Question about inheritance tax

[Genevive24]

I’ve seen it said quite a lot here and elsewhere that inheritance only affects the wealthiest and only 4% of people pay it.

But, isn’t the threshold £350,000, if not leaving to a spouse or to children? That’s not really that high?

So, take my aunt for example. She is widowed and without children. Her estate is worth more than 350,000 I’d say, her property is probably worth that much alone. There would be inheritance tax payable then, wouldn’t there?

I can’t see that her situation is so unusual as to only affect 4% of the population? 50% of married people will survive their partner and not everyone gets married! Likewise far from everyone has children. Bit confused why it only impacts 4% of people?

I think as a widow that she would still benefit from the married person threshold, 325 x 2, so 650. As she doesn't have children or grandchildren there is no increase to 1m for passing on her property, but she will have her late husband's allowance added to hers.

Most elderly people have to spend their money and sell assets to support them if they need care. Add to that how generous the thresholds are and yes, I can easily believe it's only a small proportion of estates that pay inheritance tax.

Most elderly people don't need care though

However It's only recently that house prices in the south have gone so mad- the average home still comes in under the inheritance threshold and that's doubled for a married couple - I think they expect the % of estates affected to rise substantially over the coming decades

There's an extra £175k added on if you have a property that's going to your kids or grandkids, so that's then £500k per person, then if you had a spouse that's already died you inherit their remaining allowance too, so the actual total for a couple would be £1m in many cases.

Thank you

Thanks, I’m aware of that but was asking about my Aunt who has no children.

If I remain unmarried and have no children, my estate will be taxed too won’t it, if I leave enough? Although I appreciate that as I have no children I’m more likely to use it all up for care.

As above - for married couples or widows who leave a house to children or grandchildren, the threshold is £1m for a couple. If no house or children, £650k (this makes no sense, but bizarrely is the rules). The number of people with only the basic £325k threshold is quite small, and the number with that threshold who breach it smaller still.

Butting in... so how does that work for someone who is divorced, not widowed? My Mum hasn't remarried but Dad did. Their finances are obviously long-settled as far as divorce goes. Her house will passed on to us kids but I presume that her threshold is the £350 plus £175 for the house? So nowhere near 1 million? That's where I always presumed it would be but this 4% figure couldn't possibly be true if that's the case. I am sure there are many divorced singles born in the 30s/40s/50s who have property that either hits or exceeds that allowance?

Yup, £500k threshold. The main way people avoid it of their assets are greater than that is by giving away assets during their lifetime - often non-property assets like cash, shares. If the house is worth more than that your mum could take out an equity release mortgage to free up cash to give to her children, or downsize to a house <£500k and give the freed up cash. In both cases, she has to live more than 7 years after making the gift for it to be tax free.

If someone not married or widowed has a mortgage free house worth more than £500k, and they don’t want to downsize or do equity release, and they don’t go into a care home, then yes their estate will pay inheritance tax. But as discussed above that’s a relatively small number of people.

@Genevive24 you are quite correct that a single person with no children has a IHT of £325k and that is it. Married couples with children and property of £350k or more have a combined IHT of £1m. 2 x £325k + 2 x £175k).

As pp have pointed out your Aunt, as a widow, will have an IHT of £650k.

The 4% will therefore include quite a few single people who hit the £325k limit. It does feel unfair, but bottom line is you cannot take your money with you. This is why enjoying your money and paying the best for care makes sense.

One option is to leave everything over £325k to charity. It’s a bit like choosing where you want your tax to go rather than the gmt deciding.

The other thing to remember is if you leave £1m, after paying IHT you still have £730k to leave to your relatives/friends.

Thanks, I’m aware of that but was asking about my Aunt who has no children

I was answering your question about why so many people fall outside it @Genevive24

You’re right, I think the 4% figure is BS especially in london and other cities

It's not BS. There are lots of reasons why someone wouldn't breach the threshold:

• Married people have double the allowance between them - up to £1m to cover their family home if they have kids
• Outside of the SE of England, properties worth in excess of £325k / £500k / £1m (depending on the amount of allowance available) are much less common
• Many people need to pay for care before they die and so leave less behind
• People also downsize or give part of their estate away before they die
• Lots of people rent, and don't come anywhere near the threshold (this applies to all of the older generation in my family)

Convincing you that because you own a 3 bed semi and a small proportion of your estate may possibly be taxed, your interests are aligned with the tiny minority who will be bequeathing millions is a massive con trick pulled by the wealthy.

Your Mum has her allowance (£325 + £175) and your Dad has the same. As does his new wife.