new IHT allowance on homes

[piper777]

Hi there if i could ask for some help

Mum recently died and left everything to my Father. House was in joint tenancy. Mums savings apprx £130.000 and dad has apprx £30.000 savings and house value apprx £600.000. Probate has all been sorted and passed to my dad.

Dad has since moved in with us and we have put house up for sale. If dad sells house and wishes to give half proceeds away ,during his lifetime, to myself and brother who are the sole beneficiaries in his will .---- Will we still be able to claim the new allowance for inheritance tax on homes ----and therefore have no IHT to pay on his passing ?

grateful if anyone could clarify

Thanks

[simplyaccountant]

Hi Piper777,

The family home doesn't need to be owned at death to qualify new IHT Residence Nil Rate Band (RNRB). The Residence Nil Rate Band will be transferable between spouses and civil partners on death, much like the standard nil rate band. It is the unused percentage of the Residential Nil Rate Band from the estate of the first to die, which can be claimed on the second death.

The Residential Nil Rate Band (RNRB) will be available provided that:
a) The property disposed of was owned by the individual and it would have qualified for the RNRB had the individual retained it;
b) The replacement property and/or assets form part of the estate and pass to descendants.

The disposal of the property has to take place after 8 July 2015. But there is no time limit on the period between the disposal and when death occurs.

Please bare in mind that because there will be no qualifying residence in the estate, there will be no RNRB available towards half of the proceeds from sell of house (Gifts), distributed amongst brothers. Gifts (Potentially Exempt Transfer (PET) given in the 3 years before your father passes away, will be charged at 40% (of course after applying standard IHT exemptions), Gifts made 3 to 7 years before his death are taxed on a sliding scale known as ‘taper relief’.

Having said that as you may be left with rest of £460k [£300k (half of undistributed proceeds from sell of house) + £130k Mum's saving + £30k Dads saving] in estate, which will be eligible for RNRB.

While I can provide you with workings, I would suggest you should obtain professional advice from a IHT qualified practitioner.

Hope above helps.

Regards
M Patel.

[maths]

Mum left everything to her husband. Thus on husband's death he's entitled to a nil rate band of 325k plus his wife's unused nil rate band ie father entitled to 650k.

If he sold the house 600k and gifted 300k and lived for at least 7 years then no IHT on the 300k gift. He would die with 300k cash plus savings of 160k ie 460k.

As 460k less than available nil rate band of 650k no IHT on death.

In above scenario no need to claim residence nil rate band.

Assume dad dies after say 2 years of making gift of 300k (having sold house). Of his 650k nil rate band he would offset 300k against the 300k gift ie no IHT on gift.
That leaves 350k nil rate band to offset against his estate on death of 460k. IHT at 40% on 110k.

It would seem that depending upon tax year of death father could be entitled to a residence nil rate band of at least say 250k thus wiping out the above IHT charge of 40% on 110k.

[piper777]

Thank you both for your replies ---can i trouble you further to clarify. It is my understanding from your replies that the £300k given away will not qualify for the RNRB presuming that he does not live the 7 years ? it was my understanding that RNRB would be retained if at least some of your estate was left to your direct descendants and that this was his only main residence even if sold. I was under the impression that we would be able to claim the extra 1000k for each parent on top of 650K? am i incorrect ?

If he was to keep all money from selling the house and give his savings away instead now ---would this make any difference?
Thank you both for your time

[simplyaccountant]

It is my understanding from your replies that the £300k given away will not qualify for the RNRB presuming that he does not live the 7 years ? - PETs (gifts) don't qualify for RNRB, doesn't matter whether your father lives or not during 7 years period.

it was my understanding that RNRB would be retained if at least some of your estate was left to your direct descendants and that this was his only main residence even if sold. - yes you are right but to an extent of remaining qualifying estate post his death.

I was under the impression that we would be able to claim the extra 1000k for each parent on top of 650K? am i incorrect ? - no, you are right.

If he was to keep all money from selling the house and give his savings away instead now ---would this make any difference? - yes of course it does to numbers but principle remains the same. No RNRB towards saving transfer and so on...

Hope that helps.

[piper777]

thank you simply accountant ---now i think i have got it !!

so if u could just confirm simply accountant ---in below scenario the RNRB will eliminate any IHT ?

thank you so much ---all of you

appreciate a confirmation !!

[maths]

As per my earlier post the RNRBs should wipe out any IHT on death.