Inheritance Tax Planning

sneekymum

I have a friend who grew up on a farm in Wales. He was an only child and learned the trade of his father. The farm had been in their family for generations. His mother died when he was 16 and his father remarried a couple of years later. And then wicked stepmother threw him out.

My father died too young after working very hard to build up his business. Indeed we all worked very hard to build up the family business. Should my mother decide to remarry she will have considerable assets and an income taxable at 40%. While I've sucessfully reduced IHT liabilitites there's a long way to go and it would certainly be against my father's wishes to risk leaving everything he worked for to the lucky new husband.

Other's circumstances will differ from mine. IHT is out to catch estates both modest and massive.

koru

Earlier in this thread, there was discussion about emigrating to avoid UK IHT. As mentioned, if you can show you have moved for good, you exit the UK IHT net after 3 years (except assets located in the UK when you die).

Thought I would mention that New Zealand has no inheritance tax. It abolished estate duty years ago. I don't think many of us would emigrate just to save IHT, but if you are thinking about it anyway, it is a major bonus that you could save your kids £100,000 or more!

koru

Apologies if someone already said this and I missed it.

I am dubious about the benefit of IHT insurance. If you buy it, it seems to me that you are effectively making a bet that you will die earlier than the actuaries think you will.

Here's how I think about it, but I may have missed something, so please correct me. Assume you expect to have to pay IHT of £100,000 when you die. You buy insurance which will pay £100,000 of IHT when you die. How does the insurance company set your premium? Well, they ask their actuaries how long you are likely to live, in view of your age, health, smoking etc. Let's say the answer is 10 years. So, they are going to want a premium of at least £10,000 per year, so that you will have paid them £100,000 if you live for the expected 10 years. But they need their profit margin on top of this, so they may charge you say, £12,000 per year.

If you die after 5 years, you have paid them £60,000, and they have made a bit of investment income from your premiums, so maybe they have £70,000. This means they make a loss of £30,000 after paying the £100,000 IHT. Which means you have actually "saved" £30,000.

But if you live longer than your expected 10 years, you haven't saved anything, because the premiums you have paid (plus the income you could have earned if you had invested the premiums instead) are more than the IHT you have "saved". In fact, because they will build in a profit margin, you will only be better off if you are "lucky enough" to die quite a bit earlier than you were expected to live.

If I am right, then this is not a good deal.

sneekymum

The other thing to add there is if you do go for the Insurance method - make sure its written in trust so that it doesn't add to your estate.

I think the main sort of IHT insurance is where you dispose of a lump sum out of your estate by making a single premium purchase of insurance (held in trust) the value of which is invested in a bond (usually with-profits) which hopefully grows. The advantages of these schemes are that there are no assets to be taxed in trust (as they've been spent on an insurance premium) the bond grows tax-free (as its generally off-shore) and upon death its all tax free. The other bonus is you can call it all off and have your money back (subject to the potential beneficiaries signing the form, and Capital Gains Tax). The downside being a "with-profits bond" and its MVA.

Toxteth_OGrady

If a will has already been executed through Probate and the assets distributed accordingly, is it still possible to retrospectively (within 2 years) sever the pre-death Joint Tenancy, change it to Tenancy-in-Common and then set up a Deed of Family Variance to leave £270k of the value of the house to the surviving children rather than all to the surviving spouse?

If so what is the best IHT-proof method of leaving the £270k (approx 70% of the total value of the house) to the children? The house cannot be sold as the surviving spouse needs to continue living in it.

:cool:

TOG

sneekymum

I think its possible - but you'd have to get all beneficiaries to agree.

You're taking about a lifetime trust. There are drawbacks - complicated tax and I'm not sure how possible it would be for surviving spouse to move.

Given the amount at stake it would be wise to phone your solicitor about this one - if solicitor isn't up to speed on IHT find one that is. I'd also recommend taking about an hour to read all 207 entries above yours...

Toxteth_OGrady

Thanks.

Already waded throug the whole thread, but didn't find sufficient detail to answer my questions.

Moving house is not a consideration for the surviving spouse.

All beneficiaries are in agreement that this is the way to go.

Can you shed more light on lifetime trusts? Is this the same as a Nil-Banded Discretionary Trust?

What are the mechanics of leaving part of a house in trust? Do the deeds have to be amended?

:cool:

TOG

callum2063

Ok I think I need some help. Basically 2 properties, one rented out, 2 dependant kids and an expensive wife! Who will give me the best advice on inheritance tax planning? An accountant, solicitor, or should i consult an expert in this field and if thats the case how do i find one? aged 51 and starting to think that G.Brown will have my childrens inheritance assets. Thanks for any advice offered.

sneekymum

Have looked for years for an expert in this field - they all want to sell you something.

Since you have a wife there would be no IHT to pay if everything passes to her (or vice versa) but you should have wills that make use of your IHT-free allowances by leaving things in trust to your children but with perhaps a lifetime intrest for the surviving parent - in which case your solicitor is what you need. You don't need to set up a trust - just put in your will that one should be established.


Big assets should be in joint names anyway so that if you should both die together there'll be double the IHT-free allowance. In the long term if you plan to give money away to your children then the earlier you do it the better - to ensure you have the best chance of surviving seven years. Hope this helps.

cheerfulcat

callum2063 wrote:

Ok I think I need some help. Basically 2 properties, one rented out, 2 dependant kids and an expensive wife! Who will give me the best advice on inheritance tax planning? An accountant, solicitor, or should i consult an expert in this field and if thats the case how do i find one? aged 51 and starting to think that G.Brown will have my childrens inheritance assets. Thanks for any advice offered.

Hi, Callum,

Ideally you would go to a specialist in estate planning. STEP is the best place to look -

http://www.step.org/index.pl?section=13;n=2000

HTH

Cheerfulcat