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Inheritance Tax: Save £100,000s with simple ...
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Hi KAMH for IHT separation is ignored so for IHT still married and subject to the exemptions Therefore if we are talking about 2008/9 tax year I would expect tax bill to be £600,000 less £312,000 exemption = £288,000 * 40% = £115,200 or thereabouts. IF divorced tax bill would be on the lot ie about £355k. They do also have to look into gifts to non spouse in last 7 years before death, which could up the tax bill.
IF there is alot of family "trust" in this situation might be worth looking at a deed of family arrangement leaving all to surviving spouse. And for her/him to then set up a trust for the child for the £600k. WOuld avoid an immediate charge. The surviving spouse would get a double exemption on death and the £600k could be exempt if surviving spouse lives 7 years plus. This would need the trustees consent which might be v difficult for them to give as turning down monies doesnt seem logical (and they cannot place a condition on survivor to do the new trust) need legal help on this as I'm only an accountant!
YOu have given very brief details for a large estate so please take above with pinch of salt but hopefully this helps?
Hi,
Just want a general view before going to a tax adviser. My father died without making any iht provisions. His estate is around £800,000 in total (including house owned jointly by my mother).
So we are considering varying his will which left us 3 children having about £50,000 each and most of the rest to my mother.
Would we be better off (Ie pay less tax) by using up his iht allowance of £325,000 and then transferring the balance to my mother, or transferring everything to my mother and her then having £650,000 allowance and making us three immediate gifts of say £200,000 each hoping that she will survive for 7 years thereafter? She would then have sufficient to pay for home care etc. without it impacting on her income (her current income is sufficient for her current needs).
Hi,
Just want a general view before going to a tax adviser. My father died without making any iht provisions. His estate is around £800,000 in total (including house owned jointly by my mother).
So we are considering varying his will which left us 3 children having about £50,000 each and most of the rest to my mother.
Would we be better off (Ie pay less tax) by using up his iht allowance of £325,000 and then transferring the balance to my mother, or transferring everything to my mother and her then having £650,000 allowance and making us three immediate gifts of say £200,000 each hoping that she will survive for 7 years thereafter? She would then have sufficient to pay for home care etc. without it impacting on her income (her current income is sufficient for her current needs).
Any views welcome!
HI IF you mother were to live another 7 years without a doubt you would be better off leaving all to her and then her gifting the amount she can afford straight after. After the 7 years gifts are ignored and she still has double the personal allowance at that time. IF THE TAX RULES ARE THE SAME WHEN SHE DIES (the ever present problem with IHT planning!) Under current rules even if she were to die a week later you would be no worse off so generally I would agree with your last idea. The only downside is that the gifts will then be taken into account if looking at nursing care etc but if she can afford this anyway not a problem. Please note the gifts should be what she can afford and not be structured purely for tax it is important she does not have to go to children asking for monies back in the future because there is not guarentee that it would be available. (sorry to sound pessimistic but I've seen it happen!)
We have just converted from joint ownership of the property to tenants in common. The advice I would give is to make a new will at the same time and look at either spouse becoming trustees of either of their estates. Sounds complicated but once you have your head around it, it become clear. We used a will expert rather than a solictor.
Tenants in common seems a really good way to protect assessts if there is second families or other complications.
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Sloughflint, my father died 22 years ago, by brother 10 years ago. The house is all paid for, not sure if that helps answer you?
I have just been made redundant, 3 weeks ago, so one thought was to keep the house and rent it for income if the future.
Martin
Hi Martin,
sorry to hear about your mother's death.
If the estate was worth £420,000, her nil rate band allowance was £325,000, so at worst the tax is only £38,000.
However, if your father left his estate to your mother, then the allowance is doubled to £650,000 and therefore no inheritance tax at all.
Hope this helps
Sam
I'm curious,Sam. Why did you leave a post from the day before for someone else to answer yet replied to an 18 month old post from 7 pages back that had already been answered?
Is the amount paid out on a life policy part of the estate?
I understand about a property and savings etc being calculated as part of the estate of the deceased, but what about any life policy payout, does that count as part of the estate, and therefore liable for inheritance tax if it takes the amount over the limit for nil tax?
Life insurance policies fall outwith the estate and would be apid to the nominated beneficiary.
is not strictly true.
The policy proceeds from a life policy that is placed into trust does not form part of the deceased's estate - and therefore does not incur IHT. The proceeds from a life policy that is payable to a third party on the 'death of another' also does not form part of the deceased's estate. But ...
The proceeds of a life policy payable to the life assured and that is not placed into trust does form part of the deceased's estate, and the value will be added to the other assets to determine if inheritance tax is due.
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What are the rules and regulations about taking out a life insurance policy "in trust".
Somehow I cannot see see it being possible for a billionaire to pay 1,000,000 to an insurance company and then die 9 months later, even if the insurance company only paid out 900,000, to save 400,000 in tax?
What are the rules and regulations about taking out a life insurance policy "in trust".
Somehow I cannot see see it being possible for a billionaire to pay 1,000,000 to an insurance company and then die 9 months later, even if the insurance company only paid out 900,000, to save 400,000 in tax?
