Thread by @hselftax

I’m bored on a long car journey (and not driving!) so here is a (longish?) thread on the basics of IHT, for those who were asking.

Caveats:
- I am a tax adviser but not an IHT specialist, so I will stick to the basics
- this is not tax advice. Speak to a qualified adviser.
1/n

Let’s start with the HMRC summary.

Generally, HMRC official guidance on .gov.uk is (a) accurate and (b) more helpful than you might expect. But it can presume a certain level of knowledge (and is not detailed enough if you need advice).

2/n

gov.uk/inheritance-tax

It is charged on estates, ie the amount left when someone dies.

The value of the estate is the market value of all the assets (house, personal possessions, investments) less any debts.

If the total estate is less than £325,000 no IHT is due.

3/n

Each individual gets their own £325k exemption. The surviving spouse can use anything not used by the first to die - so that’s £650k for a couple.

And the exemption is extended to £500k if there is a house which (broadly) has been left to children.

4/n

So parents can leave up to £1m to children tax free.

That’s why only about 4% of estates pay any IHT, and why many people really don’t need to worry about it.

5/n

A few warning points:

- unmarried couples can’t pass on their share of the £325k to a partner (civil partners are ok, including same sex)
- the extension to £500k is withdrawn if the estate is more than £2m

6/n

Most lifetime gifts are “potentially exempt transfers” (PETs) and a proportion is included within the estate if death is within 7 years.

So if you want to give significant sums to children (or anyone else), do it sooner rather than later if you can.

7/n

A “gift with reservation” is when you give away an asset, but retain some rights - the most common one is to give away a house but still live in it, without paying rent. THIS DOES NOT SAVE IHT.

See HMRC guidance and take advice before doing this.
8/n

gov.uk/guidance/work-…

In fact, be very cautious before deciding to give your main residence away even if you have taken IHT advice - having somewhere to live is more important than saving tax!

9/n

Trusts rarely save IHT, if you are a U.K. based individual.

(They are mainly set up by non-doms before they become U.K. resident).

Take advice before using one. And ignore this article in today’s Times!

9/n

https://twitter.com/ray_mccann55/status/1680478343408279552

(Trusts do have other uses - particularly to protect assets for young children or those with disabilities. Charities such as Mencap provide information on this.

)

10/nmencap.org.uk/advice-and-sup…

There are also some (quite generous) reliefs available, for example if your estate includes qualifying business or agricultural property. But if you have enough money to be thinking about this, take advice from a qualified IFA.

11/n

And there is an oddity in that a personal pension pot does not count as part of your estate. So there is no IHT on that (but there is income tax if you die after 75)

Talk to a pensions adviser about this, if you are fortunate enough to have personal pension savings.

12/n

If you are thinking about IHT, the first thing you should do is make a will (EVERYONE should make a will!). Talk to a solicitor, preferably one who is a member of STEP or CIOT.

NB getting married or divorced means you need a new will.

13/n

In summary:

- most people don’t pay IHT
- take advice if you have assets over £325k
- make a will
- be very careful before doing anything complicated.

14/14 end