Inheritance Tax Article MoneySavingExpert.com Discussion

Former_MSE_Andrea · 3 February 2006 at 1:56PM

This thread is specifically to discuss the content of the

Inheritance Tax article

To discuss or ask a question about the article: click reply

kinc · 3 February 2006 at 4:34PM

My Father was killed recently whilst at work. Bbc News Report. So as my Dad and I always talked about paying as little as possible to the tax man I'm hoping for some help here.
The mortgage was paid, house value 120k (joint mortgage), ten years wages 145k, pension fund 60k plus widowers pension also waiting on other reply from his AVC pension, 5k from one life insurance and his union are working on getting money from car drivers insurance. These are all approximations.
Unfortunately all the money side of things was dealt with by him I'm unfamiliar with tax laws, we are currently with solicitors over the estate because he didn't make a will and monies are frozen.

All advice appreciated.

babe_ruth_3 · 4 February 2006 at 12:29PM

I have read Martins article on inheritance tax and would like to know more about discretionary trust. Most of out money is tied up in property, so Im not sure how you would put the £275,000 into the trust.

Also, has anyone any experience of setting up an insurance to cover the IH tax amount? Currently it would cost us around £50 per month (for life) to cover approx £75k of IH tax.

Johnhowell · 5 February 2006 at 1:10AM

kinc wrote:

My Father was killed recently whilst at work. Bbc News Report. So as my Dad and I always talked about paying as little as possible to the tax man I'm hoping for some help here.
The mortgage was paid, house value 120k (joint mortgage), ten years wages 145k, pension fund 60k plus widowers pension also waiting on other reply from his AVC pension, 5k from one life insurance and his union are working on getting money from car drivers insurance. These are all approximations.
Unfortunately all the money side of things was dealt with by him I'm unfamiliar with tax laws, we are currently with solicitors over the estate because he didn't make a will and monies are frozen.

All advice appreciated.

Kinc,

Firstly, sorry for your loss.
Based on the numbers above this is my understanding of your fathers estate:
Mortgage - no IHT liability
House - 50% share = £60k
10 years wages (phew! - most are 2,3 or 4 times salary) if this is a "death in service" discretionary benefit then this goes to your mother and not part of fathers estate - no IHT liability
Pension fund, lump sum and half pension for widow (not widower!) - again direct to surviving spouse - no IHT liability
Insurance £5K
AVC - £?
I think compensation would not be part of fathers estate as it goes to surviving family.

So only items that counts to IHT is half of property and insurance - £65k plus AVC cash in - probably significantly less than IHT allowance of £275k - so unless your father had significant assets elsewhere to exceed the allowance then there should be NO IHT liability.

The main concern now is why involve a solicitor? - your father may have been intestate (ie no will) but you could deal with this yourself - as long as there are no other complications on the estate. As your fathers estate excessed £5k you have to apply for Probate - a couple of forms and an interview to get a letter to grant administration rights to the estate - so you can access any bank accounts, creditors and debtors that your father had.

Solicitor costs can mount rapidly, they also do nothing unless you keep on their backs and then they charge £10-15 each time for answering the phone!

In cases if intestatcy their are rules to cover distribution of the estate - usually the surviving spouse gets the first £120k then anything over this gets spread out amongst the spouse, children, grandchildren, etc. The probate form asks about numbers of near relatives surviving and deceased.

The next step after this is sorted is that your mother will then have a substantial estate, more than the IHT limit. The solicitor can them be used to set up a will and trusts for you the children and anyone your mum likes - to minimise IHT. Only if the solicitor is qualified in Trusts. Ensure that the solicitor is NOT a trustee nor an executor - not even joint with whomever your mum choses - usually two executors.

As soon as you can, get your mum to setup an Enduring Power of Attorney with you and at least one other sibling (or aunt/uncle/good friend) to cover the event that she becomes mentally incapable (everyone should have an EoPA regardless of age and status). These are easy to set up and no solicitor is required. This is better than have the Court of Protection on your back!

Sorry for the long reply - but have learnt this the hard way.

All the best to you and you mum.
John

marylee · 5 February 2006 at 1:28PM

I have read the inheritance tax's article in the daily mail and I am interested to know a bit more about this:-

"Gifts from income: Inheritance tax is a tax from your assets. However if you have an income (pension or earnings for example) and you give money regularly from that which doesn’t impact your lifestyle, then it is exempt.

There is nothing to stop me or my husband if we want to give £250 each to our children or to save that money for them in a pension or insurance plan. That's £500 from us and the money will come from our works pension as we are both retired and could afford to spare this money. If I understand, this will be a gift from income. Is there a set limit to the amount of gift from income you can give to your children, I have two? We have also planned to help them buy a house and the lump sum will be a gift as well, hopefully one of us will survive the 7 yrs. We have a joint account, also our own account, does it matter where the money will come from whether it is mine own account or my husband. If we do that, then our current house and assets will be not be than £275,000. If we do not help them to buy a house now, then we will be liable to inheritance tax if we do die. We do not want that to happen. Advice, please.

Fenella · 6 February 2006 at 4:15PM

I have read through all the available articles about avoiding IHT. however none seem to fit my case.

