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Where Taxpayers and Advisers Meet

IHT liability

logistic
Posts: 6
Joined: Thu Jul 09, 2015 5:07 pm

IHT liability

Postby logistic » Thu Sep 20, 2018 10:05 pm

I have been left the estate of my late husband which has been valued at some £563,000. As his spouse there is no IHT due.

As I am already comfortable financially in my own right, I have contemplated having a deed of variation drawn up in my adult children’s favour. I have been advised that in doing so it would entail significant IHT liabilities for my children as all the espousal IHT exemption would be lost. Is this in fact the case.

maths
Posts: 7599
Joined: Wed Aug 06, 2008 3:25 pm

Re: IHT liability

Postby maths » Thu Sep 20, 2018 11:18 pm

Yes.

IHT will in principle be levied on the estate of your husband should it be left to his children were you to execute a Deed of Variation in their favour.

However, assuming your husband made no lifetime gifts of significance his estate would be entitled to a so-called nil rate band of 325,000 and possibly a residence nil rate band of 175,000.

What may may make sense is as follows:

1. Presumably your husband either owned the house in which you both lived 100% or 50% (in the latter case you owning the other 50%). Assuming he left you his 100% or 50% as appropriate and so you now own 100% then leave this alone.

2. Enter a Deed of Variation for an amount of no more than 325,000.

EG Husband left you 100% of house worth (say) 300,000. Rest of estate 263,000. Leave 263,000 via Deed to children.
EG Husband left you 50% of house worth 50% of 300,000 ie 150,000. Leaves rest of estate of 413,000. Of this 413,000 you keep [413,000 - 325,000] ie 88,000 and under a Deed of V leave children 325,000.

No IHT arises under either option.

AdamS93
Posts: 238
Joined: Tue Sep 26, 2017 6:28 pm

Re: IHT liability

Postby AdamS93 » Fri Sep 21, 2018 7:56 am

As Maths says, or...

If you are in good health and expect to live another 7 years, you could just gift the estate to your adult children. That way you will still get 2x nil rate bands on your death.

However, the gamble is will you live 7 years and unfortunately no one has a crystal ball.

AGoodman
Posts: 888
Joined: Fri May 16, 2014 3:47 pm

Re: IHT liability

Postby AGoodman » Fri Sep 21, 2018 10:59 am

Actually, if you work it through, a simple gift of up to £325k must be the better course.

If (as we all hope!) you survive the seven years, you have preserved your late husband's nil rate band and can use it to reduce IHT on your own demise.

If (as we don't hope) you do not survive the seven years, you will reduce your nil rate band by the value of the gift but will have avoided reducing your late husband's nil rate band (which can be transferred to you) by the same amount. You won't have gained anything from the gift but equally not lost anything.

Overall, here, it is hard to identify any circumstances where a DoV is better. This also avoids the (I'm sure very reasonable) cost of preparing a DoV.

As Maths said, don't touch the house - for both tax and peace of mind.


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