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Where Taxpayers and Advisers Meet

PET (rental property) and IHT

Posts: 2
Joined: Thu Jul 30, 2020 10:15 am

PET (rental property) and IHT

Postby Will139 » Thu Jul 30, 2020 11:27 am

I was gifted 70% of a rental property valued at £465,000 owned by my dad between three and four years ago. He has now left the further 30% to me in his will. Would someone be able to explain how inheritance tax is worked out, taking into account the Taper Relief which affects the 70%? I have asked my family solicitor who drew up the will and the gift transfer in the first place, but neither he nor his office colleagues are actually sure how it works!

My own uneducated guess is that we take off his £325k IHT allowance, leaving £140k (disregarding any other parts of his estate for now). This £140k is then split into my 70% (98k), which is charged at 32% (with the Taper Relief), and the other 30% (£42k), which is charged at the full 40%, which leaves a bill of £48,160. Am I anywhere close?

Many thanks in advance

Posts: 259
Joined: Tue Sep 26, 2017 6:28 pm

Re: PET (rental property) and IHT

Postby AdamS93 » Fri Jul 31, 2020 2:06 pm

You need to look at the two transactions separately.

Firstly, you will need to use the market value when the property was gifted to work out the PET value. This would use up his NRB first. Any remaining value will be taxed at 40% IHT BUT taper relief reduced the IHT due by 20% giving a marginal rate of 32%. Ther are other things to consider such as annual exemptions, other PETs/CLTs etc.

The remaining 30% will form part if his estate which will be taxed at 40% (after deducting any remaining NRB/RNRB).

This is in its simplest form - it would be money well spent engaging a chartered tax adviser or a solicitor that deals with IHT regularly.

Posts: 2
Joined: Thu Jul 30, 2020 10:15 am

Re: PET (rental property) and IHT

Postby Will139 » Fri Jul 31, 2020 5:14 pm

Thank you. That does make sense, although it sounds like it is more complicated than I was hoping. I think I will follow your advice and get more professional advice.

Posts: 7905
Joined: Wed Aug 06, 2008 3:25 pm

Re: PET (rental property) and IHT

Postby maths » Sun Aug 02, 2020 4:38 pm

Your father may be entitled to a transferable NRB (in whole form in part) if his wife has died before him.

Availability of any RNRB on death (re the 30%) will depend upon whether father ever lived in it as a residence.

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