Possible IHT reduction

[RolfF]

My brother has been widowed since 2002 and is now in very poor health.

He has asked me to be executor for his estate and I seem to think there's something about the tax allowance of his late wife that could be used to reduce IHT?

I have little knowledge of tax, so any help would be welcome.

Thank you.

[Lambs]

R,

The first thing to clarify - and it is intensely annoying to professional advisers that so many people are 'scared' of IHT without needing to be - is whether or not your brother's anticipated Estate (broadly, his net wealth) will be exposed to IHT at all.

He would need to be 'worth' more than the current Nil-Rate Band (NRB) of £325k net in order for there to be any potential exposure.

On top of that - and this is where his late wife is a factor - it is often the case that he will have 'inherited' his late wife's NRB assuming she left everything to him, on her earlier death.

So, in a simple scenario involving the second death of a married couple/civil partnership, net wealth must exceed £650k.

2 key influencing factors are:

Did she leave wealth to others, that may have eroded the availability of her NRB to your brother on his death?
Are they leaving their main / family home to their kids/grandchildren, in which case the available exemptions can rise from £650k to potentially as much as £1million?

IHT can be hellaciously complex, but in very many cases, it simply isn't a problem in the first place, because net wealth is insufficient to trigger it.

Of course, it is almost certain that if I start with this point, your brother's wealth WILL exceed these thresholds. Such is the way that TW forum queries work.
I am assuming that both your brother and his wife are/were very long-term residents in the UK, or else other complicating factors may need to be considered.

With regards,

Lambs

[RolfF]

Thank you for your helpful reply, Lambs.

The estate is estimated between £500K - £550K.

They had no children and she had no beneficiaries in her will - all passed to her husband.

[Lambs]

R,

Then on the facts as presented, you will need actively to claim the late wife's NRB as 'inherited' by your brother (by dint of its not having been used already/elsewhere) if, as and when he dies. As I understand things, while a full Estate Return may not be necessary where no IHT is actually due, the IHT402 is still appropriate for such claims. Very importantly, there is a 2-year time limit for claiming unused NRB in this way (strictly, 2 years from the end of the month in which the second spouse dies). For an Estate of that size, I should recommend you engage a good adviser - solicitor, tax adviser, or similar. The paperwork can be voluminous, and you will likely not want to have to deal with it.

Apologies if this comes across as cold: when I was younger I was very circumspect/deferential around death. I was invariably told to "stop pussy-footing around" it. I have come to understand it is simpler this way. But nor am I offering my services: we do have a couple of contributors on here who do a fair bit of IHT work in their "day jobs" but I am not one of them.

With regards,

Lambs