Inheritance Tax Planning

klondyke

jules01 wrote:

Who values the house for inheritance tax reasons?I,e a family house owned for 40years - In the event of the death of the owner who values it?What is used to calculate it?Do they send round a valuer?

Things might have changed, but when doing probate for MIL several years ago, we were allowed to make an estimate using sensible local prices. (Probably easier now with latest house price websites.) If Probate people didn't agree reasonable they would send a valuer. In any case, though, we later needed to get a proper valuation for sharing among beneficiaries. ie house not sold, but one beneficiary bought the other out.

Need to watch out for CGT if price rises after probate and before sale, though, and I seem to remember that if price had fallen (not artificially!) when sold within 1 year of probate, the probate value could be adjusted to actual sale price.

hth

kevc_2

Sadly my mother recently passed away leaving a will with an estate worth approx £400,000.My father passed away some 11years ago and left the iht limit (then £70,000)to my sister and myself.So now am I correct in assuming that I am facing a tax bill of £50,000 with no other option but to pay?

terryf

Presumably they might ask you to show bank or other records to 'prove' that the money was given away if they decide to be awkard but I guess what you don't declare they won't know, I don't keep a record of the gifts that I give to my son and grand-daughter and I am not going to put a notice up in the street or write a letter to Gordon Brown to tell him about my personal activities

sneekymum

terryf wrote:

Presumably they might ask you to show bank or other records to 'prove' that the money was given away if they decide to be awkard but I guess what you don't declare they won't know, I don't keep a record of the gifts that I give to my son and grand-daughter and I am not going to put a notice up in the street or write a letter to Gordon Brown to tell him about my personal activities

My mother keeps a file of Gift Certificates that she makes herself to record who she has given what to and when - she then signs it and keeps it with a photocopy of the relevant bank statement. No one's going to accuse her of leaving her affairs in a mess.

It's not a case of "what you don't declare they won't know" as you don't really want trouble to land on those you were trying to protect - a file of record sheets, all signed by yourself, can remain private and simply be found among your papers when you are gone.

Lezl

Anyone know anything about Inheritance Tax Seminars? I've an invitation to one run by St James's Place Partnership and was interested in attending with my mum who is not sure how to proceed with sorting out her assets totalling in excess of £400,000. She has been widowed for 10 years now and is anxious to sort things out. If these seminars are not a good idea, can you recommend an advisor who will help her?

Lezl

oceanblue wrote:

How much information can you give concerning her age, the value of her assets (and how she owns them), her state of health, income, existing provision for IHT mitigation, her attitude to IHT, etc? The more information the better.

Following up on my query a while back, regarding my mum and how to proceed, I can give the following information, if anyone can help:
She's a widow of 10 years standing, 80 years old and in good health. The value of her assets is in excess of £500,000 and this includes her house (value approx. £300,000 and in her name only), savings in ISA's and Premium Bonds, shares and other tax free savings options like Tessas etc. She gets a small pension and has no present provision for IHT to my knowledge. She obviously wants to avoid the tax man being able to re-tax monies she or my Dad paid tax on.

Any information would be greatly appreciated.

RogerM_2

Lezl wrote:

Following up on my query a while back, regarding my mum and how to proceed, I can give the following information, if anyone can help:
She's a widow of 10 years standing, 80 years old and in good health. The value of her assets is in excess of £500,000 and this includes her house (value approx. £300,000 and in her name only), savings in ISA's and Premium Bonds, shares and other tax free savings options like Tessas etc. She gets a small pension and has no present provision for IHT to my knowledge. She obviously wants to avoid the tax man being able to re-tax monies she or my Dad paid tax on.

Any information would be greatly appreciated.

Lezl. There are a number of things your Mum may be able to do. The first is to make use of annual exemptions - i.e. give away £3,000 p.a., gifts of £250 each and regular gifts from income. You say that your Mum has a small pension so I am guessing that gifting from income is a non-starter.

She could make a substantial gift to her intended beneficiaries now, and so long as she lives a further 7 years this will fall outside of her estate for IHT purposes. This would be a PET (Potentially Exempt Transfer) and if she makes this gift through the use of a "Gift Trust" the annual gift exemption of £3,000 will automatically be used to offset the gift each year, reducing its value for IHT purposes. A major drawback for your Mum is that once the gift is made, either directly or thru use of a gift trust, she has no access to either capital or income.

