Inheritance tax and estate planning - a Close Brothers finance expert answers your questions

Ramblingrose22

HMRC said we didn't have to pay IHT on the probate value of our late mother's flat because it was (and remains) occupied by her second husband until he dies.

Will HMRC use the probate value of the flat to calculate the IHT or the value at the date of her second husband's death?

Will we be able to reduce the IHT bill at that time by using part of her second husband's nil rate band? He has a son who will want the nil rate band to be used first to cover any savings his father may have on his death?

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

The value on second death will be used for Probate. The nil rate band from your late mother can also be used, if not already used (or any remaining allowance used). The nil rate band can’t be assigned to any part of the estate. The overall estate will be added up and then any allowance deducted before the inheritance tax owed is calculated.

josiejack

I am 60 and married. My husband and I have agreed that if one of us survives the other, that person will have use of property and assets for their lifetime which I think is fairly standard. Then what is left will be divided between our children. But with taxes in mind is there any forward planning we should be doing to maximise whatever is left for them (or at least to minimise taxes they may pay on it). Should we be thinking about trusts? But how would that affect our use of things in the interim

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

Using a trust can sound like a good option, but in reality can add a lot of complication. The other key issue is that you will lose access to the capital, which you probably need. I would look at using your annual gifting allowances first. Before gifting any larger amounts, you need to be certain about what assets you need to support your lifestyle. You need a proper financial plan (cash flow analysis) to do this.

Pocketmum

My situation is not straightforward. I have my own property which I rent out. I live with my 2nd husband in his house.
If he should die before me I may move back to my own property as his house is not mine. It will be left to his adult children. What are the rules for IHT if I let one of my own adult children live in my own property or if I move back there and leave it to them in my will, what costs will they pay in IHT when I die.

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

On your death, your beneficiaries will be able to use your nil rate band and also main residence nil rate band. Anything above these allowances will be subject to tax. This will determine the tax due on the estate upon your death. Until death, you own the asset – regardless of who lives in it.

Ilovecheese

I really want to pay any inheritance tax that I might owe.

That doesn't mean that I don't want my children to inherit any money, it just means that I want them to inherit a fairer country as well.

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

Any inheritance tax due will be calculated on your estate at the date of death. The tax paid will depend on the value of the estate. Unless you specifically reduce the value of your estate, the tax will be paid.

Simon's answer to AuntieFlo is wrong in that if you hold a property as tenants in common and gift your share to eg your children, if you allow the survivor of you to live in the house it's a gift with reservation and the WHOLE of the value still goes in to the estate of the survivor. Making a gift this way however can be very useful to ringfence half the value of the property from care home fees.
See a solicitor!