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Sam, Accountant
Category: Tax
Satisfied Customers: 13862
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I have an estate worth over £1m.I want to leave everything

Resolved Question:

I have an estate worth over £1m.
I want to leave everything to my wife, who is of course an exempt beneficiary. However I also wish to leave a gift equivalent to the Inheritance Tax threshold at the date of death to my two children from a previous marriage. The gift is to be divided equally.
Though the inheritance tax threshold has been lost on the first death, is inheritance tax still payable by my children or by the estate for the gift made at the time of death?
If tax is payable on the gifts I would also consider attaching a Letter of Wishes to the Will, but I am aware this is not legally enforceable by my children.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.
Let me be sure I have this straight
You wish to leave a gift to your children (from your first marriage) at the time of your death which will have a value (in total) to £325,000, which will mean all your NIL band has been utilised.
Then I am confused
You then state "Though the inheritance tax threshold has been lost on the first death, is inheritance tax still payable by my children or by the estate for the gift made at the time of death?"
And then also ask about gifts that you would consider attaching to the will through a letter of wishes.
Can you expand on these two further factors
Customer: replied 2 years ago.

My apologies - type of question one needs to get right!

I assumed by giving a gift up to the value of the IHT band on my death, the band has then been fully utilised. Therefore my wife could not claim it a second time on her death as there is no unused threshold to carry forward.

Instead, if tax is payable by making a gift via my will as above, I could direct that my wife makes a gift (by way of a letter of wishes) to my children of equivalent value of the IHT band after my death. Assuming she survives 7 years then no tax would be payable by her estate.

Just trying to keep everyone happy here.

Expert:  Sam replied 2 years ago.
Hi Paul
Thanks for your response
I see -
No I am afraid whether you direct the gift from you via the will, or the will states your wife should gift on your behalf, it all has been triggered by your bequest so will utilise the NIL rate band,
The only way around this is
1) you gift now, and hope you survive more than 7 years so that it then drops off being considered for Inheritance tax OR
2) You leave all to your wife in the hope she will honour this
Even placing the value up to £325,000 into trust would not work around this, as again this relies you on your surviving more than 7 years
To ensure your wishes are carried out, the only way forward is to bequeath the amount you wish your children to receive, having utilised fully the Nil Rate band, leaving your wife to then only have her own NIL rate band available for her own Inheritance tax position on her future estate.
To do anything else COULD leave your children in an expensive and emotionally drawn out legal battle to have their share of your estate.
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