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Inheritance Tax and the law

Inheritance Tax and the law

Old Apr 19th 2018, 10:46 am
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Default Inheritance Tax and the law

I have been living in Australia for nearly 30yrs and seriously looking at moving back to support my elderly father. My mum died last year and he is struggling. I am a single mum with twin 12yr old boys. Before I get international advice I thought I would post this to see if anyone had similar issues or queries.

My thought is to sell in Sydney and Dad sell his place in Windsor. 50% of his property to be invested in a property with me. His other 50% to be invested in an investment property and rented out. This half would effectively be my brothers share (as my Dad would say). The benefit of sharing is my boys would get to know their grandfather and I would be able to support him when he really needs it.

What happens when he dies? Would I have to sell the home with him to pay for the inheritance tax? Because it’s a primary residence would he be better off investing all his proceeds into a home to minimise the tax? In addition, would any wealth I have built up overseas after all this time, be subject to inheritance tax and the UK government just take their share unfairly therefore effectively taking 40% of my children’s inheritance?

Don’t expect anyone to know but thoughts are grateful. Thanks

Last edited by Kath_143; Apr 19th 2018 at 10:48 am.
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Old Apr 19th 2018, 11:02 am
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Default Re: Inheritance Tax and the law

Originally Posted by Kath_143
I have been living in Australia for nearly 30yrs and seriously looking at moving back to support my elderly father. My mum died last year and he is struggling. I am a single mum with twin 12yr old boys. Before I get international advice I thought I would post this to see if anyone had similar issues or queries.

My thought is to sell in Sydney and Dad sell his place in Windsor. 50% of his property to be invested in a property with me. His other 50% to be invested in an investment property and rented out. This half would effectively be my brothers share (as my Dad would say). The benefit of sharing is my boys would get to know their grandfather and I would be able to support him when he really needs it.

What happens when he dies? Would I have to sell the home with him to pay for the inheritance tax? Because it’s a primary residence would he be better off investing all his proceeds into a home to minimise the tax? In addition, would any wealth I have built up overseas after all this time, be subject to inheritance tax and the UK government just take their share unfairly therefore effectively taking 40% of my children’s inheritance?

Don’t expect anyone to know but thoughts are grateful. Thanks
Assuming his wife had a will and assuming she left her stuff to your father, he has £650,000 to dispose of before inheritance tax kicks in. Also, subject to a limit which I don't really know (£300,000?) his primary residence is exempt from inheritance tax if left in his will to a descendent or descendents.

How much dosh are we talking about in your instance?
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Old Apr 19th 2018, 1:01 pm
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Default Re: Inheritance Tax and the law

His 50% equates to £500k into joint property with me and I will add to that £700k so it won’t be quite 50/50. The other 50% for my brother would need to be invested somehow without attracting inheritance tax (7yr gift is too late -85yrs old now). Also interested to know if my accumulation is also subject to IT if I move back to the UK even though it has been built up overseas. The www.gov.uk website is not the easiet read!
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Old Apr 19th 2018, 3:35 pm
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Default Re: Inheritance Tax and the law

Originally Posted by Kath_143
His 50% equates to £500k into joint property with me and I will add to that £700k so it won’t be quite 50/50. The other 50% for my brother would need to be invested somehow without attracting inheritance tax (7yr gift is too late -85yrs old now). Also interested to know if my accumulation is also subject to IT if I move back to the UK even though it has been built up overseas. The www.gov.uk website is not the easiet read!
If you become tax resident in the UK, your estate, on your passing, will be subject to IHT.

It appears that your father has assets of ~£1m. If he puts half of that into a property (jointly owned by yourself) a good chunk of that would be exempt if the property is his primary residence and left to you in his will. https://www.gov.uk/government/public...-nil-rate-band so if he has "inherited" his wife's nil rate £325,000 (i.e. £650,000 nil band in total) the IHT on his estate would be non-zero, but, I would argue, manageable.
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Old Apr 24th 2018, 7:03 am
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Would it not be prudent to get competent legal advice ? With this sort of money around I would suggest it might be wise.
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Old Apr 24th 2018, 9:57 am
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Default Re: Inheritance Tax and the law

The inheritance threshold is being raised gradually to £1,000,000 for a couple (£500,000 each). One spouse will inherit the other's threshold if they predecease them so your father will receive your mother's allowance. If your father lives until April 2020 then providing his estate is £1,000,000 or less then no inheritance tax is payable. If he dies before this date then only what is above the current limit will be subject to IHT, not the whole amount.
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Old Apr 25th 2018, 12:02 pm
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Default Re: Inheritance Tax and the law

Originally Posted by Kath_143
His 50% equates to £500k into joint property with me and I will add to that £700k so it won’t be quite 50/50. The other 50% for my brother would need to be invested somehow without attracting inheritance tax (7yr gift is too late -85yrs old now). Also interested to know if my accumulation is also subject to IT if I move back to the UK even though it has been built up overseas. The www.gov.uk website is not the easiet read!
Any money transferred to someone else i.e. your brother would be classed as a gift and would be included in your father's estate until 7 years has passed.
Has your father any other assets?
Does he have surplus annual income?
Does your father have a company pension or a SIPP pension?
If your father has tax-paid income left over after he has paid for all his living costs then he can make regular gifts out of tax-paid income for as much as he wants (of the remaining income) and these gifts are immediately outwith his estate.
The 7 year rule for gifts has taper relief that starts after the 3rd year of the gift. Therefore it may be worthwhile having another look at such gifts.
I deal with a similar situation for a relative and i have used all of the options to reduce his potential IHT bill.
HTH
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Old Apr 25th 2018, 12:15 pm
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Default Re: Inheritance Tax and the law

