Inheritance Tax Article MoneySavingExpert.com Discussion

elliebean_2

andyd wrote:

Just to clarify elliebean,if his fathers Will left half of the house to Jess(assuming the joint tenancy had been split)but didn't refer specifically to his mum being allowed to live in it till her death,why would that create an interest in possession?

If a request that Jess's mum could remain in the property was referred to in a separate letter of wishes wouldn't that avoid an interest in possession and thus mean that the half share given to Jess in his fathers Will would avoid IHT when his mum subsequently psases away ?
Thanks.

Andyd, when I talked about an interest in possession that was specifically referring to if Jess's father had left his share of the house (as you quite rightly say, assuming the tenancy had been severed) as a life interest to Jess's mother with Jess being the ultimate beneficiary.

To mitigate IHT it would have been best to set up nil rate band discretionary trusts in Jess's parents' Wills. Then Jess's mum could have given the trustees an IOU for her husband's share of the value of the property, which would have been repayable on her death from her estate.

margaretclare

Jess wrote:

All her 'wealth' is tied up on the bricks and mortar so she has nothing to give anyone unless she sells up and buys something smaller and that is not an option

Why is it not an option? You said it yourself - it's bricks and mortar. Just a place to live. If your Mum lives alone and the house is too big for her needs, she could sell it and buy something much smaller, easy-care, more convenient and less expensive to upkeep. This last is a big consideration - every house needs maintenance and the older and bigger it is, the more maintenance it needs. Your Mum could have more money to enjoy now, rather than having to worry all the time about the drains, the painting and decorating, all the rest of it.

Margaret

elliebean_2

Jess wrote:

Thanks Elliebean, That's what I was afraid of. Was that arrangement ever a way of cutting down on inheritance tax or were we badly advised I wonder?

Jess, as far as I'm aware this wasn't ever a way of mitigating inheritance tax. One of our recent clients had had their Wills written a couple of years ago by a solicitor. These Wills also contained life interests to each other in their property and they'd been told by the solicitor that this would reduce their liability to inheritance tax.

It does worry me the number of people who think solicitors are the best when it comes to having a Will written. I've heard some real horror stories from colleagues. Some solicitors have not even trained in the area of Wills and Probate. The sooner will writing is regulated the better! Anyway, I digress...

Jess, it's difficult to comment without seeing the Will and knowing the exact situation but it does sound as though your parents may have been given poor advice.

Jess

margaretclare wrote:

Why is it not an option? You said it yourself - it's bricks and mortar. Just a place to live. If your Mum lives alone and the house is too big for her needs, she could sell it and buy something much smaller, easy-care, more convenient and less expensive to upkeep. This last is a big consideration - every house needs maintenance and the older and bigger it is, the more maintenance it needs. Your Mum could have more money to enjoy now, rather than having to worry all the time about the drains, the painting and decorating, all the rest of it.

Margaret

Basically house is in small village and adjoining that of my sister. Very few local houses come onto the market and none of them are cheap. If she moved where would she go that wouldn't seriously affect her quality of life? She doesn't drive and would have to move into the nearest town 10 miles away - away from all her family - as I said, it's not an option.

From what I have read it sounds as though there's no way around the inheritance tax issue. I think we need a trip to a financial advisor? or tax expert? to clarify. Thanks to everyone for their comments.

margaretclare

Jess wrote:

Basically house is in small village and adjoining that of my sister. Very few local houses come onto the market and none of them are cheap. If she moved where would she go that wouldn't seriously affect her quality of life? She doesn't drive and would have to move into the nearest town 10 miles away - away from all her family - as I said, it's not an option.

From what I have read it sounds as though there's no way around the inheritance tax issue. I think we need a trip to a financial advisor? or tax expert? to clarify. Thanks to everyone for their comments.

Thanks for the clarification. In that case, it sounds like an excellent argument in favour of equity release. Your Mum could release a percentage of the equity, use it for repairs/home improvements, improve her standard of living, have some freedom from worry about bills etc, enjoy herself a little. If this was done as a 'lifetime mortgage' then the mortgage remains to be paid off at her death. This is effectively a 'first charge' on the property and thereby reduces the value of the property - less value = less IHT to be paid.

Margaret

EdInvestor

The situation with equity release has improved in that you can now do a deal with a set amount to release, but only draw it down as needed.This prevents the interest from rolling up too rapidly if the money is not actually needed immediately.

Interest rates are also now coming down to more like normal mortgage rates.Watch for redemption fees, as you may want to "remortgage" to a new loan later if terms improve further, as seems likely.

old_grumpy_2

Let’s suppose that you open a building society joint savings account with one of your children. This is done some 15 – 20 years before your death. Then you decide in your old age that you want to reduce this capital (of several thousand pounds) to lessen the impact of inheritance tax. My question is simple. As the account has been in joint names for well over seven years, can the sibling withdraw some, half or even all of it, without it being taken into account in the parent’s estate if the parent should die inside the next seven years?? Also, if the parent was to die in the immediate future, without the account being reduced at all in size, would the tax man only be able to take 50% of those savings into account for estate purposes??

margaretclare

I think in the case of a joint account, either of the joint holders can withdraw the whole lot at any time! As has happened in some marriages....

Margaret

Lightning_2

I wrote to my MP recently to suggest that as the Gift Allowances had not been increased since 1984, and despite an increase in of almost 80% in the rate of inflation, were there any plans to increase them. My letter was passed to the Treasury who replied that this allowance was in place before Inheritence Tax was introduced and since then the Government have preferred to increase the levels of IHT free allowance. That is, they are not going to change.

So take advantage of the GA's, make certain that you keep a record of them, just in case you die, when any large gifts will be considered as being part of your estate. Do remember if you are handling someone's probate, to take this into account, there is a section for declaring gifts in the 7 years prior to death, against which you can offset GA's.

I personally will be very tempted to vote for any party who pledges to abolish IHT. Please reply to this to register your views on this subject in the hope that Martin will take up the gauntlet for those of us who will face this diabolical tax.

Andy_L

Lightning wrote:

I personally will be very tempted to vote for any party who pledges to abolish IHT. Please reply to this to register your views on this subject in the hope that Martin will take up the gauntlet for those of us who will face this diabolical tax.

Even if they made up the lost revenue with a 1% on income tax?