Inheritance tax

[Helsla1985]

Just wondering how inheritance tax works ? My grandmother had around £400,000 in cash spread around her accounts. My grandfather used to sort out the finance but he passed 8 years ago but then my dad took over but unfortunately he has now passed too, my Nan is 92 and doesn’t really have a clue when it comes to things like this . I just wonder how inheritance tax will work when the time comes . Her house is worth about £100k so she’s going to have over £500k.how does inheritance tax work ? Would 40 percent be paid as it’s over £325000 ? My mother seems to think it’s a million as they would include my late grandfather ? I’m just wondering as it is worth her spending some of it now ?

AFAIK she will have inherited her DH's allowance for inheritance tax. Your Mum is right. For a married couple it's about £1m including allowance for house. So she is nowhere near the limit to pay tax.

You pay 40% on anything above the 325k threshold. If she gifts you any substantial sums of money then they would be subject to some or all of the IHT depending on if she survives for 7 years or less.

if she ends up needing to go in a nursing/care home then that will soon eat up her money as I'm sure you know.

You'd need to look back at whether your grandfather had left money to anyone other than your grandmother, and whether he had given any large cash gifts to anyone. If not, then she can inherit his nil rate band for IHT, which would be up to £1 million including the house,* so her estate wouldn't be liable for IHT.

If your grandfather had made any gifts or left money to others, you'd take that off his nil rate band allowance before adding it to your grandmother's.

*house would need to be left to direct descendants to benefit from the extra allowance, which is presumably you (and siblings) if she has no other surviving children. But probably irrelevant as the normal NRB for both grandparents should cover the whole estate anyway.

Yes my grandfather gave my dad £30k in his will and left me £10k also

Okay, so assuming he left the rest to his wife, you would take that off his allowance (325k - 40k = 285k), and add it on to your grandmother's (325k + 285k = 610k). So that would cover the whole of the estate without even needing to use the extra residence NRB (£175k + 175k = 350k).

It’s not £1million allowance because tbe house is low value, it would have to be worth in excess of £175k to take advantage of a full RNRB.
It will likely be £325k x 2 NRBs + £100k for the house, so £750k altogether before IHT is due.