Hi,
I am trying to establish what the IHT tax free amount will be should my mother pass away. My father died in December 1993 and everything passed to my mother. At that point they owned their own home jointly and also an investment property (both owned outright), also all bank accounts were joint accounts.
On my fathers probate there is a statement 'gross value of said estate in the United Kingdom amounts to £1254 and the net value of such estate amounts to £704.'. We think that might relate to shares in British Gas following it's privatisation that were in his name only and so were transferred to my mother.
Should my mother die her house and all her estate will pass equally to her 3 children (the house is worth approx. £750,000).
So do I presume the IHT tax free amount will be
£325,000 my mothers standard tax free allowance
£150,000 for passing on the main home to children, rising to £175,000 in April 2020
and then doubled for my father as he didn't use his IHT tax free amount?
I'm a little unsure if we have to deduct the £1254 from my fathers allowance?
Also my mother remembers having to value a house on his death. It could have been both the home and investment property or just the latter. Does any unrealised capital gain on the house have any bearing on the unused tax free allowance? A friend who also has investment properties says on death the houses are valued and passed to the surviving spouse but any capital gain on transfer reduces the tax free allowance. Does anyone have a view on this?
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IHT tax free amount on death of second parent
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- Lemon Quarter
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Re: IHT tax free amount on death of second parent
Hi. To the best of my knowledge:
Transfer to spouse uses none of the IHT allowance.
Hence the property and shares going to mum in 1993 counts as £0, and mum still has 100% of dad's allowances available to use.
https://www.gov.uk/guidance/inheritance ... -threshold
Yes.
Provided gross estate <£2M. After which they start to claw back the main home allowance. Which might be the exception that catches you out here, since mum obviously has quite a lot of assets.
https://www.moneysavingexpert.com/famil ... nning-iht/
There's no CGT on a first home regardless. IF the second home was also jointly owned from the start, then it wasn't "passed", mum owned it from the beginning. So if she were to sell it now, HER acquisition cost for CGT is the entire of the original/joint acquisition cost.
The value at dad's death is irrelevant - under current rules. May not have been the case in 1993. In fact, I'm pretty sure it wasn't back then. Transfer of tax allowance to the surviving spouse is relatively new (2007?), but explicitly retrospective.
Suggestion:
If mum's total gross assets are >£2M, or even close, she might like to think about gifting away some of it NOW. That clawback is pretty nasty. It takes a few years for it to become a PET and give any actual benefit, but from an IHT viewpoint it's never worse to do it sooner. And she gets to see her kids/grandkids enjoy it.
Gryff
Transfer to spouse uses none of the IHT allowance.
Hence the property and shares going to mum in 1993 counts as £0, and mum still has 100% of dad's allowances available to use.
https://www.gov.uk/guidance/inheritance ... -threshold
smokey01 wrote:£150,000 for passing on the main home to children, rising to £175,000 in April 2020 and then doubled for my father as he didn't use his IHT tax free amount?
Yes.
Provided gross estate <£2M. After which they start to claw back the main home allowance. Which might be the exception that catches you out here, since mum obviously has quite a lot of assets.
https://www.moneysavingexpert.com/famil ... nning-iht/
smokey01 wrote: A friend who also has investment properties says on death the houses are valued and passed to the surviving spouse but any capital gain on transfer reduces the tax free allowance. Does anyone have a view on this?
There's no CGT on a first home regardless. IF the second home was also jointly owned from the start, then it wasn't "passed", mum owned it from the beginning. So if she were to sell it now, HER acquisition cost for CGT is the entire of the original/joint acquisition cost.
The value at dad's death is irrelevant - under current rules. May not have been the case in 1993. In fact, I'm pretty sure it wasn't back then. Transfer of tax allowance to the surviving spouse is relatively new (2007?), but explicitly retrospective.
Suggestion:
If mum's total gross assets are >£2M, or even close, she might like to think about gifting away some of it NOW. That clawback is pretty nasty. It takes a few years for it to become a PET and give any actual benefit, but from an IHT viewpoint it's never worse to do it sooner. And she gets to see her kids/grandkids enjoy it.
Gryff
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- Lemon Half
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Re: IHT tax free amount on death of second parent
gryffron wrote:Provided gross estate <£2M. After which they start to claw back the main home allowance. ...
https://www.moneysavingexpert.com/famil ... nning-iht/
From the link you provided, it'll depend on the valuation of the main residence at the time of the second death (presently worth £750,000, so may not be an issue in itself):
On estates worth £2 million or more, homeowners will lose £1 of the 'main residence' allowance for every £2 of value above £2 million. So for a couple, properties worth £2,350,000 or more will get no additional allowance.
The OP my wish to ensure the information and documents requested as below will be available to make the claim (the relief is not automatic):
Inheritance Tax: claim to transfer unused nil rate band (IHT402)
https://assets.publishing.service.gov.u ... IHT402.pdf
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- Lemon Pip
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Re: IHT tax free amount on death of second parent
Thanks for the replies, i'll take a look at the links.
The total of my mothers estate would be below £2 million so at least I don't have to worry about that issue.
The total of my mothers estate would be below £2 million so at least I don't have to worry about that issue.
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- Lemon Half
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Re: IHT tax free amount on death of second parent
smokey01 wrote:Hi,
I am trying to establish what the IHT tax free amount will be should my mother pass away. My father died in December 1993 and everything passed to my mother. At that point they owned ... an investment property ...
