Discussion
Afternoon all,
My mum was has been watching all the news about the budget and was asking me about inheritance tax at the weekend.
My understand is that if a couple are married and one of them dies then their IHT allowance passes to the living spouse. This allows a total IHT allowance of £325k + £325k = £650k. If the surviving spouse then leaves their home to direct descendant(s) then the allowance is increased to £500k + £500k = £1m.
Is my understanding correct?
My dad passed away in 2009. Is the value of the IHT allowance passed to my mum based on the rules in 2009 or are the figures noted above applicable?
Thanks in advance.
My mum was has been watching all the news about the budget and was asking me about inheritance tax at the weekend.
My understand is that if a couple are married and one of them dies then their IHT allowance passes to the living spouse. This allows a total IHT allowance of £325k + £325k = £650k. If the surviving spouse then leaves their home to direct descendant(s) then the allowance is increased to £500k + £500k = £1m.
Is my understanding correct?
My dad passed away in 2009. Is the value of the IHT allowance passed to my mum based on the rules in 2009 or are the figures noted above applicable?
Thanks in advance.
Edited by Ecosseven on Wednesday 13th November 13:20
Broadly yes in that a maximum of £1m can be left that way without IHT becoming payable to the beneficiaries assuming not Farm related where different allowances now apply.
Husband to wife transfers are in effect unlimited on first death.
Pensions ditto where applicable ( usually where Private pots are concerned ) but now included within IHT calculations.
As far as your second point - I am Executor for a relative and in going through her probate have managed to obtain relief using her husbands £ 325k from his death 45 years ago.
Husband to wife transfers are in effect unlimited on first death.
Pensions ditto where applicable ( usually where Private pots are concerned ) but now included within IHT calculations.
As far as your second point - I am Executor for a relative and in going through her probate have managed to obtain relief using her husbands £ 325k from his death 45 years ago.
Ecosseven said:
My dad passed away in 2009. Is the value of the IHT allowance passed to my mum based on the rules in 2009 or are the figures noted above applicable?
The figures above will be applicable if your dad left everything to your mum when he died i.e. 100% of his nil rate band was left unused.If there were any other beneficiaries in his will, then potentially a proportion of his NRB would have been used up. It's the unused percentage that can be applied to the thresholds that are current at the time of the surviving spouse's death.
C69 said:
Ecosseven said:
My dad passed away in 2009. Is the value of the IHT allowance passed to my mum based on the rules in 2009 or are the figures noted above applicable?
The figures above will be applicable if your dad left everything to your mum when he died i.e. 100% of his nil rate band was left unused.If there were any other beneficiaries in his will, then potentially a proportion of his NRB would have been used up. It's the unused percentage that can be applied to the thresholds that are current at the time of the surviving spouse's death.
SunsetZed said:
My understanding is slightly different. I'm no expert but I thought that the home allowance was only added in 2017 so in the OP's case the 2009 allowance for his dad would just be 325k as that was what it was at the time of death so the total would be 825k (325k + 325k + 175k).
That would seem logical, but it's one of those tax rules that gets applied retrospectively.So if a spouse died before 6 April 2017, then the unused percentage of their residence nil rate band is deemed to be 100%.
C69 said:
SunsetZed said:
My understanding is slightly different. I'm no expert but I thought that the home allowance was only added in 2017 so in the OP's case the 2009 allowance for his dad would just be 325k as that was what it was at the time of death so the total would be 825k (325k + 325k + 175k).
That would seem logical, but it's one of those tax rules that gets applied retrospectively.So if a spouse died before 6 April 2017, then the unused percentage of their residence nil rate band is deemed to be 100%.
TwigtheWonderkid said:
Yes, except £325K + £325K = £650K, not £700K.
They then get £175K each of the house to pass on without IHT so total £1m.
May not apply to the OP but my understanding is that if the estate is worth in excess of £2M the joint rate bands no longer apply and the IHT allowance reduces from £1M to £650k.They then get £175K each of the house to pass on without IHT so total £1m.
Happy to be corrected.
Tresco said:
May not apply to the OP but my understanding is that if the estate is worth in excess of £2M the joint rate bands no longer apply and the IHT allowance reduces from £1M to £650k.
Happy to be corrected.
From a quick Google I’m inclined to agree except it appears to taper off as opposed to fall off a cliff at that £2m estate point ie at £2.35m there is zero RNRB. Happy to be corrected.
What I’m then unclear about is what happens to the first parents £175k - has that already been passed over at 100% to the surviving Partner and then only one lot of £175k applies or is simply over a combined estate of £2.35m both RNRB’s are wiped out in the case of the first death , retrospectively ?
SunsetZed said:
Interesting. So if, hypothetically, the 175k allowance was removed and my mum had passed away in 2020 would she not be entitled to the 175k even though it was in place when she passed?
