IHT Options

Gnittih
Gnittih Posts: 52 Forumite
in ISAs & tax-free savings
Scenario...
Married couple..age about 75..ASSETS Each £520k,incl.residence at £400k,T-in-C.
Which is best option to mitigate IHT?

1)Gifts to children £100k each (x2) now.
2)Leave £100k to each in will of first to die,remainder to surviving spouse.
Draw up new will post 1st death.
«1

Comments

  • Tom99
    Tom99 Posts: 5,371 Forumite
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    [FONT=Verdana, sans-serif]I think a gift now is the best option, maybe £100k each but if one spouse has a much better life expectancy that the other then maybe that spouse should gift £200k.[/FONT]
  • Gnittih
    Gnittih Posts: 52 Forumite
    Tom99 wrote: »
    [FONT=Verdana, sans-serif]I think a gift now is the best option, maybe £100k each but if one spouse has a much better life expectancy that the other then maybe that spouse should gift £200k.[/FONT]

    How will a gift now, effect IHT if donor dies within 7 years?.....does benificiery pay or surviving spouse?
  • Keep_pedalling
    Keep_pedalling Posts: 16,581 Forumite
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    Provided at least one of them survives to April 6th 2020 then only £40k of their estate would be subject to IHT, so not too much planning required.

    I would however make two substantial gifts now, as I would much rather see my money being put to good use while I am alive, than leave everything until I!!!8217;m dead.

    The other thing I would do is spend some of it on yourselves before you get to decrepit to do so. You can afford it so treat yourselves, new car, fly business class, stay in nice hotels or whatever floats your boat.
  • Keep_pedalling
    Keep_pedalling Posts: 16,581 Forumite
    First Anniversary First Post Name Dropper Photogenic
    Gnittih wrote: »
    How will a gift now, effect IHT if donor dies within 7 years?.....does benificiery pay or surviving spouse?

    The estate pays, although as suggested gifts here are are below the nil rate band there will be no tax to pay on the first death. If the second death occurs in the 7 years then any IHT would come out of the remaining estate. The only time the benificiaries of a gift would need to pay any tax would be where there was insufficient left in the estate to meet the tax bill.
  • Tom99
    Tom99 Posts: 5,371 Forumite
    First Post First Anniversary
    Gnittih wrote: »
    How will a gift now, effect IHT if donor dies within 7 years?.....does benificiery pay or surviving spouse?

    [FONT=Verdana, sans-serif]If the donor dies within 7 years then the gift will be deducted from the donors Nil Rate Band which will reduce the amount of Nil Rate Band passing to the surviving spouse.

    [/FONT] [FONT=Verdana, sans-serif]So if each gifted £100k and one died within 7 years the surviving spouse would have £325k + £225k = £550k Nil Rate Band

    [/FONT] [FONT=Verdana, sans-serif]No tax would be paid on the death within 7 years providing the remaining estate was left to the spouse.[/FONT]
  • Keep_pedalling
    Keep_pedalling Posts: 16,581 Forumite
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    Apart from one off gifts, they should also make use of their annual allowances, and if appropriate other allowances such as gifts in anticipation of marriage.
  • noh
    noh Posts: 5,797 Forumite
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    edited 5 February 2018 at 11:53AM
    Gnittih wrote: »
    How will a gift now, effect IHT if donor dies within 7 years?.....does benificiery pay or surviving spouse?

    There will be no effect on the amount of IHT to pay if donor dies within 7 years. This is because the value of gifts made within 7 years of death are added back to the value of the estate.

    What are you trying to achieve?
    Do you want to gift 100k to each of your children now? Or do you simply want to reduce the amount of tax paid?

    If you can survive past April 2020 only around 40k of your combined estate would be subject to IHT. Therefore another way to reduce IHT to zero is to live another 2 years 3 months and spend 40k enjoying youselves!

    Edit: Looks like I am very slow typing. Same answer as keep pedalling.
  • Gnittih
    Gnittih Posts: 52 Forumite
    Keep_pedalling wrote: »
    Provided at least one of them survives to April 6th 2020 then only £40k of their estate would be subject to IHT, so not too much planning required.

    Is that correct,.. RIHT relief £350k!.....House value £400k?!
  • C.McQueen
    C.McQueen Posts: 1 Newbie
    Gnittih wrote: »
    Scenario...
    Married couple..age about 75..ASSETS Each £520k,incl.residence at £400k,T-in-C.
    Which is best option to mitigate IHT?

    1)Gifts to children £100k each (x2) now.
    2)Leave £100k to each in will of first to die,remainder to surviving spouse.
    Draw up new will post 1st death.

    Hi Gnithih,

    Reducing your estate in order to limit the amount of inheritance tax you have to pay is a sensible thing to do, however there are lots of options and it really depends on your circumstances so you'll probably need to have a think about your situation before making a commitment.

    You should consider things such as:

    How old are your children and how do you feel about them having the funds now?
    How likely are you or your partner to need the funds?
    If one of you were to die, how stable would the survivors finances be? Would you then need some or all of the funds?
    What is your health like? How long are you and your spouse likely to live?

    Under normal circumstances the funds would need to be out of your estate for at least 7 years for them to be exempt from inheritance tax. This means that if you leave the money through your will and second death occurs at the same time or shortly after the first, then the funds would still be counted as part of your estate. Because of this, leaving money through your will on first death, is not as likely to be successful for inheritance tax planning.

    Giving funds now gives you a much better chance of the gift getting past the 7 year rule, however you may not want to make the gift now for varying reasons (children age/circumstances, the danger of sideways inheritance, the possible need for you to access the funds etc).

    A third option would be to look at a trust or BPR solution. You should take specialist advice if you feel this might be appropriate for you. There are lots of different options but in general they give you the option to make the gift now while retaining control of the funds. Some options can also allow you an income or access to the funds if needed, while others can reduce the 7 year clock to 2 years.

    Hope this helps.
  • Keep_pedalling
    Keep_pedalling Posts: 16,581 Forumite
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    We are in a similar position, and have helped our children by paying off studen loans and gifting substantial house deposits, and frankly saving IHT is of secondary consideration to them being able to get the same sort of start to their adult life as we were able to do in the early 70s when very large deposits and mortgages were not required.

    We continue to help them with our annual allowances and more now that they are both just entering the first stages of parenthood, and both my DIL and daughter would like to spend at least a couple of years out of the work place to look after their babies.

    I think this is more important than leaving them a large sum of money in their 50s or 60s.
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