Inheritance Tax Confusion

[Fiona_TG]

I appreciate there are other IHT threads but rather than hijack them for my need I thought it might be better to start a new and fresh one.

I have just rechecked IHT matters as I do every so often to make sure that if the 99 bus gets me (maybe COVID in this day and age) I have made best arrangements for my daughter to inherit my estate.

I see that the Main Residence Nil-Rate Band seems to allow up to £500k tax free but I also read (as per the enclosed link) that "RNRB helps direct descendants inherit a property up to £2M tax free". So which is it or am I reading things too simply?

Do I have to pay inheritance tax on my parents’ house? - Money To The Masses

 

[4(T)]

I appreciate there are other IHT threads but rather than hijack them for my need I thought it might be better to start a new and fresh one.

I have just rechecked IHT matters as I do every so often to make sure that if the 99 bus gets me (maybe COVID in this day and age) I have made best arrangements for my daughter to inherit my estate.

I see that the Main Residence Nil-Rate Band seems to allow up to £500k tax free but I also read (as per the enclosed link) that "RNRB helps direct descendants inherit a property up to £2M tax free". So which is it or am I reading things too simply?

Do I have to pay inheritance tax on my parents’ house? - Money To The Masses

Its a pretty garbled article. RNRB tapers off on estates over £2m in value, but still appears to have a max tax-free IHT allowance of £500k on estates under £2m.

Then they state that spouse can pass on their £500k allowance to a partner, and thus £1m can be handed down tax free when the partner dies.

I don't see how they pump the £1m up to £2m though.

 

[Archibald]

Money to the masses, they need to get the article proof read by an expert, mostly confusing incorrect information, I think it is trying to say there is potential for tax relief but that tapers away after 2 million

£350 + RNRB £175 k = 500k per person double for married couple

and I expect will not change much in our lifetime

£175K RNRB when the average UK property sale over £250 k the government is on to a winner

Archie

 

[ericferret]

Money to the masses, they need to get the article proof read by an expert, mostly confusing incorrect information, I think it is trying to say there is potential for tax relief but that tapers away after 2 million

£350 + RNRB £175 k = 500k per person double for married couple

and I expect will not change much in our lifetime

£175K RNRB when the average UK property sale over £250 k the government is on to a winner

Archie

Don't forget we have to pay for Covid, so watch this space!!!!!

 

[Fiona_TG]

Its a pretty garbled article. RNRB tapers off on estates over £2m in value, but still appears to have a max tax-free IHT allowance of £500k on estates under £2m.

Then they state that spouse can pass on their £500k allowance to a partner, and thus £1m can be handed down tax free when the partner dies.

I don't see how they pump the £1m up to £2m though.

It was/is the bit about pumping up to £2M as you mention that is the bit that both doesn't add up and I need to know about.

To me the up to £500k seemed threshold conditions were clear enough and that over £2M you will start to take a hit, of some sort but I am not exactly clear on how the minutia of the £2M point although I don't need to be so no problem.

 

[harrythebastard]

From an anonymous bloke on the internet, and for what it is worth, just get a brief and take the (needless) pressure off of you.
The Law Society estimates that you can be charged between 2% and 5% of the value of the estate (valued upon date of death) to take all of that pressure off of you, and to get it all right.
I am going through one now as a Trustee and we are actually paying a lot less than that, it really can be negotiated down.
And a pain in the proverbial.
Fancy someone you know in the family filling all of this in to the satisfaction of HMRC?

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/935333/IHT400-092020_English.pdf

 

[ericferret]

£50,000 to do the paper work on a million pound estate at 5%. £20,000 AT 2%.
Nice work if you can get it!!!!

"Fancy someone you know in the family filling all of this in to the satisfaction of HMRC?"

For £50,000 they'd have a ******* good go!!!!

 

[harrythebastard]

£50,000 to do the paper work on a million pound estate at 5%. £20,000 AT 2%.
Nice work if you can get it!!!!

"Fancy someone you know in the family filling all of this in to the satisfaction of HMRC?"

For £50,000 they'd have a ******* good go!!!!

Er, who on here has a million pound estate?
About 85 pages of a tax form, all property (real and otherwise) to be factually evidenced by valuers of various sorts for innumerable things like furniture, jewellery, clothing and a car for your average person.
Good luck.
For a £500,000 estate they may, or may not charge up to £10,000 at 2% and get it all right legally.

Money well spent and it will be worth it, otherwise crack on yourself and try to get funds released from various investments, insurances and banks whilst probate is ongoing.
At the date of death everything is frozen.
As of today ours is coming up to 2 years and council taxes, electricity and other bills on the family house (where nobody is now living) somehow still needs paying.
It also cannot be sold until probate is granted.

Still feel like it is a worthwhile project to save a few bob?

 

[Provost]

As of today ours is coming up to 2 years and council taxes, electricity and other bills on the family house (where nobody is now living) somehow still needs paying.

You'll find that many (all?) local authorities will start charging 200% council tax rate on properties that have been unoccupied for two years or more.