I'm assuming you mean that your mum's spouse would still be alive when the residence nil rate band is withdrawn? If so, in that scenario I reckon that all potential RNRB transfers would be lost, including your mum's. I think it'd be a very unpopular decision to withdraw the RNRB entirely, though. Rather, the threshold is more likely to remain unchanged so that the benefit of the RNRB gets eroded over time. Indeed, it last increased in 2020, and we're stuck with the current £175k until 2028 at least.
C69 said:
SunsetZed said:
Interesting. So if, hypothetically, the 175k allowance was removed and my mum had passed away in 2020 would she not be entitled to the 175k even though it was in place when she passed?
I'm assuming you mean that your mum's spouse would still be alive when the residence nil rate band is withdrawn? If so, in that scenario I reckon that all potential RNRB transfers would be lost, including your mum's. I think it'd be a very unpopular decision to withdraw the RNRB entirely, though. Rather, the threshold is more likely to remain unchanged so that the benefit of the RNRB gets eroded over time. Indeed, it last increased in 2020, and we're stuck with the current £175k until 2028 at least.
I must admit I find it very strange that the rules apply upon the death of the second spouse not at the time of death of each Spouse and I never would have thought that so thanks for enlightening me.
alscar said:
Tresco said:
May not apply to the OP but my understanding is that if the estate is worth in excess of £2M the joint rate bands no longer apply and the IHT allowance reduces from £1M to £650k.
Happy to be corrected.
From a quick Google I’m inclined to agree except it appears to taper off as opposed to fall off a cliff at that £2m estate point ie at £2.35m there is zero RNRB. Happy to be corrected.
What I’m then unclear about is what happens to the first parents £175k - has that already been passed over at 100% to the surviving Partner and then only one lot of £175k applies or is simply over a combined estate of £2.35m both RNRB’s are wiped out in the case of the first death , retrospectively ?
However, if a full unused RNRB has been transferred from a predeceased spouse, then that valuation figure becomes £2.7m or more. NB: things get a bit more complicated if the predeceased spouse also left an estate of > £2m, because the tapering rules would have applied to their transferred RNRB, too.
C69 said:
Yes, the taper is very gradual - RNRB reduces by £1 for every £2 an estate exceeds £2m. So RNRB is zero if the estate is valued at £2.35m or more.
However, if a full unused RNRB has been transferred from a predeceased spouse, then that valuation figure becomes £2.7m or more. NB: things get a bit more complicated if the predeceased spouse also left an estate of > £2m, because the tapering rules would have applied to their transferred RNRB, too.
Only a “ bit more complicated “ ?!However, if a full unused RNRB has been transferred from a predeceased spouse, then that valuation figure becomes £2.7m or more. NB: things get a bit more complicated if the predeceased spouse also left an estate of > £2m, because the tapering rules would have applied to their transferred RNRB, too.
Thanks for that explanation - genuinely didn’t know that so appreciated.
C69 said:
Yes, the taper is very gradual - RNRB reduces by £1 for every £2 an estate exceeds £2m. So RNRB is zero if the estate is valued at £2.35m or more.
However, if a full unused RNRB has been transferred from a predeceased spouse, then that valuation figure becomes £2.7m or more. NB: things get a bit more complicated if the predeceased spouse also left an estate of > £2m, because the tapering rules would have applied to their transferred RNRB, too.
Interested in the bolded element - can you point me to how that is calculated please?However, if a full unused RNRB has been transferred from a predeceased spouse, then that valuation figure becomes £2.7m or more. NB: things get a bit more complicated if the predeceased spouse also left an estate of > £2m, because the tapering rules would have applied to their transferred RNRB, too.
Halitosis said:
Interested in the bolded element - can you point me to how that is calculated please?
In some respects, it's easier to work backwards when thinking about this. If the maximum RNRB available to an estate was £350k (i.e. £175k for the deceased plus £175k transferred from their predeceased spouse), then the minimum taper amount that would need to be applied to get to zero claimable RNRB is also £350k.As the taper amount is £1 for every £2 over the £2.0m limit, then the estate must be valued at £2.7m to achieve that £350k taper amount.
Below are some simple examples of how the calculation works. They all assume that the predeceased spouse's RNRB could be fully transferred and the value of the property was above £350k. It probably goes without saying, but if you're dealing with an estate where RNRB tapering is a factor, then I'd strongly recommend getting proper professional advice.
If you want to try your own scenarios, there's a useful HMRC online calculator: https://www.tax.service.gov.uk/calculate-additiona...
king hell the tax man really does love a slice...I think you need to be careful on how the main home is 'owned'. If it is jointly owned then the IHT benefit passes to the surviving spouse. However if you are 'tenants in common' where you can leave part of the house to someone else (with the rider the surviving spouse can remain etc) this uses up the IHT benefit of the deceased. Some people do this to reduce liability to care home fees. I stuck with joint owned to ringfence the £1m.
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