IHT planning

[AMBD]

Hi

We're in a slightly sensitive situation and I'm looking to check whether or not I understand the IHT position correctly.

My mother in law is set to inherit some money but she is terminally ill. If she inherits it and then gifts it to her children I think I'm right in saying she will be taxed on it if she doesn't survive 7 years. I believe the current IHT threshold is £500k if taking into account the extra transfer of property allowance. Furthermore her husband died about 10 years ago and I don't know if his IHT allowance passes on to her or not, and and what amount. If his IHT allowance is worth £325k then there is no issue as the value of her estate would not reach £825k, but if not, it's possible it will be worth more than £500k if you include the amount she stands to inherit now (which is not confirmed yet) plus the value of her house.

My initial thought was that a deed of variation could be drawn up to pass the money she stands to inherit now straight to her daughters. Would that work as a method of avoiding any future IHT?

Obviously this is sensitive and I don't want to bulldozer in suggesting stuff like this if it's not accurate.

[AGoodman]

Her maximum nil rate band is £1m consisting of:

Personal NRB - £325k
NRB transferred from husband - £325k (assuming he didn't use any on his death)
Residential nil rate band - £175k
RNRB transferred from husband

Both RNRBs will be capped at the value of her home, assuming she leaves it (or proceeds of sale) to children

Alternatively (or in addition), yes, she could make a deed of variation and the property would never become part of her estate for inheritance tax.

[ben_power]

Deed of variation would be the best route.