The Lemon Fool

My mum is at the end of her life, we're expecting to say goodbye in the next few weeks.

Until just recently I've been happily jogging along believing that there would be no inheritance tax to pay on her estate because her cash assets are c£150k, and the house is it worth c£600k.

She has her IHT band of £325k, plus £225k of dad's (he bequeathed £100k outside of what went to her), then there would be 2x the main residence allowance of £175k each. Making the whole IHT "band" way above the requirements for the estate. Great.

But, musing today......I note that her will is written thus:

There are three offspring, so three family units. Each family unit gets 1/3rd.

Unit one is a single person, so they get the full third.

Unit two consists of one offspring and two grandchildren (no spouse), so that unit gets a third split equally between them (ish, there's a stray 1% here and there to make the numbers work).

So far, so good, all going to offspring.

Unit three is one offspring, one spouse, one grandchild. The third for this unit is, again, split equally between them (yes, I know, barking!). But this means, presumably, that the house is not 100% being left to direct descendants.

So, questions:

1) can I say that the bit that goes to non descendant comes from the cash, so doesn't impact the extra IHT band for residence?
2) or, is the IHT only payable on the proportion of the inheritance non dependent gets, and the proportion that comes from the property - taking into account that about a quarter will come from the cash, so three quarters from the house, so 40% on 75% of a third of a third?
3) or, do I ask mum to change her will while she can?
4) or do I try to explain all this to non dependent (tricky as she's not British and the reason mum left her the money directly is because she doesn't get on with offspring she is married to, so she might see this inheritance as her way out - I did warn mum of this) and ask her to agree to a variation the will to bypass her and go to grandchild?
5) something I've not thought of?

Also, in the next few weeks, is there anything else I can do financially to prepare? I have financial poa so can move money etc while she's alive - I have considered gifting £3k across the three offspring just to shave a bit off IHT in case we do end up having to pay some, she's not made any monetary cash gifts this year.

Thanks

Mel

melonfool wrote:Unit three is one offspring, one spouse, one grandchild. The third for this unit is, again, split equally between them (yes, I know, barking!). But this means, presumably, that the house is not 100% being left to direct descendants.

Actually, I think you're OK.

On this page https://www.gov.uk/guidance/inheritance ... -rate-band it says:

For residence nil rate band purposes the direct descendant is:

- a child, grandchild or other lineal descendant
- a spouse or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)

DYOR, though.

Scott.

Oh, thank you! You know, I read that (or the same on another page) but it just didn't click. I think I thought it only meant spouse of the deceased.

Yes, I'll do more reading.

Mel

Whilst on the subject of main residence allowance - the OH and I rent what is effectively our main residence in England whilst we also have 2 owned secondary residences abroad. I assume that in these circumstances the main residence allowance is inapplicable unless we switch our main residence. That in turn could have tax consequences that could be unpalatable.

T7

melonfool wrote:Also, in the next few weeks, is there anything else I can do financially to prepare? I have financial poa so can move money etc while she's alive - I have considered gifting £3k across the three offspring just to shave a bit off IHT in case we do end up having to pay some, she's not made any monetary cash gifts this year.

I am sure you know this, but when you use the POA, your actions have to be in her interests, not yours. Not I suppose that anyone will challenge you, but just the same.......

Dod

terminal7 wrote:Whilst on the subject of main residence allowance - the OH and I rent what is effectively our main residence in England whilst we also have 2 owned secondary residences abroad. I assume that in these circumstances the main residence allowance is inapplicable unless we switch our main residence. That in turn could have tax consequences that could be unpalatable.

I would have thought the fact your owned property is abroad would open a whole new can of worms.

Scott.

Dod101 wrote:

melonfool wrote:Also, in the next few weeks, is there anything else I can do financially to prepare? I have financial poa so can move money etc while she's alive - I have considered gifting £3k across the three offspring just to shave a bit off IHT in case we do end up having to pay some, she's not made any monetary cash gifts this year.

I am sure you know this, but when you use the POA, your actions have to be in her interests, not yours. Not I suppose that anyone will challenge you, but just the same.......

Dod

Oh, of course! In fact, she's mainly still compos mentis now so she'd be doing it herself, I'd just be helping her log on (which I've been doing for years, even before we logged the POA!), and my sister is here with me so can be a witness.

As you say, I doubt anyone would challenge, she's not going to run out of money or anything.

I might try and get her to log into her NS&I account and release her premium bonds.

Luckily I encashed all investments with her two years ago.

Mel

Look into a deed of variation.

You can agree to change the will if you agree.

Firstly Mel, congratulations on being so organised.

Knowing this is coming is very difficult, some people plan and prepare, others hide and deny.

Regarding the IHT - the 'family units' matter not one jot if the Will leaves the money to the child and family. Does it actually specify "A third to be split equally between child 1 and their spouses and descendants"? That would be odd and complex, especially if one dies or gets married or has another child, or a grandchild has a child. Even so only 11.1111% of her Estate is not going to direct descendants, so worst case you'd lose £38.5k of RNRB.

Then again, you did say it was Barking

Re gifts out of allowances...

melonfool wrote:Oh, of course! In fact, she's mainly still compos mentis now so she'd be doing it herself, I'd just be helping her log on (which I've been doing for years, even before we logged the POA!), and my sister is here with me so can be a witness.

Should be fine, she can make £3k gift, PLUS £250 to each individual so perhaps £1333 to child 1, £833 to child 2 plus 2 x 250 to grandchildren, and £833 to child 3 plus 2 x £250.

Good luck with it all.

Paul

"Regarding the IHT - the 'family units' matter not one jot if the Will leaves the money to the child and family. Does it actually specify "A third to be split equally between child 1 and their spouses and descendants"? That would be odd and complex, especially if one dies or gets married or has another child, or a grandchild has a child. Even so only 11.1111% of her Estate is not going to direct descendants, so worst case you'd lose £38.5k of RNRB."

It says:

Daughter 1, Mel (me), 33%

Daughter 2, sister, 12%
Her child 1, 11%
Her child 2, 11%

Son 11%
His wife 11%
Their child 11%

All named in the will. A cousin is trustee for son's child as she is only five and the cousin gets £5k.

Mum already gives £250 per month to each grandchild as "regular gifts from income that don't impact her standard of living", I set this up three years ago with her to help minimise IHT burden, should there be any. She still has enough monthly to live on easily and the grandchildren have really appreciated it.

As it seems there's probably no impact on IHT, I think I can leave the will as it is.

Mel