IHT situation

[Paul Stevens]

Hi & thanks for being there


Inheritance tax question if I may.

My widowed father is about to give me £82k cash plus £75k from a foreign holiday property sale currently Sold subject to contract. This is to help me buy a home before he passes as I currently live with him as full time carer having sold my place to do so before the property market skyrocketed pricing me out of anything local.

I need to understand the IHT situation around this before accepting the money and buying a house .

There are formal IHT measures in place on his estate and a will. We were told that as of 2023 there would be no IHT on the estate as it stands given both his and my late mothers allowance are available. We were also told there is some leeway so that if the estate grew it would not be ‘to hefty’ a tax bill. His property has increased by around 10% this year , in addition he received around 100k from his pension provider as unpaid benefits over the last 30 years due to their admin foul ups.

There have been other gifts made To family members (beneficiaries) iro £200k but these were just over seven years ago. There is one gift within seven years to me of £25k about three years ago .

We have been told that the care act property disregard applies because I have no other home and live with my Father registered as doing so etc and have done so now for several years . I am over 60.


I need to buy a local house urgently as I cannot afford to remain in his property after he passes during the selling period even and I don’t need to be panic house hunting during the immediate fall out of his passing. I also have health issues of my own to deal with.

I have two siblings who are also beneficiaries of the will in equal shares.

However I do not want to spend any money I would need to repay on his passing to meet IHT if payable on these generous gifts as I simply do not have the cash or income to do so and don’t want to have to sell my future home to meet an IHT bill clearly.

I cannot move out of this expensive area now because I have to care for him ( he is seriously ill) so I’m being forced to ‘over extend’to buy a house close enough so I can still care for him. I do not qualify for any mortgage in my own name.

I have also been looking hundreds of miles away at cheaper areas with view to him living with me there. However his disabilities make finding a suited house extremely difficult/ almost impossible . In addition my partners parents also live local and require care to and she does not wish to abandon them.

I am looking at houses now but I have bad feeling what I think I can spend is actually going to be a lot less due to IHT.

What IHT costs / issues and any other issues should I be aware of please ?

Apologies for long winded first post here. I’d appreciate any general comments you feel able to offer.



P.s
I hope this is the right forum but please move it if appropriate . Thank you .

[Sam101]

AS far as Inheritance tax is concerned, the normal allowances before taxation would be £325,000 for each parent and residential allowance of £175,000 for each. Therefore, the tax calculation is at 40% for any sum above that.

With regard to gifts made within 7 years, those gifts count in the calculation of the net value of the estate at the time of your Fathers death.

If gifts are made to you now and your Father were to die with the next 7 years, then those gifts will count towards to estate value. The gifts made over 7 years ago will not count.

What is the approximate value of the property now and how much additional assets does your Father own at this time?

As regards to the Pension foul up and £100,000 benefit, more detail of this would be needed to consider that particular amount so any additional information would help in replies from members

[Paul Stevens]

How Inheritance Tax on a gift is paid

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.



I have just read this on HMRC site. It reads to me that my suspicions are correct in that 40% tax will be due by me on the gifts above as previous gifts to the 3 beneficiaries do exceed 325000 .

Would it not therefore be better to not gift me the money at least for IHT reasons?

what if my Father used those funds instead to buy a share in my new house ? Any benefits there?

We were told he qualifies for both the Nil rate band and Residents nil rate band for both himself and my late Mother. So £500k each total
£1,000,000. Is that right?? He is not remarried or in civil partnership etc .

Thank you

[Sam101]

The tax calculation is made following death and the Executors giving details of the estate value. The figures I have given at the start add up to £1,000,000 allowance and only after that amount, which would include gifts over the gifting allowances in the last 7 years.

The tax is not payable by you, it is paid by the Executors before distribution of the estate to beneficiaries.

It may be better for you and your Father to buy the second property, but remember that his assets need to be accounted for at the time of his death and you need to consider the other beneficiaries and their inheritances according to the present Will..

[Paul Stevens]

Hello and thank you for helping me

extra info:

Dads home is likely to sell at about £800k( valued at (£850 -900). He is the sole owner.

The property being considered is on the market at £500k plus stamp duty legal and survey.

liquid assets currently in my Fathers name total
£82k allocated for this house purchase , an additional £10k to remain as emergency funds in his name .

The foreign property is under offer with a holding deposit paid at £80k agreed price. Up to £75k of those funds he has ‘ear marked’ for the new house purchase.

Dad gas a small garage worth around £14k however this is still on my late mother’s name. I think there is also £14k in some kind of family will trust in my late Mothers name too but he is unsure if this is actually the garage or not.

Beneficiaries are his three adult children in equal shares .

Previous gifts have been made since 2014 with the bulk being in 2016. These were Ben1 £25k £50k , Ben2 £50k Ben3 £100k .

My Father is happy to gift capital or purchase a share with me in the new property whichever is most beneficial. He is in poor physical health but good mental health.

