guaranteed way to avoid inheritance tax

katybshopaholic

Sad to say, I have discovered a guaranteed way to avoid inheritance tax and I want to share my sorry story with other investors to try to stop anyone else being conned in the same way. My husband took early retirement and with the sale of his business premises we needed to find somewhere safe (ha ha) for our savings as we needed to live on the interest. We had previously invested with Bradford and Bingley so when we were invited to a financial review to "protect our hard earned savings from inheritance tax" it seemed a good idea.

Our attitude to investment is cautious in the extreme but we were persuaded to invest £250,000 with Legal and General in what we were promised was a low risk investment. Yet within 12 months each of our £125K porfolios had dropped to £105,648 with a surrender value of £99,309. Horrified we returned to the Bradford Bingley where a different advisor pointed out that the majority of our investments were in moderate to high risk funds. He advised us not to bail out until our complaint was investigated but our funds were plummeting by £5,000 a month so we surrendered our policies with penalties and lost a total of £60,000.

If we had left our money and it carried on losing at that rate there would have been nothing left at the end of the five year term. That is a surefire way of avoiding inheritance tax! Not too suprisingly Legal and General's investigation advisor - hardly impartial - rejected our complaint so we are now persuing it through the ombudsman. Here's hoping.

Only today I received an invitation to an inheritance planning seminar, which prompted me to write. Having worked all your life, paid taxes, etc, it sucks that the taxman can take 40% of your estate but don't let that panic you into being suckered.

Aegis

Our attitude to investment is cautious in the extreme but we were persuaded to invest £250,000 with Legal and General in what we were promised was a low risk investment. Yet within 12 months each of our £125K porfolios had dropped to £105,648 with a surrender value of £99,309. Horrified we returned to the Bradford Bingley where a different advisor pointed out that the majority of our investments were in moderate to high risk funds.

If this is all true, this is a mis-sale. Telling you that it is a low-risk investment when times are good and a medium- to high-risk investment 12 months later is clearly fishy. It might be worth making a complaint about this...

1echidna

I wonder whether the current turmoil has turned many investments which were once considered low risk (2 or more years ago) into high risk. Banks and their AAA securities come to mind.

beingjdc

katybshopaholic wrote: »

Only today I received an invitation to an inheritance planning seminar, which prompted me to write. Having worked all your life, paid taxes, etc, it sucks that the taxman can take 40% of your estate but don't let that panic you into being suckered.

The taxman can't, unless your estate is worth £infinity, in which case the percentage trends towards 40.

Otherwise, you have £312,000 nil-rated each, so if you leave a total of £1 million, the tax payable would only be £150,000, or 15%.

I don't know about your children, but if I'm lucky enough to inherit A MILLION POUNDS when my parents die, I won't begrudge the taxman £150k.

If you have more than that, I suggest you spend it, and let your kids work for a living like your husband did.

CluelessJock

beingjdc wrote: »

I don't know about your children, but if I'm lucky enough to inherit A MILLION POUNDS when my parents die, I won't begrudge the taxman £150k.

.

I don't understand your view and would commend your generosity, however I think it is the principle that is the issue rather than the numbers?

EdInvestor

katybshopaholic wrote: »

Our attitude to investment is cautious in the extreme but we were persuaded to invest £250,000 with Legal and General in what we were promised was a low risk investment. Yet within 12 months each of our £125K porfolios had dropped to £105,648

This was a 16% fall. Certainly within cautious risk levels at a time of exceptional volatility like now.Many people don't seem to understand the difference between no risk, low risk and cautious.What funds was your money invested in?

....with a surrender value of £99,309.

You didn't need to suffer this loss of course.

Horrified we returned to the Bradford Bingley where a different advisor pointed out that the majority of our investments were in moderate to high risk funds.

Which funds were these?

He advised us not to bail out until our complaint was investigated but our funds were plummeting by £5,000 a month so we surrendered our policies with penalties and lost a total of £60,000.

Did he suggest you could switch the money into any of the lower risk (including cash) funds available within the L&G bond wrapper?This could probably have been done at no cost and would enable you to sit out the current turbulence and wait for the complaint to be looked at - and indeed eventually exit if that's what you wanted at no penalty.

The fact is that if you are withdrawing 5% a year from your capital for spending and the markets start to fall, you can deplete your fund quite rapidly, as the charges will probably eat up much of the income you are receiving.

Similar problem arises with money in cash when interest rates fall: people start topping up from the capital, which then generates less interest, requiring more topping up etc. No charges though, so it's not quite as bad.

BTW, did the original advisor sell you a stocks and shares ISA for 7.2k each?He should have done, if he didn't it's a missale.

beingjdc

CluelessJock wrote: »

I don't understand your view and would commend your generosity, however I think it is the principle that is the issue rather than the numbers?

Faced with receiving the amount of money it takes the average person thirty years to earn, in return for doing absolutely nothing apart from suffer a sad but ultimately inevitable loss, I wouldn't carp about not getting the full thirty five years' (ie a working lifetime, pretty much) worth.

Why should the money I get for doing no work be taxed less than the money I get for doing work?

baby_boomer

I've got a cast iron way to avoid IHT.

Spend it!

The baby_boomers will continue our charmed and self-centred way through this world to the very end .

Tighthead

beingjdc wrote: »

Faced with receiving the amount of money it takes the average person thirty years to earn, in return for doing absolutely nothing apart from suffer a sad but ultimately inevitable loss, I wouldn't carp about not getting the full thirty five years' (ie a working lifetime, pretty much) worth.

Why should the money I get for doing no work be taxed less than the money I get for doing work?

I applaud your attitude, but IHT is usually more emotive for the donor/settlor than the beneficiary. Put it another way, why should your parent's estate be hit with a 40% tax bill when they have worked 30 years to build it up?

Tighthead

EdInvestor wrote: »

BTW, did the original advisor sell you a stocks and shares ISA for 7.2k each?He should have done, if he didn't it's a missale.

I agree with your other points, but am intrigued as to why you think that not recommending an ISA is automatically a missale? The FSA don't seem to share the same view. Incidentally, I have had a conversation with the FOS about this same issue, and they confirmed that they don't look for an ISA as a must have recommendation - because there are reasons why it isn't appropriate e.g. I want to write my investment in trust - but clearly an ISA is usually a prime consideration and starting point.

I'd be interested in your comments.

Regards.

home_alone

I took 250K out of Icesave (wasnt I lucky) over the last 12 months and gave it to the kids and I plan to live another 30 years so there.

gary