Inheritance tax

[melonfool]

Hey

I would just like to double check my understanding of IHT if anyone has a moment.

My dad died in 2020, making £100k of bequests and everything else (including remaining IHT nil rate band) went to mum.

Mum has now died.

Mum's will leaves everything bar one smallish monetary bequest, split between either direc offspring, grandchildren and one spouse of direct offspring. thus I believ the residence nil rate band[s] will apply.

So, on that basis we have:

Dad NRB £225,000, plus RNRB £175,000
Mum NRB £325,000 plus RNRB £175,000

In 2020 (I need to find the month, but for now I am assuming it was more than three years ago) mum gifted £50,000 to one offspring. I gather this has to be 'added back to the estate as the 7 year exemption has not passed, but as three years have passed it can be subject to taper relief which i think means it's taxed at 32% rather than 40%.

I don't think she made any other gifts that year (other than ongoing regular gifts from income which did not reduce her standard of living, which are exempt from IHT) and she made none in 2023. She may have made £3k in 2022 (I advised her to in April last year).

If she made no gifts in 2023 can that £3k allowance be taken from the estate or does it die with her?

Can anyone advise if they have found any type of spreadsheet that would deal with this for me? I have set one up but I'm not great with excel so not 100% sure it's right.

The estate is simple, only cash and house, but worth c£1m depending what the house sells for, so getting it right, and finding all the hidden ways to minimise the tax, is important. I didn't think we would hit the rates, but there is about £100k more cash than I thought and the house has been valued at £100-150k more than I thought (though I will sell for less for a quicker sale!).

thanks

Mel

[Laughton]

Someone clever than me will be along shortly but I think you're going to be disappointed with the news re taper relief on that £50,000 gift.

For gifts that total under £325,000 there is no benefit unless the gifter survives for the full 7 years. I know, it sucks. Am now being extra careful crossing the road for another 13 months myself as my original understanding was the same as yours..

[scrumpyjack]

Yes you won't get any taper relief as gifts within 7 years of death first come off the nil rate band. Only when that has all been used can taper relief come into play.

The unused 3k gifts allowance is lost if not used and does not come off the estate, but you might be able to claim up to 6k of gift allowance against the £50k gift, if neither that year's, nor the previous year's, allowance had been used.

[DrFfybes]

Mum's will leaves everything bar one smallish monetary bequest, split between either direc offspring, grandchildren and one spouse of direct offspring. thus I believ the residence nil rate band[s] will apply.

So, on that basis we have:

Dad NRB £225,000, plus RNRB £175,000
Mum NRB £325,000 plus RNRB £175,000

The £3k annual allowance dies with her, if she didn't use it, it was lost.

The rest I think is correct, but it might depend on how big the smallish monetary bequest was and who to and how it was phrased . Also rememebr the RNRB only applies up to the value of the home, so if the home is worth less than the £350k combined RNRBs then only that amount can be applied.

Laughton is correct that the earlier £50k will be added back into the Estate.

To clarify Scrumpyjack's post (actually it is clear, I just had to read it twice to make sure he'd said what I thought he'd said ) you can only use the 3k allowance for years including or PRIOR to the date of the gift, so if she did not fully use the £3k allowance on the year she made the gift, or the previous year, then those could be claimed.

Paul

[melonfool]

The monetary bequest is £5k and it's worded exactly like that - as a £5k bequest to a certain person. I will be personally adding another £5k to that as I don't think it's enough plus I don't think mum knew the value of her estate - but I'll just do that as a normal gift I think rather than try and vary the will for such a small amount.

Re the £50,000, I'll just add it back in. 8% on £50k in the scheme of things isn't really an issue I guess.

I'm not sure I understand this: "you might be able to claim up to 6k of gift allowance against the £50k gift, if neither that year's, nor the previous year's, allowance had been used.", but I'll look at all her accounts for the last few years before i look into it further. I did encourage her to use it at least two years, but she didn't tell me for sure that she did (probably because she gave it to my sister in law and didn't ant me to know!). I can ask the family to let me know any gifts they have had. I'm pretty sure 2019/2020 wasn't used because dad gifted us each £1k in March 2020 (£3k total) before the end of the tax year and before he died, and I said to mum he did it for IHT purposes and she had no idea what that meant.

The house value is from £650k-£800k, but no idea really until it actually sells, but I think that means we can use both allowances?

Thanks

Mel

[scrumpyjack]

I'm not sure I understand this: "you might be able to claim up to 6k of gift allowance against the £50k gift, if neither that year's, nor the previous year's, allowance had been used.", but I'll look at all her accounts for the last few years before i look into it further.

Mel

The point is that when you make gifts, the total of gifts in a year is reduced by the £3k allowance so if that was the only gift in the year (other than normal expenditure etc etc), the Potentially Exempt Transfer is £47k. Also the annual allowance can be carried forward for one year, so if she didn't make any gifts in the previous year, the PET is £44k.