Inheritance Tax example

Question

Mr and Mrs A sold their house in 2013 for 1.5 million . They have 2 children. They bought a new home in 2013 and decided to allocate capital to their two children
Date  Child 1 Child 2
2013  200k     300k
2014  120k
2015
2016  250k
2017
2018
2019
2020
2021
2022
2023

Its now 7 years on from the last sum given to any child. They however now assets worth £800k and want to equally share them to their children when the die. They believe that each sibling can receive £320k each tax free . How can the balance be treated as to minimise tax payable. Are the earlier assumptions correct so far as tax due.

Mike Scott · Answer

No, your assumptions are wrong in multiple ways. First, Mr & Mrs A are unlikely to die simultaneously, so there will be two separate inheritance events. Second, the Inheritance Tax threshold is £325,000, not £320,000. Third, the allowance is per estate, not per recipient. However, the longer-surviving spouse gets any unused allowance from the first spouse’s estate. Finally, there’s an additional £175,000 allowance for the decedent’s primary residence. So all in all, if at least £150,000 of those £800,000 in assets are a house, and the first spouse to die leaves everything to the surviving spouse, there will be no Inheritance Tax to pay regardless of who they leave their money to.

Answered by Mike Scott on June 5, 2021

Inheritance Tax example

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