Can I retrospectively claim IHT relief on my parents’ estate?

Q: I read that it was possible for spouses to transfer an inheritance tax (IHT) allowance but when my father passed in June 2000, leaving his estate to my mother, she did not use my father’s nil-rate band. When she passed in 2006, my siblings and I then had to pay tens of thousands of pounds in IHT on her estate. Is it possible to reclaim this money?

A: In the UK, everyone gets an IHT-free allowance on the first £325,000 of a deceased person’s estate. That means you can inherit that value, either through cash, property, or other assets and pay no tax upon receiving those items. Over that threshold, IHT is chargeable at 40%.

Up to £1million IHT free

For married couples and civil partners, however, you can benefit from a further tax break. As you quite rightly mention, a surviving partner’s estate could benefit from two sums of £325,000, effectively meaning you pay no tax on the first £650,00. Plus, there is an extra £175,000 allowance in the form of a Residence Nil Rate Band (RNRB), which is available if you leave your main home to direct descendants such as children, stepchildren or grandchildren. This means married couples and civil partners could benefit from a total IHT-free threshold of up to £1million.

It’s only been possible to transfer unused allowances since 2007, just after the passing of your mother - in which case, sadly it will not be possible to reclaim the money you’ve paid in IHT.

Plan for your future

What you can do though, is make sure you plan for your own future. If you or your siblings have children, and you are married, you should make sure you’re thinking ahead in the event the worst happens. Remember, you can give away £3,000 per tax year as cash gifts without attracting IHT before your death. Gifts of sums larger than that and you will need to live for seven years after giving it before the recipient will no longer be charged IHT on that gift.

There are some exceptions, such as giving a gift towards a wedding or significant life event - but giving regular gifts is not only a tax-efficient way of avoiding IHT, it’s a great way to help any children or grandchildren go through University or save for their first house.

Let us help

While you’re planning ahead, make sure your will is up to date and make sure all beneficiaries are named. If you make any changes, it’s also a good idea to do this as soon as you are able - as changes can be contested if anyone believes you were not of sound mind when you wrote the will.

If you need further help or support, contact the Private Client team at Downs Solicitors to see how we can help.