 

[harrythebastard]

You'll find that many (all?) local authorities will start charging 200% council tax rate on properties that have been unoccupied for two years or more.

Already at that stage mate, and further on down that particular road.
Just get a brief involved now is all I would say to anyone in this position.

 

[Accidental_discharge]

Er, who on here has a million pound estate?

My wife, but her days are numbered.

 

[Stabwedge]

Er, who on here has a million pound estate?
About 85 pages of a tax form, all property (real and otherwise) to be factually evidenced by valuers of various sorts for innumerable things like furniture, jewellery, clothing and a car for your average person.
Good luck.
For a £500,000 estate they may, or may not charge up to £10,000 at 2% and get it all right legally.

Money well spent and it will be worth it, otherwise crack on yourself and try to get funds released from various investments, insurances and banks whilst probate is ongoing.
At the date of death everything is frozen.
As of today ours is coming up to 2 years and council taxes, electricity and other bills on the family house (where nobody is now living) somehow still needs paying.
It also cannot be sold until probate is granted.

Still feel like it is a worthwhile project to save a few bob?

I did it myself. No solicitor involved. My Dad died towards the end of 2019 and my Mum was dealing with his estate when she died in Summer 2020. Took me six months to sort it with the money from their accounts deposited in mine last week.
I sorted the rest of my Dad’s estate and my Mum’s at the same time. Apart from a few things, my Dad’s stuff all went to her.

The final estate was just below the IHT threshold of £325,000 but, because I was gifted their house years ago and they continued to live in it, I had to fill in the form linked above and seven (?) attachments. I then had to go through the same tax process as if I had inherited the house on their deaths. I also needed probate because of the amount of cash in their accounts.

Valuers are only needed for things like property or cars. Not for household items, clothing, average person’s amount of jewellery, etc. As long as you can show you have reached proper and reasonable values you’re ok. I think one example they give in the notes for completing the form is using online sales sites for research.

The form is daunting but isn’t actually that bad. I read through it, and the notes, three or four times, did the value research, got the house valued, filled it in and sent it off. Next stop was the court for probate then the banks. Process complete.

The only thing I didn’t have to do is transfer of ownership of the house because I already owned it.

Two years (so far) seems to be an extremely long time for almost the same process as mine.

 

[Stabwedge]

It was/is the bit about pumping up to £2M as you mention that is the bit that both doesn't add up and I need to know about.

To me the up to £500k seemed threshold conditions were clear enough and that over £2M you will start to take a hit, of some sort but I am not exactly clear on how the minutia of the £2M point although I don't need to be so no problem.

£325k+£175k RNRB=£500k. Tax must be paid at 40% on anything above that total. Or 36% if you’re a charitable type.

If the property in the estate is worth £1.99m you get the full £175k to play with. If it’s worth £2m or more that £175k gets reduced to the point where the £175k is gone at a property value of £2.35m.

People can leave their tax free allowance of £500k to a spouse to give them a higher allowance. That’s where the £1m estate comes from.

The site linked doesn’t make overly clear that sometimes they are talking about the estate and sometimes the property within the estate.

 

[Fiona_TG]

Money to the masses, they need to get the article proof read by an expert, mostly confusing incorrect information, I think it is trying to say there is potential for tax relief but that tapers away after 2 million

£350 + RNRB £175 k = 500k per person double for married couple

and I expect will not change much in our lifetime

£175K RNRB when the average UK property sale over £250 k the government is on to a winner

Archie

Er, who on here has a million pound estate?
About 85 pages of a tax form, all property (real and otherwise) to be factually evidenced by valuers of various sorts for innumerable things like furniture, jewellery, clothing and a car for your average person.
Good luck.
For a £500,000 estate they may, or may not charge up to £10,000 at 2% and get it all right legally.

Money well spent and it will be worth it, otherwise crack on yourself and try to get funds released from various investments, insurances and banks whilst probate is ongoing.
At the date of death everything is frozen.
As of today ours is coming up to 2 years and council taxes, electricity and other bills on the family house (where nobody is now living) somehow still needs paying.
It also cannot be sold until probate is granted.

Still feel like it is a worthwhile project to save a few bob?

Death in the family seems like a real pain for those who have to deal with it, the bureaucrats seem determined to plague us with endless form filling for as long as possible, I wonder if they have an enforcement team to send to Heaven/Hell for any undotted/uncrossed i or t.

Perhaps fortunately my daughter intends to carry on living here after I have shuffled of my mortal coil which seems to me to at least simplify things a bit.

 

[Fiona_TG]

I did it myself. No solicitor involved. My Dad died towards the end of 2019 and my Mum was dealing with his estate when she died in Summer 2020. Took me six months to sort it with the money from their accounts deposited in mine last week.
I sorted the rest of my Dad’s estate and my Mum’s at the same time. Apart from a few things, my Dad’s stuff all went to her.

The final estate was just below the IHT threshold of £325,000 but, because I was gifted their house years ago and they continued to live in it, I had to fill in the form linked above and seven (?) attachments. I then had to go through the same tax process as if I had inherited the house on their deaths. I also needed probate because of the amount of cash in their accounts.

