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    • hoof
    • By hoof 10th Feb 18, 10:12 PM
    • 53Posts
    • 5Thanks
    hoof
    IHT advice to reduce large potential charge
    • #1
    • 10th Feb 18, 10:12 PM
    IHT advice to reduce large potential charge 10th Feb 18 at 10:12 PM
    I am seeking advice on Inheritance Tax Planning as I am very concerned about the potentially large IHT tax charge that will arise
    Background information as follows:
    1) Elderly married couple both in late 80ís with each having circa £1.1m assets in deposits/NS&I/ISAís and shares. Their main residence (Joint Tenants) is worth circa £400k.
    2) Under existing wills, on the 1st death all assets pass to the survivor.
    3) On 2nd death the assets are to be shared between their two daughters (in their mid 50ís). They have one grandchild aged 26.
    On the first death, as all assets pass to the surviving spouse, my understanding is that no inheritance tax will be payable and the £325k unused Nil rate band will be available for use by surviving spouse.
    Assuming that the survivor dies soon afterwards (in 18/19 tax year say), then it would seem that the IHT payable would be calculated as follows:
    Estate Value £2,600,000 (includes £400k main residence)
    Nil rate band 2 x £325k £(650,000)
    Additional threshold NIL No additional relief for main residence as estate>£2m
    (effective 2 x £125k = £250k relief lost due to size of estate)
    Inheritance tax due on £1,950,000
    IHT @ 40% = £780,000!
    As things currently stand they will receive no additional relief for their main residence.
    Advice on what action they could take to reduce this significant potential IHT charge would be appreciated as they were horrified when I mentioned it to them.
    Their various pensions more than cover their current outgoings and their assets continue to increase.
Page 1
    • xylophone
    • By xylophone 10th Feb 18, 11:26 PM
    • 24,508 Posts
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    xylophone
    • #2
    • 10th Feb 18, 11:26 PM
    • #2
    • 10th Feb 18, 11:26 PM
    It is not necessarily too late to make a PET - a comfortably off elderly person of my acquaintance made a substantial gift to family members at the age of 88 - the potentially exempt became actually exempt - the donor is still in the land of the living...

    Regular gifts from income might still be considered?

    They can seek professional advice.
    • getmore4less
    • By getmore4less 10th Feb 18, 11:41 PM
    • 31,384 Posts
    • 18,806 Thanks
    getmore4less
    • #3
    • 10th Feb 18, 11:41 PM
    • #3
    • 10th Feb 18, 11:41 PM
    multi generational IHT planning urgently required as the daughters will be left with IHT headache when they inherit.

    They need to offload quite a lot of their assets and stop saving their income..
    • Keep pedalling
    • By Keep pedalling 11th Feb 18, 12:54 AM
    • 4,533 Posts
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    Keep pedalling
    • #4
    • 11th Feb 18, 12:54 AM
    • #4
    • 11th Feb 18, 12:54 AM
    They have left it rather late, but even with that level of tax their children are going to inherit a darn sight more than most people ever will, so rather than feeling horrified they should feel fortunate that they actually have this problem rather than having little or nothing to leave.

    They should make some significant PET gifts now, as there still is a good chance that at least one of them could survive another 7 years. They should also make full use of their annual allowances from now on

    The could move some assets into AIM shares which would become exempt providing they were held for 2 years, but that sort of investment is high risk.

    The moral of the story is that at some point in your life you need to stop building up your savings and start running it down, both through gifting and spending on yourselves.
    • Gabbs the Newt
    • By Gabbs the Newt 11th Feb 18, 8:25 AM
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    Gabbs the Newt
    • #5
    • 11th Feb 18, 8:25 AM
    • #5
    • 11th Feb 18, 8:25 AM
    Each daughter still becomes almost a millionaire without lifting a finger, so it!!!8217;s hardly horrifying. But yes if that is not satisfactory they should start shedding assets, and try and remain in good health for as long as possible.
    • Keep pedalling
    • By Keep pedalling 11th Feb 18, 8:32 AM
    • 4,533 Posts
    • 4,963 Thanks
    Keep pedalling
    • #6
    • 11th Feb 18, 8:32 AM
    • #6
    • 11th Feb 18, 8:32 AM
    Gifts over the nil rate band are also subject to taper relief so if for instance each gave £650k away, half of that would be subject to taper relief so the tax bill would start to reduce the potential tax bill after 3 years.

    They can also limit their saving increasing further by giving away surplus income. At the moment it seems that they are not touching their savings so they could give away the interest and dividends they have been earning on those.

