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Where Taxpayers and Advisers Meet

INHERITENCE TAX ALLOWANCE

Harry9
Posts: 9
Joined: Mon Dec 10, 2018 12:49 pm

INHERITENCE TAX ALLOWANCE

Postby Harry9 » Mon Dec 10, 2018 1:03 pm

Hi, can anybody help? I've looked on thee Government inheritance tax website but don't understand it.
My 93yr father lives alone and his wife (my mum) died some 5yrs ago.

How much is he allowed to leave in his will tax free, it reads to me it doubles because he can claim his wife's allowance as well.

His house is worth £330K,is this added on to the final amount he is allowed to leave tax free.

Thanks

AGoodman
Posts: 1057
Joined: Fri May 16, 2014 3:47 pm

Re: INHERITENCE TAX ALLOWANCE

Postby AGoodman » Tue Dec 11, 2018 11:31 am

If your mother left her entire estate to him, then he will have his NRB (£325,000) and a transferred NRB (£325,000) for a total of £625,000.

If he also leaves his house (or the proceeds) to his descendants (i.e. you and your siblings and/or grandchildren), he could also benefit from the RNRB and another transferred from your mother (TRNRB). The total is currently £250k rising to £300k from April 2019 and £350k from April 2020.

Assuming your father lives to April 2020 and his total estate is less than £2m, he will be able to leave £1m free of IHT.

Harry9
Posts: 9
Joined: Mon Dec 10, 2018 12:49 pm

Re: INHERITANCE TAX ALLOWANCE

Postby Harry9 » Wed Dec 12, 2018 11:06 am

Thanks very much for that reply, it was much clearer to me than the gov web site :D

My dads total estate with his investments etc and including his house is under the £900K.

Because he is 93yrs he wants to give some of his money away to myself, my 2 brothers and 9 grandchildren.
Am I right in saying he can only give away £3000 in total per tax year to be tax exempt, and if he gives away £250 to us for birthdays and Christmas this comes out of the £3K?

Also he does heavily subsidise one of his granddaughters to the extent of £3K to £4K per year, who is a single parent mother with 2 young children who struggles moneywise. On the gov web site it says that included in exempted gifts are "payments to help with another person’s living costs, such as an elderly relative or a child under 18". This isn't clear as to what extent have you any idea?

Any thoughts would be appreciated.

AnthonyR
Posts: 309
Joined: Wed Feb 08, 2017 2:33 pm

Re: INHERITENCE TAX ALLOWANCE

Postby AnthonyR » Wed Dec 12, 2018 9:56 pm

The £250 small gifts exemption applies as well as the £3,000 a year, however, an individual cannot use both (ie if he gives £3,250 to a single person the £250 excess will be taxable).

The tax position of the gifts to the granddaughter may be exempt if they can be structured as gifts out of income. To benefit from this they should be regular payments out of spare income and not affect his standard of living, if they meet these requirements they can be ignored for IHT purposes, but at the same time he should keep records of his income and expenditure to confirm they are not funded out of capital.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

Harry9
Posts: 9
Joined: Mon Dec 10, 2018 12:49 pm

Re: INHERITENCE TAX ALLOWANCE

Postby Harry9 » Thu Dec 13, 2018 10:40 am

Hmmmm! So in other words he could just give £250 to each of his 3 sons and 9 grandchildren for each of their birthdays and for Christmas.
That would amount to £6000.
Or he could give £1000 per year to each of his 3 sons and £250 for each grandchild's birthday and Christmas which is £7500 per year.
Sorry for seeming a bit stupid but as far as this goes

AGoodman
Posts: 1057
Joined: Fri May 16, 2014 3:47 pm

Re: INHERITENCE TAX ALLOWANCE

Postby AGoodman » Thu Dec 13, 2018 11:15 am

I don't think you need to be concerned about the limits.

Anything he gives away now in excess of the exemptions will be a potentially exempt transfer and so remain in his estate for 7 years but the NRB/TRNB can still be set against it.

Essentially, any gifts he makes now are unlikely to improve his tax position but they will not make it worse and, if his estate looks to be free of tax now, it will remain free of tax after the gifts.

It looks like he is free to make gifts, they are just unlikely to achieve anything from a tax perspective (unless he survives for a further 7 years).

Harry9
Posts: 9
Joined: Mon Dec 10, 2018 12:49 pm

Re: INHERITENCE TAX ALLOWANCE

Postby Harry9 » Thu Dec 13, 2018 2:29 pm

So his total tax allowance is £900K (that is £325k from my mother, £325K of his own and £250K for his house)
And his current total worth is less than that, then because he doesn't and is unlikely to reach that £900K threshold then he is free to give as much money as he likes?

AGoodman
Posts: 1057
Joined: Fri May 16, 2014 3:47 pm

Re: INHERITENCE TAX ALLOWANCE

Postby AGoodman » Fri Dec 14, 2018 11:12 am

Up to £650k, the residential nil rate band does usually always apply to lifetime gifts.

Harry9
Posts: 9
Joined: Mon Dec 10, 2018 12:49 pm

Re: INHERITENCE TAX ALLOWANCE

Postby Harry9 » Mon Dec 17, 2018 10:17 am

Speaking to my dad this weekend, we both find it strange and unfair that if he died tomorrow he wouldn't be liable for any IHT because he doesn't meet his £900K IHT threshold and is very unlikely to do so.
Yet if today he gave away cash gifts over £3K to his immediate family and dies next week he would be liable to IHT.
My god you can't even give your money away! I will have to remind this to my kids and grandchildren next time they ring me up with the usual opening sentence "Dad can you do me a massive favour...………….and I promise to pay you back next pay day!" :D

AGoodman
Posts: 1057
Joined: Fri May 16, 2014 3:47 pm

Re: INHERITENCE TAX ALLOWANCE

Postby AGoodman » Mon Dec 17, 2018 11:24 am

That's because you've misunderstood. Re-read my text from 13 December. Anything over the exemptions would be a PET and so brought into account but nil rate bands would still cover it.


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