An alternative would be to make use of a Loan Trust. Your Mum makes a loan to a trust, of which she will be a trustee with perhaps yourself as a second trustee, and with the trust being for the benefit of the intended beneficiaries of her will. The trust invests the money into a bond, and the growth in the bond falls outside her estate immediately. However, because the original investment is a loan, it is repayable on demand, either by regular repayments or as a lump sum, thereby protecting your Mum's security. A drawback is that the original loan remains in her estate.

For example - say she sets up a loan trust for £100,000. The trustees (you and your Mum) invest the capital and it grows at 5% p.a.. This growth is outside her estate immediately. Now suppose your Mum wants the loan to be repaid in instalments of 5% per annum, paid monthly. This means that at the end of the first year the bond is still worth £100k, which is made up of £5k growth and £95k remaining capital. The £5k she has withdrawn she spends as income to supplement her pension, so it's gone. In the 2nd year, if growth stays at 5% and she continues to draw 5%, at the end of the year the bond will still be worth £100k, of which £90k will be capital and £10k growth (and outside the estate). After 20 years of 5% p.a. withdrawals she will have had back all her capital and withdrawals must cease - but maybe not a problem for her at age 100? At this stage the whole bond will be represented by growth and will fall outsider her estate. In our hypothetical example with 5% growth and 5% withdrawals there will be £100k outside her estate at this stage.

Given that she would appear to have about £200k capital and a small pension, perhaps the answer may be to consider taking an income from a loan trust as demonstrated above. Maybe she could also do a small gift trust where she would be a trustee, thereby retaining control over who gets what and when, but at the same time getting the 7 year clock ticking? A combination of Gift Trust and Loan Trust may be a suitable partial solution and may also protect your Mum's financial security. Of course, this is not a recommendation to take action. Do your own research etc and take appropriate professional advice.

HTH

debsa

Hi, could do with some advice and as a newbie, don't know if it has already been covered. My mum is looking at moving and buying a property that is large enough for her as well as myself and my husband. She doesnt know if it is better for it to be purchased in our name (with her money) or if we raise a mortgage on part of it as she will be in a cash buyer position. Either way, when my mother dies she will be leaving estate to me & my brother and we will be living in a house that is partly part of the estate. This being likely to be at least double the current govt allowance, leaves us in a potentially sticky situation as we would have to raise the money to pay my brothers half of the inheritance (he lives in Australia - does that have any implications?!) and also have to pay our part of the tax. Mum is single, has put some money into a trust, but who should we turn to for some really good, sound advice - its a bit of a minefield and would welcome some suggestions.
Thanks

RogerM_2

You need to be careful with this one - take legal advice, preferably from a firm of solicitors that has a proper trust dept.

FWIW, I think that if your mother buys the property in your name and then lives in it, she will be caught under the "gift with reservation" rules because she is continuing to benefit from the gifted funds, unless she pays you a full market rent AND you declare that rent and pay income tax on it. You might get away with it if you have your own separate part/wing of the property which is your selfcontained residence to which your mother does not have automatic access. Under these circumstances the revenue may regard the part you occupy as a potentially exempt transfer which falls outside your mothers estate after 7 years. But then there is the complication of sharing the estate with your brother. Tricky!

kaznei

I am a probate assistant and my boss is an expert on IHT mitigation. He is a STEP solicitor - if you want it done PROPERLY it is expensive, but worth it.

You need to sever the joint tenancy of a property to be tenants in common. The first to die would then leave the assets not to their spouse, but to the discretionary trust. It is essential that a letter of wishes is involved and that your trustees are reliable and trustworthy. The surviving spouse can be one of the trustees. They can then borrow from the trust all they want, which creates a debt on their estate so that when they die, that becomes a liability and is payable to the trust before the estate is valued on its assets, thus reducing the estate. The trust can run for 80 years before it is closed, which means that children and per stirpes, can go on gaining.

I am in the Berkshire area so if anyone is looking for a STEP solicitor, then please let me know. Normal High street solicitors can get it wrong (and believe me, we have had some real disasters where people have had wrong advice).