM

Sorry for your loss. In information you had is wrong ( or you misunderstood what was said). If your mother was a widow however her estate has any unused part of her husbands NRB that can be transferred and his RNRB also which could take the non taxable allowance up to £1M.

BBQBossTO · 11 January at 7:37PM

Hi, thanks to all for the replies...to confirm, our father passed away about 12 years ago, leaving everything to his wife (our Mum so to make it clear, they were married at the time of his passing).

Thank you very much for any replies

bobster2 · 11 January at 9:22PM

There isn't a separate allowance for each beneficiary.

However, if your father left his entire estate to your mother when he died then he would not have used his nil rate band allowance (which I believe was already £325,000 in 2012). It should be possible to transfer this nil rate band allowance to your mother.

So your mother would have her nil rate band (£325,000), her residence nil rate band (£175,000) plus your father's unused nil rate band (£325,000). Plus possibly your father's usused residence nil rate band (£175,000).

"Where the first of the couple died before 6 April 2017 their estate would not have used any of the RNRB as it was not available. So 100% of the RNRB will be available for transfer"

https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

HOWEVER...

Even if your father left everything to your mother - he might have used some of his nil rate band through gifts in the 7 years prior to his death (need to check what was reported when he died).
Your mother might have used some of her nil rate band in the past 7 years through gifts.

Poundcat · 12 January at 2:01PM

I was in a very similar position when my Mum died. My Dad made a few gifts to his children and the house and bulk of the money went to my mother.

Any unused Nil rate band from your dad is claimed using for IHT402.

I recommend that you work your way through the questions (and associated forms) in qns 29-48 in order.

BBQBossTO · 12 January at 4:45PM

Thank you for further replies it's definitely helping to get things correct in my head.

Our father passed away in March 2007 so it looks like the Nil Rate Band was £285,000 at that time so it may be then that my Mother definitely has £325,000 + £175,000 IHT allowance total plus my father's Nil Rate Band £285,000 allowance could be transferred plus possibly whatever the March 2007 residence Nil Rate band was.

Thank you

Keep_pedalling · 12 January at 6:50PM

BBQBossTO said:

Thank you for further replies it's definitely helping to get things correct in my head.

Our father passed away in March 2007 so it looks like the Nil Rate Band was £285,000 at that time so it may be then that my Mother definitely has £325,000 + £175,000 IHT allowance total plus my father's Nil Rate Band £285,000 allowance could be transferred plus possibly whatever the March 2007 residence Nil Rate band was.

Thank you

The transferable NRB does not work like that. It’s the percentage used that applies rather than the rate at the date of the first death. So if none used back in 2007 then the transferable amount is the full £325k.

BBQBossTO · 12 January at 8:12PM

Keep_pedalling said:

BBQBossTO said:

Thank you for further replies it's definitely helping to get things correct in my head.

Our father passed away in March 2007 so it looks like the Nil Rate Band was £285,000 at that time so it may be then that my Mother definitely has £325,000 + £175,000 IHT allowance total plus my father's Nil Rate Band £285,000 allowance could be transferred plus possibly whatever the March 2007 residence Nil Rate band was.

Thank you

The transferable NRB does not work like that. It’s the percentage used that applies rather than the rate at the date of the first death. So if none used back in 2007 then the transferable amount is the full £325k.

Right OK...thanks for that clarification. Presumably, HMRC would have a record that upon my Father's passing, his estate would not have used any of the IHT allowances by him leaving everything to his wife?

Keep_pedalling · 12 January at 8:59PM

BBQBossTO said:

Keep_pedalling said:

BBQBossTO said:

Thank you for further replies it's definitely helping to get things correct in my head.

Our father passed away in March 2007 so it looks like the Nil Rate Band was £285,000 at that time so it may be then that my Mother definitely has £325,000 + £175,000 IHT allowance total plus my father's Nil Rate Band £285,000 allowance could be transferred plus possibly whatever the March 2007 residence Nil Rate band was.

Thank you

The transferable NRB does not work like that. It’s the percentage used that applies rather than the rate at the date of the first death. So if none used back in 2007 then the transferable amount is the full £325k.

Right OK...thanks for that clarification. Presumably, HMRC would have a record that upon my Father's passing, his estate would not have used any of the IHT allowances by him leaving everything to his wife?

There would be if probate was applied for, but it is often not required on the first death.

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Understanding Inheritance Tax

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