heritance tax question

[SeeFive]

Quick question on Inheritance Tax limits - someone will know the real answer, the internet is not helping much, that'll teach me not to read .gov.uk sites!!

Ok, the current untaxed limit on an estate left is £312,000. So as long as someone has assets less than that value after debts are settled, then zero tax is due on their estate. That I understand.

However, someone (not a tax lawyer) has told me this weekend that it works differently to what I had imagined. It was suggested that if someone leaves £322,000, then the tax due is 40% of £322,000 - i.e., the whole lot.

This was not as I had thought, £312,000 tax free and then 40% tax on the £10,000 over the limit.

Any tax lawyers like to "donate" a quick answer? - Many thanks.

[siscar]

No tax on your allowance then 40% on everything above the allowance.

[SeeFive]

Thank you sir.

[Eric Mc]

Tax is charged on the value of the estate on death EXCEEDING the relevant threshold for the tax year in which the death occured.

[RedImps]

And don't forget if you are married (or possibly civil partners) the allowance transfers on the death of the first doubling the allowance for the surviving spouse.

[SeeFive]

Thanks once again for those words of wisdom everyone.

You are not far from the truth Mick. It was my brother who is having a little financial turmoil at the moment who suggested that "we brothers should have a chat with Dad regarding his estate and inheritance tax". My guess is that he wants to sub his business with a bit of early Dad's cash.

I did mention that I thought he was talking boll......

I will let him know for sure now.

Thanks again.

eta - but he is kinda right - the old man is over the allowance somwewhat, so he needs to speak to a tax lawyer - not my brother or me.

Edited by SeeFive on Tuesday 17th March 16:52

[NDA]

SeeFive said:

Thanks once again for those words of wisdom everyone.

You are not far from the truth Mick. It was my brother who is having a little financial turmoil at the moment who suggested that "we brothers should have a chat with Dad regarding his estate and inheritance tax". My guess is that he wants to sub his business with a bit of early Dad's cash.

I did mention that I thought he was talking boll......

I will let him know for sure now.

Thanks again.

eta - but he is kinda right - the old man is over the allowance somewhat, so he needs to speak to a tax lawyer - not my brother or me.

Personal experience says this is most definitely the right course of action.

My brother (an IFA) tried to divert the lot - and my mother had no idea what she was signing. Feckin nightmare. Having an independent 3rd party is the way to go.

[jesta1865]

SeeFive said:

eta - but he is kinda right - the old man is over the allowance somwewhat, so he needs to speak to a tax lawyer - not my brother or me.

defiantly the way to go, as also there is the tax loophole (i think its still there) that if your dad gifts you stuff and he lasts another 7 years (i think) it stays tax free and is not considered inheritance.

i think that's right unless greedy brown sewed it up.

[Eric Mc]

That's not a loophole. That is a fundamental part of the legislation and woe betide any government that messes about with it.

[martin thomas]

The seven rule thing works on a sliding scale iirc. You start to benefit after year 3 or 4 i think.


Martin

[deeps]

haworthlloyd1 said:

can give away and survive 14 years (not 7) to be completely free of IHT - often people get confused at 7 years but its a bit more complex.

You sure? I was sure it was 7 years until you said that. Doesn't the IR website say 7 years? Why do you say 14?

[Fourmotion]

haworthlloyd1 said:

deeps said:

haworthlloyd1 said:

can give away and survive 14 years (not 7) to be completely free of IHT - often people get confused at 7 years but its a bit more complex.

You sure? I was sure it was 7 years until you said that. Doesn't the IR website say 7 years? Why do you say 14?

it can be up to 14 but most advisers don't realise this, its discussed in J01 Personal taxation in the IHT section mate

I was under the impression that the 14 year rule only applied where chargeable lifetime transfers are made. So basically putting money or assets into a trust. So if they're gifts, then they will be exempt after 7 years.

[doddze]

Fourmotion said:

haworthlloyd1 said:

deeps said:

haworthlloyd1 said:

can give away and survive 14 years (not 7) to be completely free of IHT - often people get confused at 7 years but its a bit more complex.

You sure? I was sure it was 7 years until you said that. Doesn't the IR website say 7 years? Why do you say 14?

it can be up to 14 but most advisers don't realise this, its discussed in J01 Personal taxation in the IHT section mate

I was under the impression that the 14 year rule only applied where chargeable lifetime transfers are made. So basically putting money or assets into a trust. So if they're gifts, then they will be exempt after 7 years.

If you are just making PETs (ie just giving assets away and as previously mentioned not deriving any benefit from them)) then it is 7 years. If you are making a combination of PETs and CLT's (gifts into discretionary trusts) then it can be up to 14 years.

[Tiggsy]

haworthlloyd1 said:

deeps said:

haworthlloyd1 said:

can give away and survive 14 years (not 7) to be completely free of IHT - often people get confused at 7 years but its a bit more complex.

You sure? I was sure it was 7 years until you said that. Doesn't the IR website say 7 years? Why do you say 14?

it can be up to 14 but most advisers don't realise this, its discussed in J01 Personal taxation in the IHT section mate

I think most advisers are aware of CLT and the 14 year rule (i've never worked anywhere where it was widely unknown)

It's just so rarely relevant to most gifts that it's not mentioned, i've present seminars on IHT planning for 12 years and hardly ever had a question where it cropped up or was misunderstood. By far the bigger error is on the assumption that the sliding scale against 7 year gifts will be relevant when, for most gifts, it isnt due to the NRB exceeding the gift.