IHT

I am a probate qualified chartered accountant.

When you die, your estate automatically has an allowance of £325,000 before any tax has to be paid. If your estate includes the family home which you are passing on to your children, then you gain an extra allowance which is the lower of the net value of the home, and £175,000. So if your home is worth more than £175,000 then you potentially have £500,000 of tax free estate.

If your spouse died before you, and left some or all of their estate to you, then you also gain the proportional amount of their estate - including the house - to pass on to your legatees.

When my father died, twenty-three years after my mother, we were able to use an extra 85% of her £325,000 allowance and all of the £175,000 family home allowance. So there was no inheritance tax to pay.

There are various other allowances too but those two are the ones which affect most people.

It’s rumoured that there will be some tweaking of IHT, but any changes are unlikely to come into force until the next financial year.

New rules are likely to come in tomorrow in the government's Autumn statement apparently. Wait and see!

Wiser, in case the financial advisor doesn’t return - you don’t only pass on £175k of the house to direct descendants, to qualify for this additional IHT relief you have to pass on the entire property to them on death.

Vintagegirl, it looks as though your father may have used up part of his NRB (then as now £325k) with legacies (and/or gifts within seven years before he died) to people other than your mother (any gift to her was exempt from IHT), leaving only £100k of his NRB to be transferred to your mother. However, even the RNRB was not introduced until 2017 the spouse/civil partner of someone who died before then can inherit it if they are leaving a property in which they once lived to a direct descendant. I would suggest that you look closely at the accounts for your father’s estate, and his will if he left one, to see why your mother only inherited an allowance of £100k.

Thks for that overview Germanshepard. It was useful to look over my mother's recent estate and final accounts. Those tax figures are not detailed in same just the figure paid. Looking back over notes, I see only £100k of an allowance passed to my mother from my father but presumably that was the amount applicable when he died in 2010.

Alastairlyon..I will Google to find your webinar. If your house is worth a million...very easy in our area..how can you pass on 175000 of the house to your children? Is there a ball park figure of how much it would cost to see a financial advisor ?

My late husbands half of my house is in trust for my children. What's left is more than enough to pay for a slightly better home if needs be. Although two of my children have said they would take care of me I wouldn't hold them to it especially if I have dementia. He majority of everything else ( if theres any left) is left to my six grandchildren.

Regarding iht, I am fed up of hearing about the wealthy four percent. In the greater London area, property prices are ridiculously high. So our children are crippled by very high house prices and nursery fees. Even with the government paid hours, it costs twenty thousand pounds per year for my two grandchildren to go to nursery four days per week. I cover the fifth day. So I would like my family to get a good inheritance without excessive iht.

IHT allowances are;

£325,000 per capita + up to £175,000 value of the house per capita (provided house goes to direct descendants = £500,00 per capita

If you are a widow(er) and everything went to you when your spouse died then you inherited his/her unused allowances

Thus legally partnered couples or the survivor have maximum £1million

Tax at 40 % on excess.

The children will get the house ? only after any IHT tax liability has been paid !

House in trust and living in it for free extremely dubious

And of course it is a lot more complicated than the simple basics above .

I am an IFA and specialise in IHT planning and have given webinars on the subject - i suspect i cannot advertise here but find and talk to a good IFA - there is a lot of perfectly legal stuff you can do to turn thus penurious tax into a voluntary tax

I've been looking at this too over the last few weeks. I think it's £325k allowance plus an additional £175k if the house is being passed on to direct descendant ie children/grandchildren. If your DH pre deceases you then you are allowed the same £325k plus £175k on his behalf so a total of £1,000,000 before IHT is payable. At least that's my understanding.

Having been involved in the care cost world the first question asked about any property assigned to a Trust by an older person is Why? Never heard an answer that didn't have to avoid charges behind it and therefore was not accepted for care cost assessment. Definitely beware.

Thankyou GSM

Thank you very much GSM.... 😊

Thanks GSM.

Your figures are correct Georgesgran. Each individual has a Nil Rate Band (NRB) of £325k, and also a Residential Nil Rate Band (RNRB) of £175k in respect of a property (the Property) which they own at death and which they have lived in at some point.

If spouses or people in a civil partnership leave their entire estates to one another, there is no IHT payable in respect of the estate of the first to die. The survivor inherits the NRB and RNRB of the first to die.

Provided that
1. the survivor leaves the Property to his or her direct descendants (natural/adopted/step/fostered children or grandchildren or the spouse or civil partner of any such) and
2. the Property is worth at least 2xRNRB (currently £350k) and
3. the total value of the survivor’s estate is less than £2.2m

then a property worth £1m could be inherited without payment of IHT.

There are provisions bringing into this relief a property worth less than £1m if it was purchased when downsizing from a more expensive property.

It’s important to remember that the RNRB is only available for a property you have lived in. If your estate includes such a property, the remainder of your estate - money in the bank, investments (other than a pension fund or insurance which may not form part of your estate depending on circumstances), jewellery, cars, furniture, works of art and general household effects) above the NRB+ RNRB x 2 will attract IHT.

There are reliefs enabling businesses and agricultural land, amongst other things, to be passed on free from IHT.

I have deliberately not mentioned trusts - whether or not one is a good idea depends on the individual circumstances - or gifts made within seven years of death.

This is not intended to constitute legal or financial advice. Everyone’s circumstances are different.

sorry should have said £325K not £375K, duh!

No just to your home, I think. So if your home is worth less than £375K, you get up to that amount with savings etc before you pay any tax. For most people I think it's the value of their home that's the main asset, particularly for those living in the south or London.

Georgesgran

*foxie48*. I’m afraid your figures are wrong - perhaps fat fingers.
It’s £325K not £375K and the primary dwelling allowance is £175K

To anyone confused - and it is confusing - get legal advice!!
Probably the best money you’ll spend for a long time.

Ha, OH said it with great authority, I should have checked but I knew it added up to £500K! Thanks for correcting it.

foxie48. I’m afraid your figures are wrong - perhaps fat fingers.
It’s £325K not £375K and the primary dwelling allowance is £175K

To anyone confused - and it is confusing - get legal advice!!
Probably the best money you’ll spend for a long time.

Surely your ‘estate’ means your home and possessions, not just your property? This is to foxie.

Many people don’t live in a million pound property, but have investments etc which brings up the value of their total wealth.

A married couple each have a tax free allowance of £375k, there is no inheritance tax between spouses so that £375K is passed on to the spouse who outlives the other. However, there is an additional £125K for each person available if they own a house , so basically if you own a house worth a million you can pass that on to your children or grandchildren without paying any inheritance tax. Even if you downsize to a cheaper property you can claim the value of your previous more expensive property. Just to clarify, if your home is worth less than a million you can't count any cash, jewellery etc towards it, it has to be a house. If you are divorced or unmarried you have £375K + £125K, so if you live in a house that's worth less than £500K you won't pay anything on the value of your home but if your home is worth more than £500K you will pay on the amount over £500K.

My modest semi in Kent will take me over the threshold - I'm divorced. Not much I can do about it. As others have said, I have mixed feelings about this as I am a believer in paying taxes, but feel that the money I invested in my property has already been taxed once...

Surely it makes financial sense to pass jewellery say, onto relatives whilst you are still alive?

Great link from Jaxjacky to the BBC website, which sums up the main points. If circumstances don’t fit those criteria, seek advice, but generally many people will not be affected.