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My father just passed away a week ago but my mother is still

Resolved Question:

Hello,
My father just passed away a week ago but my mother is still alive aged 74 and we are concerned regarding the inheritance tax law which allows £325k. In total they have assets of ~£476 (a joint house of ~£220k, ISA's/bonds of ~£90k in her name only, joint accounts of ~£75k, and accounts/ISA's/bonds of ~£91k just in my fathers name).
In order to reduce the risk in paying tax within the next 7 years could my mother legally give my sister and myself £75k each (£150k) without any tax liabilities as a gift from my father.
Also If my father has left everything to my mother does that mean that the inheritance tax has now doubled to £750k and we do not need to do anything further
Regards
Shaun
Submitted: 9 months ago.
Category: Tax
Expert:  bigduckontax replied 9 months ago.

Hello Shaun, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Inter spousal bequests are outside the scope of UK Inheritance Tax (IHT). They increase the 325K limit. Your mother, can inherit any of her deceased spouse's unused 325K exemption making a total of 650K tax free on her decease a possibility. Remember also that where a family home is left to children then the 325K limit is being progressively increased to 1 million, 2017 to 2020.

If your mother give you a gift a you suggest that creates a Potentially Exempt Transfer (PET) in her IHT affairs. PETs run off at a taper over seven years and in the event of a decease within that period are added back to the donor's estate for IHT purposes. PETs are the first to suffer IHT and if the estate is insufficient to pay the tax then the liability cascades down to the beneficiaries for immediate payment.

I do hope that you have found my reply of assistance.

Customer: replied 9 months ago.
With my fathers assets being left to my mother and IHT allowance of 325k being transferred I believe you are saying my mother now has a 650k limit so effectively that means my sister and I can receive 75k each without any liability for IHT. Is this correct?
Surely there is no 7 year potential for liability if it is within the 650k limit
Expert:  bigduckontax replied 9 months ago.

Yes, your mother now has a 650K tax free limit.

Providing that on decease, after PETs are added back, your mother's estate does not exceed 650K then there will be no tax to pay. The potential liability remains in place for the seven years however. There is always the albeit unlikely scenario of your mother coming into substantial sums, eg the jackpot Premium Bond win, before she passes on.

bigduckontax, Accountant
Category: Tax
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Expert:  bigduckontax replied 9 months ago.

Thank you for your support.

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