Originally Posted by BritInParis
The inheritance threshold is being raised gradually to £1,000,000 for a couple (£500,000 each). One spouse will inherit the other's threshold if they predecease them so your father will receive your mother's allowance. If your father lives until April 2020 then providing his estate is £1,000,000 or less then no inheritance tax is payable. If he dies before this date then only what is above the current limit will be subject to IHT, not the whole amount.
Not quite right. The nil rate bands will remain for the foreseeable at £650,000. Since the plan is to cash out on his current principal residence and acquire a new one jointly with the OP, the deceased wife's increase of £175,000 by 2020 won't be available as it was never her principal residence.

So the father's totals IHT free amount on leaving the then principal residence to the OP would be £825,000 in 2020. Thus, sticking with the assumed total of £1 million, the last £175,000 would be subject to IHT at 40%.

Last edited by Novocastrian; Apr 25th 2018 at 12:19 pm.
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Old Apr 25th 2018, 5:55 pm
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Default Re: Inheritance Tax and the law

Are you sure Novo?
The estates are calculated separately and the additional threshold is transferred to surviving spouse.
I think that your point is pertinent and should be checked with a solicitor.
A deceased person may still be entitled to the additional threshold even if they no longer own a property.

https://www.gov.uk/government/public...-nil-rate-band

In addition, legislation in Finance Bill 2016 will provide that where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence or had ceased to own a residence on or after 8 July 2015, that part will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants. However, the total amount available won’t exceed the maximum available residence nil-rate band. The technical details of how the additional nil-rate band will be enhanced to support those who have downsized or ceased to own their home will be the subject of a consultation to be published in September 2015 ahead of the draft Finance Bill 2016.

Last edited by cyrian; Apr 25th 2018 at 6:03 pm.
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Old Apr 26th 2018, 7:17 am
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Default Re: Inheritance Tax and the law

Originally Posted by cyrian
Are you sure Novo?
The estates are calculated separately and the additional threshold is transferred to surviving spouse.
I think that your point is pertinent and should be checked with a solicitor.
A deceased person may still be entitled to the additional threshold even if they no longer own a property.

https://www.gov.uk/government/public...-nil-rate-band

In addition, legislation in Finance Bill 2016 will provide that where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence or had ceased to own a residence on or after 8 July 2015, that part will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants. However, the total amount available won’t exceed the maximum available residence nil-rate band. The technical details of how the additional nil-rate band will be enhanced to support those who have downsized or ceased to own their home will be the subject of a consultation to be published in September 2015 ahead of the draft Finance Bill 2016.
I agree on consulting a solicitor. It may depend on the wife's time of death. Before or after the new exemption was introduced?
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Old Apr 26th 2018, 8:13 am
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Default Re: Inheritance Tax and the law

Originally Posted by Novocastrian
I agree on consulting a solicitor. It may depend on the wife's time of death. Before or after the new exemption was introduced?
OK, I was wrong. I found this paragraph on the gov.uk link I posted earlier...

The main residence nil-rate band will be transferable where the second spouse or civil partner of a couple dies on or after 6 April 2017 irrespective of when the first of the couple died

...sorry.
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Old May 13th 2018, 7:10 am
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Default Re: Inheritance Tax and the law

Hi thanks for all the posts. It is such a horrible tax. I am pretty much decided to leave Australia and move back to the UK and cut my losses financially. I will be taxed on my super and my estate will be hit hard as a single person. I have engaged a UK / Aus tax agent and working through the best option to ring fence as much as I can.
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Old May 13th 2018, 7:25 am
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Default Re: Inheritance Tax and the law

Originally Posted by Kath_143
Hi thanks for all the posts. It is such a horrible tax. I am pretty much decided to leave Australia and move back to the UK and cut my losses financially. I will be taxed on my super and my estate will be hit hard as a single person. I have engaged a UK / Aus tax agent and working through the best option to ring fence as much as I can.
Your tax agent will know about this stuff https://www.moneyadviceservice.org.u...nheritance-tax
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Old May 14th 2018, 3:04 am
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Default Re: Inheritance Tax and the law

Originally Posted by Kath_143
Hi thanks for all the posts. It is such a horrible tax. I am pretty much decided to leave Australia and move back to the UK and cut my losses financially. I will be taxed on my super and my estate will be hit hard as a single person. I have engaged a UK / Aus tax agent and working through the best option to ring fence as much as I can.
Why do you say that? As you only pay it after you die, and presumably your sons will be well into middle age by then, and the tax only kicks in above a certain (high) level... Hardly horrible
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Old May 14th 2018, 8:33 am
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Default Re: Inheritance Tax and the law

Hi, coming from Australia I have no inheritance tax on my estate including no tax on my super. The UK according to my tax agent does both. As a single person I don’t enjoy the double threshold that a couple gets so again the tax is larger. I am only going on advice. Ring fencing and/or creating a trust for my boys (both 12yrs) is an option. I am 53 so not a young mum so can’t recover financially / make up as quickly as younger parents/people. All I am saying it is a hard pill to swallow when you don’t have this in Australia and there is no agreement that whatever you accumulate overseas will be exempt.
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