Inheritance Tax

[lawrenceh]

I know a bit about Inheritance Tax, but not enough !!! I'm married and I know that if I leave all my estate to my wife we get a joint allowance of £650000 and no Inheritance Tax is payable until she dies even if my estate was worth £1 million.

My question is, if it was worth £1 million, and I left £100,000 to my kids and the rest to my wife, would I have to pay 40% Inheritance Tax on the £100k, before my wife died ?

[factor-fiction]

I would advise someone fortunate to be in that sort of financial position to invest a little bit in some professional finiancial advice. However hopefully there are some experts on here who will be able to offer good free advice but you may also have to be prepared to work out what is good advice and what is guesswork based on personal experience. Good luck!

[237SJ]

Don`t quote me lawrenceh, but I think if you leave everything to your wife, no inheritance tax is payable regardless of the value of the estate

[factor-fiction]

... although I understood lawrenceh is asking what happens if he leaves some of it to his children

[buildersmate]

A few simple truisms to start with.

Transfers between married couples are not subject to IHT
When the surviving partner dies, the estate of the second partner can use any unused 'nil rate band allowance' (NRB = the £325k you refer to) from the first partner to die - effectively this is what the 'joint allowance' is you refer to.

However if you have already used some of the NRB by leaving £100k to the kids, it leaves less to be able to claim on the death of the second partner.
You don't pay the IHT before your death - the estate pays it after your death.

[lawrenceh]

Thanks for the answers.............................So I only pass £225000 of my NRB to my wife and I have to pay £40K Inheritance Tax on the £100k I left to my kids.

Is this £40000 paid after my death but before my wifes, or does it wait until after my wifes death, that's the essence of the question...........not that I'll be worrying about it as I'm not around :-)

[Barmaid]

No. If you leave £100k to your kids, that is tax free. But that means you only have £225,000 nrb to pass onto your wife when she dies.

Thus if your estate is worth £1m, you leave £100k to your kids and the rest to your wife. That means your wife receives £900k and your kids £100 and there is no tax. When your wife dies (assuming she has no assets of her own), there is a £550,000 nil rate band. The remainder (£900,000 - £550,000 = £300,000) is taxable at 40%.

You might want some tax planning advice with the potential to make some tax free lifetime gifts........

[mike11111]

Best bet is to give the kids the 100k now (but don't die for 7 years!)

[Captain Spod]

You can use a number of exemptions year by year and gradually transfer the funds under the IHT radar. It all gets a bit complicated but a competent financial adviser (one who has passed the JO1 exam) will be able to specify.

[trainers]

Basically your wife would gain a percentage of your allowance. Therefore if you used say 30% of the annual allowance on the date of your death the remaining 70% would pass to your wife. At her death she would get the current annual allowance plus 70% of the annual allowance that was carried forward. Therefore as the annual allowance increases so does the value of the 70%

[trainers]

Just to clarify, the 7 year rule on works when the amount of gifts exceeds the NRB. You can also give your children £3k per year free of tax and you can carry forward last years allowance. (I do hold J01 by the way!!!)