    But as Has already been suggested they should take payed for professional advice on an estate that size.
    • andymixed01
    • By andymixed01 11th Feb 18, 9:25 AM
    • 1 Posts
    • 0 Thanks
    andymixed01
    • #7
    • 11th Feb 18, 9:25 AM
    Free IHT calculator
    • #7
    • 11th Feb 18, 9:25 AM
    sorry if this is not the right place to ask for help.
    please Free IHT calculator that does not require me to fill in my details before the company will give me an answer
    Andy
    • Keep pedalling
    • By Keep pedalling 11th Feb 18, 9:43 AM
    • 4,533 Posts
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    Keep pedalling
    • #8
    • 11th Feb 18, 9:43 AM
    • #8
    • 11th Feb 18, 9:43 AM
    sorry if this is not the right place to ask for help.
    please Free IHT calculator that does not require me to fill in my details before the company will give me an answer
    Andy
    Originally posted by andymixed01
    This is the right section, but for future reference you should start a new thread rather than attach your question to an existing one, especially one asking a different question.

    The answer is you donít need a calculator, you just need to get to grips with the available exceptions, the rest is simple maths. You should start with the following links.

    https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

    https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

    https://www.gov.uk/inheritance-tax/gifts
    • hoof
    • By hoof 11th Feb 18, 10:43 AM
    • 53 Posts
    • 5 Thanks
    hoof
    • #9
    • 11th Feb 18, 10:43 AM
    • #9
    • 11th Feb 18, 10:43 AM
    Many tanks for the useful, swift replies. Seems like professional advice and some significant gifts to get estate below £2m to avoid high marginal rate from losing main residence relief a good starting point.
    I believe that they already use their £3k each year. Am I right in thinking that gifts in excess of the £3k need to be declared on their tax returns?
    • le loup
    • By le loup 11th Feb 18, 1:57 PM
    • 3,737 Posts
    • 3,681 Thanks
    le loup
    Am I right in thinking that gifts in excess of the £3k need to be declared on their tax returns?
    Originally posted by hoof
    No they don't nor does the recipient. However a record need to be kept for when IHT needs to be calculated.
    • pinklady21
    • By pinklady21 12th Feb 18, 5:05 PM
    • 423 Posts
    • 283 Thanks
    pinklady21
    This may not be a popular view - but alternatively, a decision could be made to allow the tax man to take a share of the accumulated wealth to help fund public services.
    • kidmugsy
    • By kidmugsy 13th Feb 18, 12:39 AM
    • 10,188 Posts
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    kidmugsy
    They should get professional advice but (i) as recommended above, consider making large gifts to children/grandchild (ii) change the wills so that the first death puts £325k into a discretionary trust with the descendants and spouse as beneficiaries, and the balance of financial assets to spouse. Should part of the house be left to the descendants on first death? Professional advice essential there. It would require them to rearrange the ownership of the house into tenants-in-common.
    Free the dunston one next time too.
    • Keep pedalling
    • By Keep pedalling 13th Feb 18, 12:52 AM
    • 4,533 Posts
    • 4,963 Thanks
    Keep pedalling
    They should get professional advice but (i) as recommended above, consider making large gifts to children/grandchild (ii) change the wills so that the first death puts £325k into a discretionary trust with the descendants and spouse as beneficiaries, and the balance of financial assets to spouse. Should part of the house be left to the descendants on first death? Professional advice essential there. It would require them to rearrange the ownership of the house into tenants-in-common.
    Originally posted by kidmugsy
    How does the discretionary trust help? I would have thought that just wipes out the transferable nil rate band, so the overall effect would be neutral at best or negative if the nil rate band is ever increased.
    • kidmugsy
    • By kidmugsy 13th Feb 18, 7:36 PM
    • 10,188 Posts
    • 6,911 Thanks
    kidmugsy
    How does the discretionary trust help? I would have thought that just wipes out the transferable nil rate band, so the overall effect would be neutral at best or negative if the nil rate band is ever increased.
    Originally posted by Keep pedalling
    If the first to die gifted £325k to his children, the widow-to-be loses all access to it. If he gifts it to a trust with his widow as one beneficiary, the Trustees can advance money, or lend it, to the widow at their discretion e.g. if they believe her to be in need.

    Moreover the money won't add to whatever estates the children will have when they die, thus potentially saving IHT in the future.

    These are the sort of points that a suitably qualified lawyer would discuss.
    Free the dunston one next time too.
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