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Find out more'Will my mother moving in mean we pay more inheritance tax?'
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My mother is moving in with us and it looks as though we will now have to sell her home.
We’re worried that this could reduce the amount she can pass on without incurring inheritance tax.
Will that be the case?
Paul from Orpington
'She'll still get a tax-free allowance'
Mike Croxford, Which? Money expert, says…
You needn’t worry. The sale of your mother’s home won’t affect the amount she’ll be able to pass on tax-free when she dies.
As a widow, your mother will get the unused inheritance tax allowances of her late husband, on top of her own allowances.
In total, these allowances are worth £1m. This comprises the nil-rate band (NRB) of £325,000 per person, plus a second allowance – the residence nil-rate band (RNRB) – which is a maximum of £175,000 per person.
Only those who intend to leave a property or its proceeds to their children or grandchildren (including foster and stepchildren) get this RNRB additional allowance.
The government realised that if a person no longer owned a property, it would be unfair for them to lose this additional allowance
The government realised that if a person downsized to a smaller property, or even (as in your mother’s case) no longer owned a property at all, it would be unfair for them to lose this additional RNRB.
Therefore the rules state that if the deceased person owned a property on 8 July 2015, when the laws were first tabled, they would retain the right to this additional RNRB allowance.
And even though your father died before the RNRB was introduced, your mother can still inherit this unused allowance from him, in addition to his £325,000 nil-rate band. If your mother is concerned that the size of the inheritance could exceed £1m, she could look at tax-free gifting.
She can give away up to £3,000 per year this way, plus more for the weddings of children (£5,000) and grandchildren (£2,500).
- Find out more: use our calculator to estimate your inheritance tax bill
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