The Pension foul up:

This came to light in the late summer last year ,after 30 years of retirement from the scheme, when the scheme was taken over by a new outfit. Clearly the new outfit needed the issue and possibly others like it sorted out as part of the takeover. There is no explanation other than an administrative error given by the scheme as to why they withheld benefits for such a long time or why it was not flagged as an error until now.

They scheme is a final salary occupational pension .

They have calculated the amount they underpaid him and paid out a lump sum totalling whatvthey say is the total of payments they should have made. That sum was just short of £100k. They have also increased his ongoing monthly pension payments by around £400pm. This ‘extra’ income he is using to kindly help me which he believes is ok from an inheritance tax perspective as it is excess to his living needs .

The pension issue is placed in the hands of the ombudsman but there is no resolution as of yet.

Dad is believed the money from this pension would fall into his estate and possibly be liable for IHT. It is also at risk should fill time residential care be needed.

These numbers are approximate but do reflect the situation well.

Thank you.

[Paul Stevens]

Apologies for the typos .

[Sam101]

With regard to the pension errors. Were they not made and that pension sum was available to your father when he retired, he may well have placed that into a self invested scheme and then it would clearly not form part of his estate. To have to count it in the estate and possibly add to calculation of inheritance tax liability is not at all fair. I would suggest that you try and seek additional advice on the pension sum as it should not be counted in your fathers assets in my opinion.

You are correct regarding to additional income being surplus to requirements and as such can be given away.

I do hope you manage to sort this all out and that the move will go smoothly for you. No doubt the solicitors will help you with any additional information.

[Paul Stevens]

Thank you. Yes it is highly unfair. He could have spent his pension of course as well!

" How Inheritance Tax on a gift is paid

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.
"

Above is a quote from the HMRC site on IHT.

It reads to me as if should my Father make a further gift to me (a PET I believe), which is likely to fail given health situation, then it is the individual gift recipient who has to pay the IHT on that gift amount and not split between the three beneficiaries. Is that correct? Or is the gift/PET taken back into the estate and taxed as per the taper relief schedule depending upon date of gift/death with the IHT liability falling to all beneficiaries in equal amounts? This is the issue I need to be clear on.

Many thanks again

[Sam101]

There is no tax on the one who receives a gift. It is the ESTATE that is taxed as I have said above.

The quote you refer is correct but you need to bear in mind that after 7 years previous gifts are not counted. Even after 3 years some gifts my have a tapering relief. Additional gifting is possible within the gifting limits each tax year.

As long as the correct forms are completed by the executors to obtain Probate, then the tax is worked out.

.

[Paul Stevens]

Thank you .

If the IHT rates / reliefs change it seems to me more of the gifted Pet would become exposed to IHT. If the the burden of payment falls primarily to the pet recipient I would not be in a position to meet that liability from any other sources other than the equity in my new home. Hence my real concern .

The estate however pays you say could the individual share of the net ( after tax etc) estate not then be adjusted down for the pet recipient to reflect the extra IHT due because of this particular failed pet? This is the question I was trying ( clumsily) to ask .

Ive seen the following example on the Prudential site which is behind my confusion on this :



Example of death within seven years

Michael makes the following transfers (after exemptions and reliefs):

• £170,000 to his son, Noah, in August 2018
• £170,000 to his daughter, Olga, in February 2019

Michael dies with a death estate of £225,000 in October 2021 when the NRB is £325,000.

The gift to Noah becomes a chargeable transfer and absorbs £170,000 of the NRB at date of death. No tax will be due on the failed PET

The gift to Olga will use up the remaining NRB of £155,000 meaning that the excess of £15,000 becomes chargeable in its own right and is cumulated with the death estate to calculate the IHT payable. IHT is charged on the cumulative total of £240,000.

Olga is primarily liable for the tax due on the failed PET (no taper relief will be due.)

————-

It is the last two lines that confuse me.

’primarily liable ‘ reads to me that although the money to pay the bill comes from the estate , Olgas share is then adjusted down to offset the increased tax bill caused by her failed pet , or at least that seems possible to me.

If the pet gift was not made and those funds remain in the estate then would the burden of payment then not be shared equally by all beneficiaries?

Please forgive my ‘persistance’ here. I merely need to be able to understand & explain clearly to my Father so he can decide what he wishes to do for the best in this situation .

I do very much appreciate your taking time to comment and help .

[Sam101]

The actual liability, in accordance with the regulations is as follows....

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you've given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.

I hope that you can therefore see that if gifts in total within 7 years are made AFTER all the allowances have been accounted for (both nil rate IHT and both Residential allowances) then the excess is the responsibility of the one who receives it.

However most families who appreciate 'fairness' will agree that the taxes are paid first from the estate and the gift recipients accept that or agree to adjust their individual gifts accordingly. It's a decision that the family can make if they wish to.

I do hope that this helps and your Father may wish to ask you and your brother to act in this way considering the efforts you have made so far.

[Paul Stevens]

Ok , I think the penny is dropping for me finally Thank you for clarifying . You’ve been very helpful ,

Many thanks indeed .

[Paul Stevens]

Thank you . I think the penny is finally dropping for me

Thank you for clarifying it’s been very helpful .

Thank you again