Inheritance tax and vulnerable people

reddefender · 7 November 2018 at 11:59PM

Hi all - not sure if this thread is still alive but hey.
A friend lives with his agoraphobic brother (a hoarder) and both have lived in their house for their whole lives (they are in their early 50s now)
The house belonged to their mother who died two weeks ago and is valued at around £900000 - it's only a scruffy 3 bed but is in London and quite near a park.
My friend earns the minimum wage and his reclusive brother is on benefits.
I've worked out that they are facing around £200k in inheritance tax which will mean they will have to sell the house. The upheaval of this and the effect on the agoraphobic brother is hard to estimate.
My question is this: is income taken into account when calculating the tax or is it simply the value of the property? And are people with profound mental health problems assessed and given some kind of exemption that allows them to stay in their home? Neither brother has any savings.
Thanks

getmore4less · 8 November 2018 at 12:11AM

No transferable nil rate band?

reddefender · 8 November 2018 at 11:26AM

I've never heard of that but have just checked. Isn't this for partners / spouses? Would it apply to adult children who still live in the house as their sole residence?

antrobus · 8 November 2018 at 12:00PM

reddefender wrote: »

...

I've worked out that they are facing around £200k in inheritance tax which will mean they will have to sell the house. ...

Did the mother leave a will? If so, who is the executor?

reddefender wrote: »

My question is this: is income taken into account when calculating the tax or is it simply the value of the property? And are people with profound mental health problems assessed and given some kind of exemption that allows them to stay in their home?

Inheritance tax is levied on the value of the estate. No account is taken of the income of the beneficiaries or their 'mental health problems'.

There is a nil-rate band of £325,000 for IHT. There may well be and additional nil-rate band of £325,000 transferable from the mother's spouse.

There is also an additional nil-rate band of £100,000 available when a residence is passed on death to a direct descendant, and the sons are clearly direct descendants of their mother.

https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

So it could well be that the IHT is assessed on £900,000 less £750,000 equals £150,000, at 40% leaving £60,000 payable. But I don't know, it depends on what else is in the estate.

Tom99 · 8 November 2018 at 12:34PM

[FONT=Verdana, sans-serif]The RNRB is £125,000 now and also transferable so mother may have up to a total of £900,000 tax free.[/FONT]

reddefender · 8 November 2018 at 1:05PM

Did the mother leave a will? If so, who is the executor?

The younger son

There is a nil-rate band of £325,000 for IHT. There may well be and additional nil-rate band of £325,000 transferable from the mother's spouse.

The mum was a widow. Is the £325 threshold per person who inherits? i.e., £750k if two people inherit the property?

There is also an additional nil-rate band of £100,000 available when a residence is passed on death to a direct descendant, and the sons are clearly direct descendants of their mother.

Again, is this per person, i.e., each brother gets this?

Thanks for the link - from what I can decipher (It's all a bit of another language to me) the RNLB applies when you are left a house that you are currently living in - yes? And that for 2018-19, the extra exemption is another £125k? Again, would that be per brother? They are each inheriting £450k worth of their home.

Thanks for your replies - it's beginning to seem less awful

reddefender · 8 November 2018 at 1:08PM

Tom99 - thanks for the info re RNRB. How did you get to £900000 tax free? Thanks

Linton · 8 November 2018 at 2:35PM

- The thresholds relate to the estate, the number of beneficiaries is irrelevent.
- A widow can inherit unused nil rate band from her husband. So a widow dying this year leaving her house to her children would have a tax free amount of £325K +£125K from herself, and the same from her husband, assuming that the husband passed all his estate to his wife, making a total of £900K

Tom99 · 8 November 2018 at 2:46PM

reddefender wrote: »

Tom99 - thanks for the info re RNRB. How did you get to £900000 tax free? Thanks

[FONT=Verdana, sans-serif]As per Linton above, it does rely on father having left everything to mother and having died after 1971.[/FONT]

Tammykitty · 8 November 2018 at 2:51PM

Linton wrote: »

- The thresholds relate to the estate, the number of beneficiaries is irrelevent.
- A widow can inherit unused nil rate band from her husband. So a widow dying this year leaving her house to her children would have a tax free amount of £325K +£125K from herself, and the same from her husband, assuming that the husband passed all his estate to his wife, making a total of £900K

Note this assumes,
a) the mothers husband was the children's father
b) The husband/father left everything to his wife

If the husband is not the children's father - then the direct descendant amount of £125k cannot be transferred

If the husband left some of is his estate to people other than the wife, then it is only the unused percentage of the nil rate band that can be used

unforeseen · 8 November 2018 at 2:58PM

I read it that the £125k only applies on the mother's death as that is the one that transfers the property to a direct descendant.

Inheritance tax and vulnerable people

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