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Where Taxpayers and Advisers Meet

IHT Allowance

logistic
Posts:8
Joined:Thu Jul 09, 2015 5:07 pm
IHT Allowance

Postby logistic » Sat May 30, 2020 12:38 pm

I have a terminal illness and have been advised to leave my estate entirely to my wife rather than to my children as I had planned. My wife is comfortably off in her own right

The justification provided for this advice is that if I leave my estate to my children my own IHT allowance £325,000 will be used up. But as there is no IHT liability between spouses my allowance of £325,000 would remain intact, and available for my wife’s estate to claim on her own eventual demise.
Thus providing a total of £650,000 IHT exemption for her estate rather than just her own £325,000 exemption

Is this in fact the case

jerome.lane
Posts:237
Joined:Mon Aug 12, 2019 8:41 am
Location:Sandhurst, Berkshire
Contact:

Re: IHT Allowance

Postby jerome.lane » Sat May 30, 2020 1:34 pm

I am sorry to hear of your illness. The advice you have been given is broadly correct although you have no certainty that your children will ever benefit from your estate.

You may want to consider leaving your estate to your wife using an interest in possession Trust which gives your wife income and then ensures the capital eventually passes to your children and thus gives you some degree of continuing control over how your assets are divided.
Jerome Lane
Tax Adviser
Telephone: 07943 005902

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: IHT Allowance

Postby maths » Sat May 30, 2020 3:37 pm

The advice is correct.

In addition to a nil rate band (325k) there is also a residence nil rate band (175k).

At its simplest if you left everything to wife who on her death left everything to children, on her death there would be 650k (2 x 325k) plus 350k (a x 175k) of effective exemption from IHT ie £1 million IHT free.

The residence nil rate band (RNRB) applying where children (grandchildren) inherit a parent's residence.

The above applies assuming no future changes to the IHT rules.

Problems re the RNRB may apply if wife's estate (ie her own plus husband's) exceeds £2 million.

The "best"option will depend upon size of estates; number and age of children; children' circumstances; wife's circumstances and what you and wife (ignoring IHT) would like to happen.

There a variety of solutions.


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