Inheritance Tax Article MoneySavingExpert.com Discussion

dunstonh

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.

Nothing wrong with that. You don't lose or gain money with a PEP. It's what is invested inside that matters. Given the fact you say PEP (rather than ISA), the timescale would suggest you would have made significant gains had you left it, rather than cash it in a turn a paper loss into a real loss.

Solicitors deal with wills and the legal side (can be very useful on custom trusts). Accountants will offer nothing in this case. IFAs are the ones that recommend the suitable products to reduce/remove the IHT liability.

I have given a large sum of money to my children and neither has a will yet.

A flexible trust or even a loan trust or may have been a better route. Especially as you could have continued to benefit from part of the funds. Quite important if you say you don't have a lot of money. After all, it is YOUR money. Giving it away and leaving yourself short isn't something you should aim to do. Especially when alternatives exist.

Lezl

Can anyone please let me know if it's a good idea to attend one of the seminars offered through the post (namely 'Inheritance Tax and You' seminar run by St James's Place partnership). My mum is concerned about this issue, as she has been widowed for the past 10 years and her estate totals in excess of £500,000.

Any advice is gratefully received.

kinc

exil wrote:

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.

My opinion
Exil, as you say people worked hard for their money and have paid tax all their life so in my opionion they should not pay tax on it again!
In my case you can see my father had everything covered in the event of his death and worked for 32 years in his job with one day off before the accident, whenever we'd spoken of the "tax-man" he obviously didn't want to pay again.
I certainly agree that the threshold should be raised.
Nick

margaretclare

exil wrote:

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, I completely agree with every word that you say. It touches a raw nerve with me, not because I've got these huge sums of money to 'bequeath', but because I'm nearer the age-group that you're all talking about. I'm 70.

I don't agree with the argument 'we worked hard and want to leave it to our kids'. If you brought up your kids well and hopefully they benefited from educational opportunities that were better than anything we had (I left school @ 16 in 1951 with 4 'O' levels) then they should darned well be standing on their own feet and paying their own way. I have 2 stepkids and a daughter, and all of them are doing very nicely thank you (especially the stepson, who's a high-flyer with 2 kids in prep school).

I would rather say: 'we worked hard all our lives (and we did, my second husband and I both worked from 16 to 67, a total of over a century between us) and brought up families etc who no longer need anything from us. Now is the time to sit back, relax, enjoy what we have, do the kinds of things that we enjoy doing (that doesn't mean bingo and daytime TV - we both do voluntary work and we have a lot of interests).

Someone mentioned an IFA advising a PEP. Well, there was absolutely nothing wrong with that. This was one of the first attempts to get 'ordinary' people involved in the stock market, were followed by equity-based ISAs when the political climate changed. It was possible to make money from a PEP depending on the stock market which, of course, 'can go up as well as down', the basic advice was sound, and I actually made money from a PEP, as I'm sure others did.

Take advice from an IFA, but also, as everyone keeps saying, there is no substitute for DYOR! (do your own research). And that is what I would advise anyone to do, don't leave it to your sons/daughters. Do it yourself, and make your own choices/decisions based on YOUR needs and aspirations!

Aunty Margaret

brodev

In the article a "discretionary trust" is mentioned. What is a discretionary trust and how much does it cost to set one up and possibly maintain. If the answer varies on the amount can we use the gettingonabits please?

exil

kinc wrote:

My opinion
Exil, as you say people worked hard for their money and have paid tax all their life so in my opionion they should not pay tax on it again!
In my case you can see my father had everything covered in the event of his death and worked for 32 years in his job with one day off before the accident, whenever we'd spoken of the "tax-man" he obviously didn't want to pay again.
I certainly agree that the threshold should be raised.
Nick

The situation we're in now is where most people's wealth is in the form of houses - which have soared in value as a capital gain, not due to any "work" that the house owner had done. It is this that has increased the no of estates going over the IHT threshhold.

36,000 estates paid IHT last year. However it was 50-100,000 in the 50s up to the 80s, and 150,000 before the war!

In fact, the best case for abolishing IHT is that it no longer is a big money earner for the Chancellor - only about 2 billion a year.

jem16

brodev wrote:

In the article a "discretionary trust" is mentioned. What is a discretionary trust and how much does it cost to set one up and possibly maintain. If the answer varies on the amount can we use the gettingonabits please?

I found this article very helpful.

Discretionary Trusts

dunstonh

In fact, the best case for abolishing IHT is that it no longer is a big money earner for the Chancellor - only about 2 billion a year

about a penny on income tax then.

IHT is one of the few taxes the chanceller has not really touched yet. There has been some loophole closing and the results of those will not impact until more people die in the future.

With this Government, it is unlikely to get reduced in the future but increased. The dead cannot vote.

boundarybob

I have set up a discretinary trust to take care of one IHT allowance but with property, the surviving spouse will still be over the threshold. I have been told that equity release may help as taking money out of your property means it is worth less for IHT purposes on death of surviving spouse.
Example: property worth say 350k after second death less allowance of 275 ( or whatever) = 75k @40% = 30k tax.
If I take out 100k as equity release the estate would be worth 100k less and I would have had the cash.
Am I missing something or is this correct?

exil

dunstonh wrote:

about a penny on income tax then.

IHT is one of the few taxes the chanceller has not really touched yet. There has been some loophole closing and the results of those will not impact until more people die in the future.

With this Government, it is unlikely to get reduced in the future but increased. The dead cannot vote.

IHT and death duties have a secondary purpose - to persuade the wealthy to donate to good causes. If they could leave 100% of their wealth to offspring - they probably would. So I wouldn't favour getting rid of it altogether.

Abolition would also leave the reasonably well off entirely free to transfer assets to offspring (as long as they don't try to get round the local authority care rules by reducing themselves to the clothes they stand up in). Said offspring could then put in large deposits on houses, forcing up the price of housing.

Of course the dead cannot vote - but those expecting to recieve a big wodge of cash from relatives can. It could be a popular move to increase the
threshold substantially. I suspect a reasonable compromise would be to set it
at 50% above the 90th percentile of house prices. This would be about £450,000 - but would then be guaranteed to increase with house prices.
The cost of this would be about 500 million. Quite a cheap way to win round the Express readers.

By the way - re: "With this Government". A look at post-war history
doesn't suggest a great deal of difference in the way Chancellors
deal with taxation. Taxation has gradually increased over the years
regardless of who's in No 11.