Valuers are only needed for things like property or cars. Not for household items, clothing, average person’s amount of jewellery, etc. As long as you can show you have reached proper and reasonable values you’re ok. I think one example they give in the notes for completing the form is using online sales sites for research.

The form is daunting but isn’t actually that bad. I read through it, and the notes, three or four times, did the value research, got the house valued, filled it in and sent it off. Next stop was the court for probate then the banks. Process complete.

The only thing I didn’t have to do is transfer of ownership of the house because I already owned it.

Two years (so far) seems to be an extremely long time for almost the same process as mine.

I'm thinking for the house I could gift it at a time to pre-empt the seven year hurdle (I feel/hope I have a few more years than that left for me).

Also at some point when the time is nigh (so this precludes sudden/unexpected cause, back to the 99 bus type scenarios then) make my bank accounts joint so simplifying that matter. I wonder if that would work?

 

[ericferret]

Er, who on here has a million pound estate?
About 85 pages of a tax form, all property (real and otherwise) to be factually evidenced by valuers of various sorts for innumerable things like furniture, jewellery, clothing and a car for your average person.
Good luck.
For a £500,000 estate they may, or may not charge up to £10,000 at 2% and get it all right legally.

Money well spent and it will be worth it, otherwise crack on yourself and try to get funds released from various investments, insurances and banks whilst probate is ongoing.
At the date of death everything is frozen.
As of today ours is coming up to 2 years and council taxes, electricity and other bills on the family house (where nobody is now living) somehow still needs paying.
It also cannot be sold until probate is granted.

Still feel like it is a worthwhile project to save a few bob?

Many people now have estates in excess of a million, rise in house prices has driven it.
House we paid £64,000 now valued at £550,000 and thats in Lincolnshire.
Throw in savings, assets and an inheritance the wife received. We are over a mill.
If anybody had told me 30 years ago I would have an inheritance tax problem I would have laughed at them.
I have continued to work in the trade I learnt in the army, so we are not talking about financial gain through business dealings.

In some ways the cost of probate e.t.c is a side issue.
The real issue is financial planning to minimise IHT and associated costs.
Something I have failed to do and am now trying to rectify.

Not least of which is the fact that we never married and therefore whoever is last man or woman standing only gets half the allowance of a married couple. Hopefully a civil partnership will fix that.
Another area I am looking at is pension schemes. The rules changed about 5 years ago and you can leave a draw down pension outside of IHT so I now have some leeway to transfer savings to pensions if I get a move on. The low interest rates on offer now make this move a lot more attractive.

Of course the government has to pay the COVID bill so things can get worse yet.

 

[Fiona_TG]

£325k+£175k RNRB=£500k. Tax must be paid at 40% on anything above that total. Or 36% if you’re a charitable type.

If the property in the estate is worth £1.99m you get the full £175k to play with. If it’s worth £2m or more that £175k gets reduced to the point where the £175k is gone at a property value of £2.35m.

People can leave their tax free allowance of £500k to a spouse to give them a higher allowance. That’s where the £1m estate comes from.

The site linked doesn’t make overly clear that sometimes they are talking about the estate and sometimes the property within the estate.

As you describe it things make a lot more sense than the article did.

I suppose that a shell company in the Seychelles as owner of a house might help get around this but suspect that HMRC might take more than a passing interest.

 

[Stabwedge]

I'm thinking for the house I could gift it at a time to pre-empt the seven year hurdle (I feel/hope I have a few more years than that left for me).

Also at some point when the time is nigh (so this precludes sudden/unexpected cause, back to the 99 bus type scenarios then) make my bank accounts joint so simplifying that matter. I wonder if that would work?

Joint bank accounts pass over with no problem. Send death certificate to the bank and the deceased’s name is removed.

To remove a house from an estate it has to be gifted and then you move out or stay and pay rent. Then wait seven years. If you stay but don’t pay rent it had to have been gifted before 1986, if I remember right.

Edit to add: My parent’s joint accounts were sorted by my Mum and were long standing accounts. Fresh joint accounts may be a different matter. I didn’t need to look into that part of it all.

 

[Fiona_TG]

Joint bank accounts pass over with no problem. Send death certificate to the bank and the deceased’s name is removed.

To remove a house from an estate it has to be gifted and then you move out or stay and pay rent. Then wait seven years. If you stay but don’t pay rent it had to have been gifted before 1986, if I remember right.

Is the rent calculated to some formula or predetermined baseline? I guess it you went for a fiver a week that might be deemed as a scam.

 

[Stabwedge]

Is the rent calculated to some formula or predetermined baseline? I guess it you went for a fiver a week that might be deemed as a scam.

Yeah, it has to be market value or the tax man will see it as retaining a benefit in the house.

If we had known, I would have charged my parents rent but then, coincidentally the next day, I would have lifted it as cash and who knows whose hands it would have gone back into. The account would show rent paid. Job done.

Edit: could get problematic with the owner having another income (the rent) and having to declare that.