Inheritance Tax

[Obo]

I have a friend (honestly) whose elderly Mother is concerned about her daughter being taxed heavily when see inherits her house and a sum of money, the amounts aren't huge... total value is about 250K, does anyone know how inheritance tax works, what you are taxed on and at what rate... thanks in advance

[Moog]

Should be OK, I'm pretty certain that the inheritance tax threshold is 250 thousand pounds after which 40% tax is payable (how anyone can justify this I'm not sure). You need to be careful about transfering assets prior to death I think anything transfered within the seven years prior to death is still liable to being taxed, the best site I have found for financial matters is http://www.fool.co.uk a search there should turn up the necassary information. I'm not sure if there are certain assets which are not liable to being taxed or if it's a blanket tax

[Moog]

Here you go I wan't too far out: http://www.fool.co.uk/taxes/articles/inheritanceta
x.htm

[woodpam]

To add to Moog's answer, transferring assets is not a good way of avoiding tax. If the parent puts the house in the name of the child, and a realistic rent has not been charged to the parent (IE it was an avoidance tactic) then capital gains tax will be charged on the difference between the value at the time of handover and the selling price, if the property is sold. This is the situation if the seven years has elapsed between the handover to the child and the death of the parent, otherwise inheritance tax applies.

[ipek]

Current IHT limit is 255K - I'm researching it all myself as my parents have just made their wills leaving everything to each other then all to me on last death. Bearing in mind that even their modest bungalow on the south coast is likely to be not far short of that, there could be some tax due.

If there is some way they can leave each half of their property to me on first death, then they can both make use of the limit (thereby raising it to 510K overall). Still looking at re-doing the wills to that effect but putting in a 'proviso' so the surviving partner still has use of the house.

Thanks for the site-link Moog most informative...!

[Miss Zippy]

A relatively simple and inexpensive way of mitigating IHT (rather than avoiding it) is for the testator to take out a level term life assurance policy, the amount of which should be enough to cover the potential IHT bill. It is v important that any such life policy is held in trust, so that it does not form part of the estate on death. Most insurance companies supply trust documentation free; they will not give you advice though on whether the policy and how it is set up is suitable for your needs so it's always a good idea to get the advice of your solicitor or IFA.

[michaelcrick]

Try www.inlandrevenue.gov.uk for up to date info on IHT and more!