Also my mother remembers having to value a house on his death. It could have been both the home and investment property or just the latter. Does any unrealised capital gain on the house have any bearing on the unused tax free allowance? A friend who also has investment properties says on death the houses are valued and passed to the surviving spouse but any capital gain on transfer reduces the tax free allowance. Does anyone have a view on this?
Are you saying the investment property was previously held beneficially as joint tenants? If so, the Father's interest passed automatically to the Mother by survivorship.
In that situation, although there would have been no IHT payable on your Father's Estate, due to the inter spouse exemption, his half would have passed to your Mother at the market value at the time (perhaps after the standard 10% valuation reduction due to joint ownership). Your Mother would then have a Capital Gains Tax base cost of her original cost for her half of the entirety, plus the valuation on your Father's death for his. This would only become relevant if you are looking to sell the investment property before her decease (there is no CGT on death). Assuming the investment property is still owned - your OP is unclear as you only mention a current valuation of one property, which I took to be the main residence.
I don't appear to be agreeing with gryffron on this but if I'm wrong in the paragraph above, which is certainly possible, I'm sure someone will correct me.
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- Lemon Pip
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Re: IHT tax free amount on death of second parent
Correct, the house was held beneficially as joint tenants. My mother has since sold the house and paid any CGT applicable.
However just to make 100% sure I understand things correctly using a simplified example and ignoring anything like costs that can reduce capital gain, taper relief etc.
Say they bought the house for £150,000 and that at my fathers death the house was worth £250,000.
If they had sold the house while my father was alive then the CGT would be based on a £100,000 gain.
However they didn't and on death the house passed entirely to my mother with my fathers share valued at £125,000.
Then she sells the house and let's say it is still valued at £250,000. Now the CGT to pay would be on only £50,000.
My mother has recently been told by a friend that the £50,000 uplift she received on my fathers death that reduced the CGT she had to pay reduced my fathers IHT nil rate band. I'm hoping and presuming she is wrong, but the taxman does like to give and then take away by a different method!
However just to make 100% sure I understand things correctly using a simplified example and ignoring anything like costs that can reduce capital gain, taper relief etc.
Say they bought the house for £150,000 and that at my fathers death the house was worth £250,000.
If they had sold the house while my father was alive then the CGT would be based on a £100,000 gain.
However they didn't and on death the house passed entirely to my mother with my fathers share valued at £125,000.
Then she sells the house and let's say it is still valued at £250,000. Now the CGT to pay would be on only £50,000.
My mother has recently been told by a friend that the £50,000 uplift she received on my fathers death that reduced the CGT she had to pay reduced my fathers IHT nil rate band. I'm hoping and presuming she is wrong, but the taxman does like to give and then take away by a different method!
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- Lemon Half
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Re: IHT tax free amount on death of second parent
smokey01 wrote:Correct, the house was held beneficially as joint tenants. My mother has since sold the house and paid any CGT applicable.
However just to make 100% sure I understand things correctly using a simplified example and ignoring anything like costs that can reduce capital gain, taper relief etc.
Say they bought the house for £150,000 and that at my fathers death the house was worth £250,000.
If they had sold the house while my father was alive then the CGT would be based on a £100,000 gain.
However they didn't and on death the house passed entirely to my mother with my fathers share valued at £125,000.
Then she sells the house and let's say it is still valued at £250,000. Now the CGT to pay would be on only £50,000.
Fully accepting that example is simplified and repeating that I may be incorrect but that is broadly what I believe to be the correct position. I say broadly for a number of reasons. The main one being, the Father's share in the investment property shouldn't have been valued at precisely 50% of the entirety, as it is normal to make a 10% reduction in such a situation. From say £125,000 to say £112,000 or thereabouts. Also, your Mother may have had the CGT annual exemption available etc. It sounds like that is all done and dusted though.
My mother has recently been told by a friend that the £50,000 uplift she received on my fathers death that reduced the CGT she had to pay reduced my fathers IHT nil rate band. I'm hoping and presuming she is wrong, but the taxman does like to give and then take away by a different method!
As you suggest, the friend is incorrect as the property passed to your Mother by survivorship (not to an unconnected party or your family) and doesn't impact on the transferable IHT nil rate band, which would appear to have been unused in full, unless there are other aspects relating to failed PETs etc which we don't know about.
More generally, if this is all of concern to your Mother, has she considered taking professional advice, not least to put her mind at ease.
I ask, in particular, as I spotted an earlier post of yours over at Legal Issues viewtopic.php?f=2&t=2733&p=25471#p25471 where it is unclear if you saw the replies. Although it was couple of years ago,
Clitheroekid wrote:
It sounds like your mother may be thinking of trying to prepare the Will herself.
If so, it would be incredibly dangerous. ...
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- Lemon Pip
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Re: IHT tax free amount on death of second parent
Thank you everyone for the answers. My main concern at this point is determining what the IHT nil rate band will be on the death of my mother. With 2 concerns being the small amount of £1254 gross / £704 net mentioned on my fathers probate and the capital gain on the second investment property at the point of transfer to my mother. But from the answers it would appear these will not reduce the unused nil rate band and so as of today myself and siblings will have the full £950,000 nil rate band available.
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