IHT question: lower value = more residue?
Posted: January 30th, 2024, 10:29 am
In the name of financial planning (ahem), my sister and I wanted to get a rough idea of the inheritance we might expect when our mum dies (using a guess of the value of Mum's estate today, which seems perhaps just over £2M).
But along the way, from what I could tell - we should hope for a big stock/asset crash (like 20% wiped off the current value) on her death, the effect of which paradoxically would mean more passing to the beneficiaries of the will. Can that be right? I note that a crash of 50% does in fact decease the residue though.
Could this be because the estate is over £2M, and my late father has a Nil Rate Band Discretionary Trust in his will, which is treated as a debt to the Trust under IHT, and therefore part of her substantial "deductible liabilities"? Or am I just wrong?
The "formula" I'm using is:
Current estate value = £2M-ish
IHT Values:
Value of all property
Stock & Shares
Value of money
Chattels
Total value of gifts in 7 years
So Gross value = Total of IHT Values
Deductible Liabilities:
Debts (credit cards, outstanding bills)
Funeral costs
Dad's NRB Discretionary Trust (a debt the estate owes to the trust)
Qualifying Transfers:
Octopus IHT (investments in an IHT-exempt share scheme)
Charitable legacies
So Net Qualifying Value = Gross value - Deductible liabilities - Qualifying transfers
Nil Rated Bands:
Mum's unused allowance (less all gifts in 7 years, which doesn't leave much)
Dad's inherited allowance
Residence NRB (estimated)
So IHT = 40% of Net Qualifying Value less the total of Nil Rated Bands
So Residue = Gross value - IHT
But along the way, from what I could tell - we should hope for a big stock/asset crash (like 20% wiped off the current value) on her death, the effect of which paradoxically would mean more passing to the beneficiaries of the will. Can that be right? I note that a crash of 50% does in fact decease the residue though.
Could this be because the estate is over £2M, and my late father has a Nil Rate Band Discretionary Trust in his will, which is treated as a debt to the Trust under IHT, and therefore part of her substantial "deductible liabilities"? Or am I just wrong?
The "formula" I'm using is:
Current estate value = £2M-ish
IHT Values:
Value of all property
Stock & Shares
Value of money
Chattels
Total value of gifts in 7 years
So Gross value = Total of IHT Values
Deductible Liabilities:
Debts (credit cards, outstanding bills)
Funeral costs
Dad's NRB Discretionary Trust (a debt the estate owes to the trust)
Qualifying Transfers:
Octopus IHT (investments in an IHT-exempt share scheme)
Charitable legacies
So Net Qualifying Value = Gross value - Deductible liabilities - Qualifying transfers
Nil Rated Bands:
Mum's unused allowance (less all gifts in 7 years, which doesn't leave much)
Dad's inherited allowance
Residence NRB (estimated)
So IHT = 40% of Net Qualifying Value less the total of Nil Rated Bands
So Residue = Gross value - IHT