IHT Question
Posted: January 2nd, 2022, 2:12 pm
My questions about Inheritance Tax (IHT) are best illustrated by examples:
A married couple, both aged 75, currently have an estate worth £900,000.
The estate consists of a property worth £500,000, household and personal items worth £100,000 and cash/securities of £300,000
They have one adult son.
They have wills that leave everything to the surviving spouse and when the last of them dies it all goes to the son.
One year ago they set up an irrevocable trust in the name of the son and jointly gifted it with cash of £400,000.
If they both died tomorrow IHT due would be:
40% of (£900,000 + £400,000 - £1,000,000) = £120,000
The full value of the gift would be added to the estate because no taper relief would be available until two years had passed since the £400,000 was given.
If one partner died tomorrow IHT would be:
A. Nil because the deceased’s entire estate would pass to the surviving spouse free of IHT.
B. {50% of (£900,000 +£400,000) - £325,000} x 40% = £130,000 based on the deceased’s value of the estate at the time of death less their personal allowance of £325,000.
C. Neither A or B and if so what would it be and why?
If both survived eight years after the gift was given and, other things being equal, then both died IHT would be:
Nil because the estate is now below the £1,000,000 the joint exemption amount of (£325,000 + £175,000) x 2 and the gift is more than seven years old and hence no longer forms part of the estate.
If one partner dies five years after the gift is given then IHT would be:
A. Nil because the deceased’s estate would pass to the surviving spouse free of IHT
B. Nil IHT is due but Gift Tax on the deceased’s share of the gift is due according to the taper relief scale (16% after 5 – 6 years which would be £32,000). Surviving spouse gets the full £325,000 and £175,000 of the deceased’s IHT allowances.
I’m most interested in the last scenario because it’s the one that’s most likely to impact my own family situation.
A married couple, both aged 75, currently have an estate worth £900,000.
The estate consists of a property worth £500,000, household and personal items worth £100,000 and cash/securities of £300,000
They have one adult son.
They have wills that leave everything to the surviving spouse and when the last of them dies it all goes to the son.
One year ago they set up an irrevocable trust in the name of the son and jointly gifted it with cash of £400,000.
If they both died tomorrow IHT due would be:
40% of (£900,000 + £400,000 - £1,000,000) = £120,000
The full value of the gift would be added to the estate because no taper relief would be available until two years had passed since the £400,000 was given.
If one partner died tomorrow IHT would be:
A. Nil because the deceased’s entire estate would pass to the surviving spouse free of IHT.
B. {50% of (£900,000 +£400,000) - £325,000} x 40% = £130,000 based on the deceased’s value of the estate at the time of death less their personal allowance of £325,000.
C. Neither A or B and if so what would it be and why?
If both survived eight years after the gift was given and, other things being equal, then both died IHT would be:
Nil because the estate is now below the £1,000,000 the joint exemption amount of (£325,000 + £175,000) x 2 and the gift is more than seven years old and hence no longer forms part of the estate.
If one partner dies five years after the gift is given then IHT would be:
A. Nil because the deceased’s estate would pass to the surviving spouse free of IHT
B. Nil IHT is due but Gift Tax on the deceased’s share of the gift is due according to the taper relief scale (16% after 5 – 6 years which would be £32,000). Surviving spouse gets the full £325,000 and £175,000 of the deceased’s IHT allowances.
I’m most interested in the last scenario because it’s the one that’s most likely to impact my own family situation.