Q: My civil partner recently passed away and I’m now dealing with the financial implications of losing him. I’m trying to understand the Inheritance Tax situation; I didn’t believe I needed to act until a friend told me I may have to submit details to HMRC even if the full value of property and possessions is below the minimum required. The reason she said this was because my partner gave away some money – quite a substantial amount to friends and family in recent years. I’m informed that the ‘estate’ value is £310,000. What do I need to do?
A: Thanks for your question. The first thing to say is our sincere condolences for your sad loss. The issue of IHT can be somewhat controversial at times and one that gets batted around politically. It’s possible that at the Budget on 6 March we may get an announcement of changes from the Chancellor. However, you can afford to ignore that if it does crop up. It wouldn’t come into effect for some time, meaning it is not relevant for you. We need to look at the existing rules.
In your case, you say the value of the estate is £310,000. This puts it just below the threshold, which sits at £325,000. That means you won’t have to pay IHT. If your estate had been higher than that but your civil partner had left you everything above that figure, you also wouldn’t normally pay IHT anyway. And the same would apply if it were left to a spouse.
But the one thing that you may need to do still – and this is where your friend’s guidance is wise – is report the estate’s value to the tax man. You mentioned your partner had given away money in the last five years. This is the key bit. You will hopefully have a record of these donations/gifts to be able to work out a total. If the amount of money he gave away was £250,000 or more in the last seven years before death, HMRC requires you to send full details of the estate, even if no tax is due. It may not be relevant in your case, but the same rule would apply if he’d had foreign assets worth £100,000 or more.
You would also need to submit a full account if any of the following criteria (as stated by HMRC documents) applies:
- He was living permanently outside the UK when he died but had previously lived in the UK
- He had a life insurance policy that paid out to someone other than you and also had an annuity
- He had increased the value of a lump sum from a personal pension to be paid after his death, while he was terminally ill or in poor health
- He had agreed that property he gave away during his lifetime would be part of their estate rather than pay a pre-owned asset charge
- He gave gifts that were paid into trusts
- He held assets worth over £250,000 in trust
- He held more than one trust
Just for the sake of anyone else reading this who finds themselves in a different position – ie you’re above the threshold – here’s an example of what it might look like:
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).
Any other questions on the estate or IHT, please do call our office.