In the 2006 budget the treasury announced that any new life policies written into trust would attract IHT of around 6%.
This is not my claimed area of expertise, but a decent financial adviser should be able to explain in greater detail how it might apply to your circumstances.
Public wealth warning! It's not compulsory for solicitors or Willwriters to pass an exam in writing Wills - probably the most important thing you’ll ever sign.
Membership of the Institute of Professional Willwriters is acquired by passing an entrance exam and complying with a code of conduct, and I declare myself a member.
I don't really have "circumstances", but I do take an interest.
This written in trust always seemed to be a self evident way of dodging intergenerational IHT.
When poor old grandad dies you kids/grand kids get the proceeds of this policy tax free (?!?).
So are you saying that the policy is now treated as an asset of a trust and subjected to a liability to the periodic IHT charge of 6 percent every x years?
In these circumstances grandad might as well give away the money and hope to live 7 years?
I don't really have "circumstances", but I do take an interest.
This written in trust always seemed to be a self evident way of dodging intergenerational IHT.
When poor old grandad dies you kids/grand kids get the proceeds of this policy tax free (?!?).
So are you saying that the policy is now treated as an asset of a trust and subjected to a liability to the periodic IHT charge of 6 percent every x years?
In these circumstances grandad might as well give away the money and hope to live 7 years?
........... Just to add what I believe to be correct on life policies. If a trust value exceeds the nil rate band allowance of £325,000 in a tax year, then when the trust is assessed each 10 years any excess of the then current nil rate band would be charged at 6% and be payable then.
The way around this if more than the nil rate band is to be gifted into Trust, ( including any gifts in the last 7 years) is to set up several trusts each within that limit or the expected limit in 10 years time.
Life premiums are normally considered exempt, but if the assured value exceeds the nil rate band allowance then the excess could attract a 6% tax........ again several policies would be better.
Life premiums are normally considered exempt, but if the assured value exceeds the nil rate band allowance then the excess could attract a 6% tax........ again several policies would be better.
If there are assets to be in trust that exceed the nil rate band (ie gifts to grandchildren) then to avoid the 10 year/exit charges then a number of `pilot trusts` can be opened to avoid this.
Public wealth warning! It's not compulsory for solicitors or Willwriters to pass an exam in writing Wills - probably the most important thing you’ll ever sign.
Membership of the Institute of Professional Willwriters is acquired by passing an entrance exam and complying with a code of conduct, and I declare myself a member.
I am in the process of inheriting a 6 figure sum from someone who died about a year ago. So far I have received nothing from the estate.
If I were to ask that this inheritance (which is within the nil rate band) should be set up as a trust for my grand-child/children ( until they are of "age") are there any pit falls I should be aware of ?
Presumably my wife and I would retain our individual allowances and rights to transfer unused nil rate IHT bands to each other (plus any other methods with loans allowing us to live like royalty and die like paupers? (I wish)).
I am in the process of inheriting a 6 figure sum from someone who died about a year ago. So far I have received nothing from the estate.
If I were to ask that this inheritance (which is within the nil rate band) should be set up as a trust for my grand-child/children ( until they are of "age") are there any pit falls I should be aware of ?
Presumably my wife and I would retain our individual allowances and rights to transfer unused nil rate IHT bands to each other (plus any other methods with loans allowing us to live like royalty and die like paupers? (I wish)).
Hi John,
It would have been better to consider a deed of variation within two years of death, so that the gift did not enter your own estate and if you have considered this, then if gifted tomothers it is not yours to benefit from.
So, if you wish to reatin benefit, then it comes to you and is then placed in trust, and setting up a trust or preferably more than one trust will depend on the accessibility required and the amounts involved bearing in mind the nil rate band allowance and the 10 year review of trusts with a possibility of 6% tax if the value in 10 years was above the nil rate band at that time.
If you are setting up trusts for your grandchildren, then the assets are not for you and your wife, although you as trustees could access funds for the benefit of those children, say for education, support etc. but not for yourselves.
If you want trusts for yourself, then you have the choice of Loan Trusts, where all growth is in the Trust but you can take withdrawals or the loaned capital back, not subject to income tax at that time, but all growth is in the trust and not in your estate. On death the asset passes to your beneficiaries but your spouse is a discretionary beneficiary and before her death, could continue taking withdrawals with permission of other trustees any remaining Loan would be counted in the value of your estate when you die.
You could consider another type of trust where you gift the money to children/grnadchildren, or others, which passes to them on death but after 7 years is outside your estate completly, but you retain an ongoing right to an annual amount. That amount is by way of the original investment being split into say 10 policies, one of which matures each year and you can take all or part of this. Any not taken can be reinvested in the remaining policies.
Remember only to use Discretionary trusts with gifts to children as this can be controlled far better by the trustees, particularly if for children as getting hold of large sums of money at age 18 may not be wise.
Pls be nice to all MoneySavers. There's no such thing as a stupid question, and even if you disagree courtesy helps. Take care over copyright. Use excerpts and links rather than copying long text. This site asserts copyright on all comments posted on the board.
Pls be nice to all MoneySavers. There's no such thing as a stupid question, and even if you disagree courtesy helps.
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