Estate under one million -no need to worry about IHT ???

[rileynexttime]

Saw this on another thread
I know when we did our wills recently, the solicitor said we didn't need to worry about IT as our estate was under £1million - and it's all left to each other and then DC.
I am in this position and just starting to worry and seek professional advice .
Is it true ?
And is there an idiots guide to IHT anywhere ? Have looked at gov site and feel like crying .

Why do you feel like crying?
If you leave your main residence to your children and they will inherit after you/your spouse, it will be IHT free based on current legislation.
If legislation changes in the future or your combined assets are worth well in excess of £1M, you could engage with a STEP solicitor to mitigate IHT.
To put it in perspective, you and your family are in a very fortunate position to have this possible issue.

Thank you @Marmight ,that's really helpful .

We are indeed fortunate and I feel grateful (and guilty ) every day .

Shouldn't have added "feel like crying " .It's because I'm in my 70s and after a lifetime of being self sufficient ,working things out and understanding them I'm now feeling my age physically and mentally .Finding things a bit tough ,facing up to the reality of ageing .And it's not pretty !

Tiny violin back in case now!

To add ,off subject (another sign of ageing and having the luxury of not focusing ) ,I'm learning humility.
I've always been a bit of an intelligence snob ,having little patience or understanding of what it's like to struggle to understand something .Now I'm sometimes in that position myself I can appreciate how hard that is and what it does to one's self esteem .

sweet posts riley, glad you have been helped on here.
sounds like you are sorted.
and rejoice - humility and feeling that you have no need to fight in a supposed pecking order is actually liberating.

Don't panic! You can make a will then just forget about it. Don't worry about giving money and surviving 7 years, there are no guarantees! Although give it if you want, the worst that could happen is a bit more tax to pay. I bet the recipients would be happy to have the money now and risk paying some tax out of their decent sized inheritance? What you can do is give away I think £3000 per annum each, in our case with 2 adult DC we label the bank transfers eg "£3000 iht exempt gift from Mum/Dad". So £6000 every tax year as a couple.

There are other gifts you can give, eg weddings, birthdays. Just keep a note. It will not be your problem to work out, but your beneficiaries will find it easier if things are noted down. What we do also is pay for things like grandchildren's music lessons. As long as you aren't suffering by doing so I don't think that would be a problem.

I sometimes get a tiny violin out too....I worry about disposing of DH's mountains of stuff if he dies first. His reply is always "Well I won't care, I'll be dead!"

Thanks both ,that's kind .

Family next door face having to sell (larger property with building plot ) home after death of father to pay IHT .

There's just us (parents) and one son who lives at home and I was concerned about him having trouble when we're both gone .

@rileynexttime provided your home is worth more than £350k and your DC is a beneficiary of your wills you will have the £1m IHT threshold.

I’ve been looking into this as well as I think my parent/sibling have screwed up.

they’ve sold the family home- this means parent will have a significant sum in cash/investments.

my understanding is the first 325k is IHT free, anything over that is 40%. If parent never needs care, it’s likely they will have a 100-200k IHT bill.

if they had kept the family home and rented it, then the IHT limit is increased to 500k. So the IHT will be 70k less.

parents pension, plus rental income would have exceeded any amount needed for care.

sibling was intending to spend a large chunk but now parent has care needs it’s not possible.

@Usernamenotavailab if your parent/sibling bought a smaller house that is still over £350K then the primary property clause would still apply? But really, 40% of £350k is just £140K. For a family worrying about IHT that's not a life changing amount so it's probably best to think of it as planning to pay taxes to help other less well off people.

Where has 350k come from and why would we be paying 40% on it?

sorry can’t work it out.

it would be a life changing amount for us siblings 🤷‍♀️. My parents were lucky enough to buy in the south east 60 years ago.

Despite people like Zahawi and that ghoul Rees-mogg a tiny proportion of deaths result in inheritance tax bills - less than 4 percent.
Seek financial advice but I'm sure you're fine

What a lovely honest and humble post. OP, please do seek financial advice from a trained professional. They will be able to hold your hand through any decisions you need to take, step by step.

Spouses leave their allowance to each other. Then when second parent dies both allowances come down to the children, so estate gets £650k relief

350k is the IHT threshold for a single person (the person who dies) and 40% is the amount IHT is. I think it’s £325k actually.

Also I think it might be that you only pay the 40% on the amount over the allowance.

Ah thank you! I think that’s what I was missing!

I wondered why the solicitors didn’t seem bothered 😂

In simple terms assuming you are married:
You/DH leave everything to the other on death, this is exempt from IHT.
When the second dies your son can utilise both of your nil rates bands (£325k each) and assuming the house is left to him, both of your residence nil rate bands (£175k each, or the value of the property if less). This is where the 1 million figure comes from.

In the meantime any gifts are 'potentially exempt transfers' (PETs) which may become chargeable to IHT if you die within 7 years. As a pp said there are further allowances that can be used towards these e.g. the annual allowance of £3k (plus the prior years if not used), marriage gift allowances and a few others. So it's good advice to keep a note of any gifts you give along the way just to help your son when the time comes.

And yes IHT is only chargeable on the excess once all allowances have been utilised.

@rileynexttime Do you have wills? How long ago did you make them?
It's a good idea to review a will every 5 years or when there are changes. Your solicitor could advise you a bit about IHT planning.
However what someone else said is very true, if you want to help the next generation do it asap. Yes there are rules about money given away within 7 years of death but that need not stop you. It's also possible to give £3000 a year that has no effect plus if you can afford regular payments out of income these don't count. We do this for our DC.

If you make gifts out of income these still all have to be scheduled on the IHT form. You also have to provide to HMRC details of your income for each year (easy) and all your outgoings for each year which have to be categorised as per their requirements (Travel, holidays, entertainment, household bills, insurance etc) so they can see the gifts were made out of disposable income. This means that you should be running a spreadsheet for each tax year itemising and categorising all your income, gifts and expenditure. If you do not have the breakdown then you cannot claim the gifts were made out of disposable income.

Paying for piano lessons etc also counts as gifts so helpful to keep a note of those payments too.

@Usernamenotavailab your parents are fine there is provision if you sell your home to downsize or go into a home. https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold