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.

Answer 1

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.