Anyone know about IHT?

[MrsKoala]

Fil is now approaching the end of his life and we are confused about IHT we will need to pay. I’ve tried googling but as it’s complicated I’m not getting very far. I just want a ball park type calculation I can apply and have in my mind.

Mil died 4 years ago and as she was getting near the end wanted us to agree to use their house money to buy a bigger house for all of us to live together looking after fil when she died. So after she died fil sold the house and we bought a house with an annexe for him when the time came that he needed more help. He also bought a flat to live in till then. Fil never ended up living here as he developed dementia, had a fall and went into a home 8 months ago (his dementia diagnosis was 18 months after we bought the house and he still lived independently with us caring for him for a year)

Say for simplicity he gave us a million pounds for the house (he didn’t) and we put 1/3 of it in his name. What would we need to pay in IHT

What we are confused about is, as the gift is under 7 years old how much will be taxed and what difference his owning a third will make? Also will it be considered a legacy from both pils or just fil and would that make a difference anyway?

You need proper advice from a well qualified private client solicitor. I don't think your situation is straightforward.

The gift towards your house with granny annexe will depend on what mil will said. Did fil inherit the whole of his wife's estate? In which case it is a gift solely from him.

His owning a third is very relevant. There is something called "reservation of benefit" which basically means that if the giver retained an interest in the gift then it is defunct as a gift for IHT purposes. I have oversimplified that explanation.

The 7 years may or may not be relevant depending on your answers to the former questions.

I suppose the first question is, does the estate even attract IHT once transferable NRB & potentially additional house allowance are taken into account.

Get advice.

Thank you. I have spoken to dh and fil doesn’t actually own a third, apparently there is something written that if we sell the house he will hold a third of whatever we then buy with the money. He isn’t on the deeds.

Fil did inherit everything from mil. But I thought if you inherited from your parents then you could have double the allowance if one died and left it all to the other then you inherited it when they died.

I don’t know who to contact to ask about this. I’ve tried a few financial advisors but they are all about investing rather than this aspect. Is it a solicitor we need?

Sorry I see your post above now. So it is a solicitor. Thank you again.

Sorry. Another question. I was reading something which said you could inherit £650k from your parents IHT free. So if the money given for the house was under that amount does that mean we don’t have to pay anything?

You don't need a private client solicitor, you would be better off visiting a private client tax advisor.

Gift with reservation likely applies to the 1/3 your FIL is entitled to on the sale of your property. As it's a right only arising on a sale there may be some quirks that means it doesnt, but I would assume on a general basis that his estate would include 1/3 of the market value of your property at death, so 333k. This won't be considered a gift as it's treated as never made in the first place.

You are correct that if they were married at death, and your FIL inherited your MIL's estate fully, then her unused nil rate band will go to him. He may also benefit from a doubled residence nil rate band if his residence passes to a lineal descendant.

There are enough question marks that I would consider paying for advice. IHT is not something you want to get wrong, and there is only so much the Internet can tell you for free.

Thank you. I do want to get advice and go over it but I was a bit lost on where to start and as I said have called a few people who had no idea what I was talking about. I’ll start googling local people to advise us.

It all depends on amounts and the time, I would go to see, a private tax specialist they will advice you.

It will also depend on what is actually written in his will, money may have been put in trust etc.

It’s difficult to say from what you have said but as a general rule the first £650k will be nil rate. The rest at 40%. However there are exemptions for the family home and different rates for lifetime gifts. If you can give dates, exact figures, legal ownership or properties/who used it or retained the right to use it and in which way etc. then it would be possible to give better advice. There are also a few really random exemptions (likeif a property is agricultural etc).

I would suggest either seeing a private law solicitor or a tax consultant (tax consultant will probably be a better bet quite frankly). Beware of going to high street outfits if your case is complicated - you get what you pay for and most high street solicitors and accountants are pretty useless.

Worst case scenario approximation:

Total value = everything your FIL owned + anything that was willed from your MIL's death that didn't go to FIL or charity + any other gifts made by MIL/FIL within last 7 years

£650K inheritable free of IHT.

IHT payable = 40% x (Total value - £650k)

But there are tax breaks on family home, and some gifts aren't chargeable etc.

Make sure you have all the documents / finances what came from where etc clearly recorded before you see someone so they can spend as little time as possible advising you to keep your bill as low as possible.

There is nothing in his will, it all goes to dh. The amount is actually very close to the threshold for 2 parents (I had got confused and thought we had to pay 40% over the single allowance not the £650k). Then there will be the sale of his flat to add, which after costs and stuff will be about £200k. So the estate will just have to pay the 40% on that? And the house money whether a gift or not will just be part of the exemption amount?

Also if we sell the flat (it’s been on the market for a while) and he dies just before the sale goes thru, does that mean the sale falls thru (and goes into probate?)? I’d really hate to mess anyone around if that’s the case and wonder whether it’s better to sell it when he’s gone. Although we do really need the money for his care if he clings on for a while (we have been in this very close situation before and he has physically rallied).

You really need to speak to a financial adviser with an IHT mitigation specialism. I am one; and from the info above; your DH would have a NRBA to use against the estate upon inheritance of £650k plus up to £300k main residence nil rate band; should HMRC consider him to own a property upon death. Without knowing the legality of any written agreement between your FIL and DH re the house that you bought (and whether he still owns/owned at death the flat you mentioned); it is impossible to state conclusively whether his estate would also benefit from the main residence nil rate bans.
In respect of the 7 year gift; this is pertinent where the amount gifted exceeds the £325k nil rate band allowance; and if it does; it will be considered a "potentially exempt transfer " (not gift with reservation of benefit - pp are incorrect with this terminology as it means something else- essentially that whatever he gifted your DH would be considered fully liable to IHT at 40% tax). If it is classed as a PET; then the amount of tax due will be 40%, reducing by a set amount for each year into the 7 year period that your FIL lived post making the gift.

I hope this helps a little

Look for a local STEP practitioner on the STEP website. They can be either accountants or solicitors, but they specialise in wills, estate tax, etc. so are usually far more appropriate than a random accountant/solicitor who will be more of a generalist.