I have been widowed for some years now. My property (a flat - owned outright with no mortgage) and my savings take me well above the level where IHT starts.

I need all the income I get from my savings and the State Pension for my every day living. I cannot afford to give away substantial gifts during my lifetime, nor can I afford expensive Life Insurance to cover the IHT.

Can anyone suggest a way I can avoid my children being faced with a large IHT bill when I pop my clogs?

Do I need to see a Financial Adviser, if so, can anyone say whether it should be an Accountant or Solicitor.

P.S. I have made a will leaving everything to be divided between my two children.

Fenella · 7 February 2006 at 11:27AM

Paul

Thanks for your advice. I will certainly look into this.

dunstonh · 7 February 2006 at 11:48AM

Can anyone suggest a way I can avoid my children being faced with a large IHT bill when I pop my clogs?

Do I need to see a Financial Adviser, if so, can anyone say whether it should be an Accountant or Solicitor.

Neither accountants or solicitors are financial advisors. Some may have had that role in the past and there are a small number that have authorisation to give financial advice. However, the vast number would not be able to help you. You would need to see an independent financial advisor. A solicitor may also be required to write an appropriate trust but a pre-written trust may be suitable for you. The IFA would be able to give guidence on that.

marylee · 8 February 2006 at 11:30AM

dunstonh wrote:

Neither accountants or solicitors are financial advisors. Some may have had that role in the past and there are a small number that have authorisation to give financial advice. However, the vast number would not be able to help you. You would need to see an independent financial advisor. A solicitor may also be required to write an appropriate trust but a pre-written trust may be suitable for you. The IFA would be able to give guidence on that.

I always thought you need the advice of a Solicitor to deal with your will as I was told there are ways to avoid inheritance tax on your death e.g giving half your share of property to the children now.

I am lookig for to buy a property for my children as an outright gift, the bulk of the money coming from us. Am I wrong to think, it is the advice of a Solicitor who I need, to re-write my will and the children? I am also considering gving half of my property to the children in equal share on my death. This hopefeully to avoid the council selling my house and pay for my care should the need arise. We have worked hard and want to leave something for the children.

I do not think, I need the advice of a Financial Advisor, my experience of one of them is that I lost most of the moment, she advised me to invest in PEP.

I have given a large sum of money to my children and neither has a will yet. We are waiting to buy a house for them and then get the wills sorted out. I am just concerned to know what will happen should something happen to one of them as the money is in their name and in their own account.

We are not rich but hard working people. Are being foolish by pooling all our savings to help the children? We will make sure we will have enough savings for emergency. I said to my husband, to put £5000 apart for my funeral lol.

Thanks.

exil · 8 February 2006 at 1:27PM

For a start I can't really understand the motivation to leave or gift lots of money to one's children. Of course if they get into financial trouble when I'm still alive, I'll help them. However I'm not going to give them the impression that they're not going to have to work for a living and pay for their house, car etc like we did - in other words, my name is not "Bank of Mum and Dad". Also, with normal luck, my offspring will be approaching retirement themselves by the time I "shuffle off", long past the time when they will be buying a house and raising a family.

In other words - I can't see the point in scrimping and saving in order to leave a large legacy. Spend the inheritance!

However - if you want to do your best to leave a legacy to your kids, this is your right, and I'm 100% behind you, as long as you don't actually end up living in poverty to help offspring who might actually be better off than you are.

Advice? IFAs can be good or bad. They're not of course clairvoyants. They should
be able to help you with the various options. A solicitor will help with drawing up the will so as to meet your aims.

If you have given gifts, then make sure you live at least 7 years longer (so the gifts don't count for IHT).

As far as paying for care is concerned - be careful. I understand that giving away your money and assets is not a way of getting round the regulations. I'm not an expert on this, so you need to get advice.

A relative of mine sold their house, moved into sheltered accommodation (getting a bit old and tired to look after a semi), and is now living on their pension and gradually running down their savings, which appears to be withing the rules. This means they won't have much to leave to their offspring - but again that is their choice. She can
go on holidays etc and enjoy the "good life" which she denied herself when working and bringing up her family.

exil · 9 February 2006 at 9:55AM

Just as an aside - and feel free to regard as "off topic" - the Daily Express has a campaign, not just to raise the IHT threshold but to abolish IHT altogether! What do we think of this?

My opinion-

Even with house prices rising faster than the threshold, IHT is still only paid on 6% of estates. That's a lot less than 50 years ago. The average estate is only about 60k.
Remember that mortgages and other debts come off the estate before it's assessed for IHT. Now when a relative dies it comes as a shock, and the whole issue is fraught with emotion. However, looking at it rationally, if a rich uncle dies and leaves you 500k - that's a windfall. If you had to work to earn that much money, you'd have to pay tax. So why not if you inherit it? So - there is a case for raising the threshold (perhaps tie it to 2 x the average house price) - but not to abolish it.

Inheritance Tax Article MoneySavingExpert.com Discussion

Comments

Confirm your email address to Create Threads and Reply

🚀 Getting Started

Categories

Is this how you want to be seen?

Get our FREE Weekly email full of deals & guides - and it’s spam-free