The story of John and Eileen's experience with The Calder Group began many years before we first met with them at our Southeastern office in Maidstone, Kent.

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It goes back one generation, to Eileen's father, who unfortunately passed away in 2014, at the age of 79. After passing, his post-tax estate of around £500,000 passed to Eileen Mother, Christine. This wish was written clearly in his will, and meant that he could pass away in a degree of comfort, knowing that Eileen could succeed him and maintain a healthy standard of living without him, while she continued to reside in their family home just down the road from John and Eileen. 

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Taking this forward a few years to 2021, when Christine also, unfortunately passed away. Upon the valuation of the estate, it was uncovered that she has a total estate worth £650,000 (including the money inherited from her husband, 5 years prior). Eileen had made it clear in her will and estate plan that all of her liquid assets would be inherited by her only daughter, Eileen.

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Which, once inherited by Eileen after tax, was a figure of £650,000. (0% tax)

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Importantly, Eileen (or Christine) at this point, had paid no inheritance tax on the money they’d inherited, thanks to the Nil Rate Band

‍The “Nil Rate Band”:

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The Nil Rate Band is also known as The Inheritance Tax Threshold, and is conceptually similar to the “personal allowance” income tax bracket, where the first £12,500 of someones income is Tax-Free. Just like this, the Nil Rate Band dictates that the inheritance tax on the first £325,000 of any individuals estate sits at 0%.

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With that said, why did Eileen pay £0 of inheritance tax on double that?

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Fortunately, there is a rule which allows someone to “transfer” their unused Nil Rate Band to a spouse upon their death, and because Eileen's Father used none of his Nil Rate Band, the Nil Rate Band available to Christine was 60%. Hence the 0% tax rate on Eileen's inheritance. 

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‍It was at this point after becoming aware of the potential tax implications, and with their own futures in mind, John and Eileen came to us for advice. 

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They had a handful of ideas of what they wanted to do with their own estate once they passed, and knew that were going to run into a handful of tax liabilities that they wanted to handle as intelligently as they could. So it all began with a phone call after hearing about us from some family friends. 

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Once we met, we uncovered that their total estate was worth £1,350,000, between their own value and that of which they inherited from Eileen mother.  

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Their intentions were to gift £100,000 of their inherited £650,000 to their son as soon as possible, and wanted to use the remainder of the money to maintain their lifestyle while they could. 

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We informed them that their gift to their son will be classed as a potentially exempt transfer, which will have 7 years to fall outside of their estate. 

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The “potentially exempt transfer”:

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The potentially exempt transfer is a term that is held in status until someone passes away. In the case of John and Eileen, they had one potentially exempt transfer, the one worth £100,000, which was made to their son. 

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The “transfer” part of a PET is a transfer made as a gift to friend or family. 

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The “exempt” part of a PET is it’s potential to be exempt from an inheritance tax liability in the case of someones death. 

The “potentially” part of a PET is due to the fact any PET is subject to failure if the benefactor dies within 7 years of the transfer. 

‍Assuming, as always, for the “worst case scenario”, we identified that their Inheritance Tax Liability now sat at £140,000, (Nil Rate band and Main Residence Allowance x 2 = £1,000,000)

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So, what did we do?

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We created a Deed of Variation to Change Eileen's will, and we create a trust in John & Eileen's name. Now, all assets pass to a trust less the £100,000 gift to John & Eileen's son now done through Mrs. A’s will.