Inheritance Tax/Estate Duty issue

[gschoon]

Good morning

My father died September 1968, during ‘Estate Duty’ regime

Will – left all property and possessions to his wife, my mother, with exception of a £200 gift to each of his 3 children

Executors letter dated September 1968 advised ‘Gross Personal Estate for Duty Purposes’ as £3,082-18-17 with estimate of Estate Duty payable of approx. £340

Threshold for Estate Duty in September 1968 was £5,000

Executors accounts dated December 1968 listed
Assets at time of £3,314-13-02
Real Estate freehold property £5,500-00-00
£8,814-13-02

Executors accounts suggest £339-15-00 paid in Estate Duty at that time

My mother died March 2011, with total estate of c£450,000

What allowances are available beyond her own IHT nil rate band threshold of £325,000?

I see conflicting advices, is there any allowance that can be carried over from my father. HMRC and direct.gov websites suggest an element of transferrable nil-rate band from 1st spouse to die 'whenever that happened' which should benefit almost everyone. There is also something called Surviving Spouse Exemption?

Any assistance to allow me to understand better the situation thus maximising allowance sdue would be most welcome

GS

[tax_schmax]

A surviving spouse can "inherit" the UNUSED portion (percentage) of the deceased spouses nil rate band. In this case your fathers nil rate band was fully utilised so your mothers estate has just her own nil rate band.

The Surviving Spouse Exemption applies to assets left in trust. Your question implies that the estate was given outright to your mother and the children. Had the assets been left to trust rather than the individuals directly, there value of the trust can be excluded from the surviving spouses estate.

If she made gifts of less than £3000 these can be deducted from the value of her estate, as can any regular gifts she may have made. You should remember that gifts in excess of £3000 made since March 2004 would need to be added back into the value of her estate. HMRC website and direct.gov both have some useful detail on these. Aside from that, I can't think of anything else that would help reduce the value of your mothers estate.

[gschoon]

Tax_schmax

Thanks very much, and thanks for explanation of Surviving Spouse Exemption, estate was indeed given outright and not to trust.

The scenario appears to be as I feared. We seem to be caught in this trap, discussed elsewhere in this forum, where due to the death of first spouse occurring before March 1972, even though the property was passed to spouse, there was always liability to Estate Duty at the time, and thus under current rules it is deemed that full Nil Rate Band was used up

[pqtaxation]

HMRC's position on transferable nil rate band (TNRB) arsising on a surviving spouse's death after October 2007 when the first spouse to die did so before 1974 is clearly described in their IHT manual section 43060 which can be viewed at

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM43060.htm

It reads .... "that up until 21 March 1972 there was no spouse or charitable relief available".

The letter from your father's (professional?) executor(s) in 1968 reads that estate duty was payable.

Hence it does appear that, as you expected, there is no TNRB available from your father to your mother in calculating her estate chargeable to IHT.

[maths]

I am a bit confused as to your figures.

For deaths pre March 1972 there was no relief for inter-spouse transfers; hence any such transfers would eat into the then available nil rate band of £5,000 (for death in September 1968).

With an estate of circa £3,000 no estate duty would have been due and £2,000 of the band would have been unused and hence available for the surviving spouse?

[tax_schmax]

The estate was valued at £8500 approx (assets plus real estate). Minus the nil rate band leaves £3500 (approx) taxable. Not sure why the real estate was split out from the other assets in the OP.