Hello and thank you for your question. I will be very pleased to assist you. I'm a practising lawyer in England with over 10 years experience.
Please accept my condolences for your loss.
May I clarify - you refer to allowances of £325K and £250K. What is the basis for the reference to £250K? Do you refer to the inheritance tax allowance in force at the date of your mothers death or is there another basis for the £250K figure you refer to please?
the 250,000 I believe is the allowance at her date of death which was August 2006. I assumed this or is it £325,000 ?
Did you mother leave everything to father at her passing to your knowledge?
everything was in joint names, the house, banks accounts etc
yes, nothing was pased to me or my brother
Thanks. you are correct in your understanding that your father's estate benefits from your mothers unused inheritance tax allowance however, your mother's inheritance tax allowance in force at the time of her passing is uplifted to the value in force at the date of your father's death. Therefore, your father's estate will benefit from his own £325,000 allowance as well as your mothers which is also uplifted to £325,000 giving your father's estate a total allowance of £650,000 before tax is due
ok, thats good
from what you say, I believe I am correct in my understanding that your father's estate in total is valued at less than £650,000. Do I understand this correctly?
yes, house about 250,000 and cash about 150,000
thank you. Lastly I assume you are completing IHT205 tax form?
well not personally, we will be sitting down with someone to do it, but wanted to know in advance what the situation was..
Thank you. Based on the values you provide, you are correct that there will be no inheritance tax due.
The position is that your father was allowed to give away £3000 each tax year. Anything above this (subject to certain exceptions which are not relevant here) will have to be included in his estate for the purposes of calculating inheritance tax. this is best explained by way of an example
what about the 10,000 gifts to my children, are they just added in to the bulk equation or dealt individually ? they were 10,000 lump sum less than 7 years ago ?
A has passed away and in the two years prior to his death gave away £10K in year 1 and £20K in year 2 as gifts. A is allowed a £3000 allowance forgiveness each year which can be deducted from the amounts given away leaving gifts subject to tax of £7K (£10K - £3K allownace) and £17K (£20K - £3k allownace). Therefore £24K would need to be included in A's estate for the purposes of calculating inheritance tax.
ok, thanks, ***** ***** regular amount to me for caring/housekeeping, is this classed as an income and would I have to declare anything the inland revenue or is it classed as a gift ?
In your case, the gifts are irrelevant from the point of view of tax because no tax will be payable on the estate but the guest must still be declared on the IHT205 form. This is very simple to do and you will see when you come to look at the form that there is a question asked whether your father gave away more than £3000 in any given tax year and if you tick "yes" you were asked to declare the amounts he gave away in specific box on the form. This value is added to the various other assets you declare is being included in his estate which at the end of the form is then totalled up in order to work out whether any taxes due or not. Providing the total of the above does not exceed £650,000, zero tax will be due.
regards ***** ***** housekeeping money, if this was used to pay his expenses, this would not consider the gift but rather would be monies paid for his outgoings and expenses and does not need to be declared refer to on the form.
ok, thanks, ***** ***** a couple more.. the split between 150 and 100 is arbitrary, would this matter ?
If he paid you £100 out of that £250 amount each month this could be a gift but more likely was used to cover your own expenses (travel costs etc) and any remaning balance to cover your time (a sort of informal wage) and is unlikely to need to be declared. You could declare it as a regular gift out of income but it would not alter the tax position and in these circumstances, HMRC will not be interested either way.
ok, I have been worried that there was no formal arrangement and how to put it all down, can you forsee any pit falls ?
Regarding the split, on the basis that the estate is not over the inheritance tax threshold as we discussed above, I cannot see this is something that needs to be declared. HMRC are simply not interested but in any event would likely constitute a gift out of regular income and so legitimately does not need to be included in the above declarations.
ok, thanks Joshua... very helpful, if we have any further questions on this are we able to come back to you ?
you really do not need to worry in these circumstances. HMRC do not interest themselves in estates that are substantially within the £650K allowance. There would be no tax due on the estate whether you included all the £250K payments or none of them so you cannot really go wrong either way but based on what you say they are quite properly gifts out of regular income and it is entirely proper therefore not to declare them on the IHT205 form.
Yes if I can assist any further as the situation develops please do not hesitate to revert to me.
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excellent ... many thanks for your time