Inheritance Tax Planning

Robert_Sterling_3

So £300,000 in under 2 years 1 month. Don't die before then!

Patr100

Better than nothing but Not a great help - It is very likely that the increased allowance will be eaten away with even moderate House price inflation -specially in the South East.

sallyholt

A tip to anyone trying to sort out the affairs of a family member who has died:

ast year my father in law died and we dicovered that the Solicitors who had arranged for the purchase of his house with his wife hd not arranged for it to be owned as Tenants in Common - this means that within 2 years of his death we have to 'sever the tenancy' so that under a Deed of Family Variation his wife and the family in agreement can put half the value of the hosue into a Trust. No one can force the widow to sell the house as the wording of the Deed of ariation is such that when she dies her estate has a debt to the estate. Assuming half the value of the house is taxed at 40% if no action ahd been taken this simle arrangement saves 40% of £263,000 = £105,200.

I was shocked to find that local solicitors who I had instructed to carry out this common procedure (which I knew about having worked for a bank over 25 years) are not familiar with this transaction and so you really have to use Trust and Estate Planning Specialists - they charge a couple of thousand pounds to save you over £105k so its really worth while. I used the St James's Place Partnership who describe themselves as a Wealth Management company and as such they egularly arrange these matters which are more and more common now that houses have gone up in value so much.

I hope this is helpful to anyone else who wants to save ta for their families

Mumstheword

Morning all.

Does anyone know how the chancellors recent changes will affect existing discretionary trusts? Is it true that the 'tightening up' is to be backdated, and could therefore render a trust set up 3 years ago as useless?

HarrisSalh

MSE_Martin wrote:

To read the article this relates: Inheritance Tax

To discuss it or ask a question just click reply.

Doesn't discretionary trust mean that they have the right to do what they want with the trust fund? You only have to write a letter of wishes shouldn't this trust fund be written into a will? Everything is in the solicotors hands. If they lost the letter of wishes no one would know that this trust fund existed. This requires a huge level of trust that seems to be unwise. Am I right to be so concerned and are there any steps to take to make sure you don't lose everything.

GeoffS_4

Can someone please explain what happens if there is not enough in the estate to cover IHT?
For example, say two years before death, the deceased gave away 400,000 to various people (many unknown) mostly in cash so there was nothing left in the estate and the beneficiaries receive nothing.
How will the taxman try and recover the IHT owing? Do the beneficiaries have a tax bill even though they received nothing from the will?

dunstonh

GeoffS wrote:

Can someone please explain what happens if there is not enough in the estate to cover IHT?
For example, say two years before death, the deceased gave away 400,000 to various people (many unknown) mostly in cash so there was nothing left in the estate and the beneficiaries receive nothing.
How will the taxman try and recover the IHT owing? Do the beneficiaries have a tax bill even though they received nothing from the will?

The £400k would have been a potentially exempt transfer. If death occured after 2 years (of the 7 required), this then becomes a chargeable transfer. Therefore the 400k will be drawn back in for IHT purposes and the estate recalculated with that included. There would be no reduction in the tax due to 2 years passing. You need to be in the 4th year to get the first reduction.

If the estate does not have the assets (or sufficient assets) to pay the tax bill at that point, then the beneficiaries of the £400k have to pay the tax bill on their chunk - minus the sale of what remains in the estate.

As a will was written, it could be possible to alter this under a deed of variation, if all parties agree. This may be of use to help alter the direction of the remaining assets to those who need to cover the tax bill.

However, you must remember that the assets left on the estate would be sold to cover the tax bill before the inland revenue would go looking for the rest from those that received the £400k. So those in the will could end up getting nothing.

Patr100

dunstonh wrote:

If the estate does not have the assets (or sufficient assets) to pay the tax bill at that point, then the beneficiaries of the £400k have to pay the tax bill on their chunk - minus the sale of what remains in the estate.

yes, but what if , as suggested, the beneficiaries of the £400K are unknown, untraceable and those who are entitled to the remaining estate are left short with a large tax bill , through no fault of their own?

-

GeoffS_4

Thanks for reply. If the estate is worthless on death does this mean the taxman will try to recover IHT from anyone who received a gift during the past 7 years, even though they may not be benficiaries of the will?

dunstonh

yes, but what if , as suggested, the beneficiaries of the £400K are unknown, untraceable and those who are entitled to the remaining estate are left short with a large tax bill , through no fault of their own?

Assuming it isnt traceable then potentially a criminal investigation would be started for fraud and/or money laundering.

However, £400k would leave an audit trail. Money laundering and tax evasion rules have taken care of that.

Thanks for reply. If the estate is worthless on death does this mean the taxman will try to recover IHT from anyone who received a gift during the past 7 years, even though they may not be benficiaries of the will?

Correct for anyone that received a potentially exempt transfer. A gift under IHT gift allowances would not be included. This is why financial advisors will also tell the beneficiaries not to spend the money. Or what happens under normal advice is that the money is placed into an investment under trust so the beneficiaries dont get the money until death (or until after 7 years is up).

The will describes distribution on death. The gifts are transfers before death and are not linked to the will. The gifts have their own tax liability on them for 7 years. In the same way that a self employed person gets the income first and has to pay the tax later. If you spend it all first, then tough, the tax man will get it off you by other means.