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Inheritance Tax Planning
Comments
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Hi
Can anyone tell me how my husband and myself can become 'Tennants in Common' without incurring costly legal fees?
Thank you0 -
The £55k limit is only on transfers from UK dom to non-dom. There is unlimited transfer from non-dom to non-dom and UK dom to UK dom.
Since Jennifer and her husband are both deemed dom there are unlimited transfers on death. In Sneakymum's sister's case the £55,000 limit will apply on sister's death on transfers to non-dom unless sister is non-dom herself.
However, given that sister continues to hold investments in the UK she would probably find it very difficult to argue yet that she has abandoned her domicile within the UK. Therefore the £55,000 limit on her death will apply as will UK IHT on her worldwide estate.0 -
Thanks for all the replies. I must admit the question of my own domicile had not been considered. We married in 1969. There seems to be some difference of opinion concerning the nil rate band. I had read about "deemed domicile" and wondered if this would apply. This would obviously be better for us, just wondering if IR can choose how they apply it so as to extract max tax. Where would I go to get this sorted out/confirmed? I would like to get something in writing to confirm our present status.
It is my understanding that UK and Norway have some agreement so people are not taxed twice. We do not own any property in Norway, have any money there or pay any tax there at present, so had not thought about Inheritance Tax there.0 -
Getting something in writing......
My sister is concerned about that too - my advice to her was to put her (South African) solicitor on to it as she's trying to lose UK domicile, not confirm it like you.
I'd ask the tax office if I were you.still raining0 -
HMRC will only rule on domicile if it is material to your circumstances.
It is not relevant to your husband's income tax so a better step would be to get his Will to affirmitively state that he considers himself domiciled in either England & Wales; Scotland or Northern Ireland.
As far as sneakymum's sister is concerned I suspect that she has not yet abandoned her domicile of origin given that this is extremely tenacious and sister continues to have strong ties to her place of origin (eg family and savings). If sister is prepared never to return to the UK even if husband predeceases her then and only then would one consider her having abandoned her domicile of origin. I would suggest that the SA lawyer takes an English counsel's opinion to see if there may be an argument as to get the result here will require significant interpretation of current English case law.0 -
In your article you say that IHT only applies to gifts in excess of £3000pa that come out of a person's savings, not out of their income. I care for my elderly mother who is disabled and she has signed the house into my name. I understand that on her demise I will have to prove that she paid me a commercial rent whilst still alive or the tax man would not recognise the gift as genuine, even if she survives beyond the stipulated 7 years. We set up a standing order of £450 month, out of which I in fact pay all the bills which mum would have paid herself. Due to her disability she only occupies downstairs, whereas a commercial rent for the entire house would be nearer £900pm.
Q1. Will the tax man recognise £450 as a proportionate commercial rent, especially since I use the rest of the house?
Q2. Van I/should I use the rent a room allowance to reduce the amount I declare for income tax or would this disadvantage me with IHT?
Q3. The £450 comes out of my mum's income from pensions etc, therefore do I need to declare it for Income Tax at all or can I treat it not as 'income' (after all, it's all the same money moving around the family pot) but as an ongoing gift? Would this disadvantage me re IHT?0 -
I'm no expert, but
Q1 & Q2, my gut feeling is that £450 as a realistic representation of the house as occupied is OK, and the rent a room allowance should apply. I would definately put those questions in writing to your local tax office and get a written reply which you should guard with your life (or frame and hang in the hallway).
Q3 - Yes, you do need to declare it as income. That being the point, after all, of letting part of your house out at a market rent... it can't be a gift and a realistic rent at the same time.still raining0 -
I'm 50 and in good health but, as you say, should I slip away tonight I would prefer to avoid paying taxes where possible. I live alone with a son of 11, no other dependants or partner (his father is deceased). My whole estate around £350,000 (property & savings etc) and in will have left it all to him. How do I ensure he pays as little Inh Tax as possible?0
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You could consider adding his name to the deeds. I don't think this move would be spoiled by the pre-owned assets rules as he lives there too. Your solicitor can confirm this. There has to be a balance between living your own life and avoiding taxes. If you perhaps plan to move to a smaller house when he leaves home and let him take his equity then this idea works well. But if you live in an expensive area - i.e. you alreay live in a small house then its no help. The IHT threshold is set to rise over coming years - leaving less tax to pay.
In our family mother gives me lump sums ("potentially exempt transfers" which are IHT-free after seven years) and I put them In tax-free national savings certificates (where they don't impact on tax credits). These are outright gifts - given without reservation - which I might well choose to give back should she need the money....
This sort of arrangement is more suited to adults though. If you've got £75K spare to give your son then that's all you can do. (And survive seven years). Though the interest on such a gift would be taxed as if it was yours (for interests of over £100). And there may not be much chance of him 'deciding' to give it back one day.
By the way - if you've got life insurance make sure its written in trust for his benefit - otherwise it would pay out into your estate - and the treasury's.
IHT is a nasty mean-minded tax.still raining0 -
sneekymum wrote:IHT is a nasty mean-minded tax.
Without going off point I sympathise with the sentiment, but remove it then the revenue would have to be effectively taken from elsewhere and that ultimately means transferring the burden to income tax or VAT or whatever. Since an inheritance is unearned it doesn't seem to warrant much moral defence being transferred to the costs on the earnings of others. This is especially so when one considers how much less capital is taxed compared to income and indirect taxes. One can strip out a generous capital gains allowance each year and no tax is incurred on a residence meaing an inheritance is typically far an above what the original person actually paid out of their earings (stumping the often used double tax argument). A couple can leave between them over half a million pounds to their children before IHT occurs by managing their affairs and Lifetime Gifts on top of this, not to mention all the other ducking and diving schemes that almost render it a voluntary tax (wasn't it Dennis Healy who said it was a voluntray tax paid by those who despise their beneficiaries more than they do the Inland Revenue?)
I would agree that there is one nasty thing about it if two generations die close together you often get a double whammy and this is an iniquitous area that needs reforming with perhaps a tapered consideration over time for tax already paid.0
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