Inheritance Tax Planning

Tiggs_2

ducky2004 wrote:

Sorry for the very late respond - just found this thread. I will reply anyway in case it will be of use to anyone.

The 50k would be a potentially exempted transfer. If he has not given anything else to anyone (not at market value) and has total asset > £285k, then there is no implication.

If he has given lots of money to someone else, like charity as well during the last 7 years, and do not live for at least 3 years, you could face a 40% tax on the 50k received - even if you have spent them all. This is reduced gradually to zero if he survive between 3 - 7 years.

not sure if the above is badly worded or plain wrong....but its not correct/clear!

Jays

kaznei wrote:

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).

Could you explain what a STEP solicitor is please? We have a Discretionary Trust written into our wills, but not sure is as well defined as you have explained. I'm suspicious as the solicitor did not explain the implications for our children, just the remaining spouse.

Thanks in advance for your reply,
Jays

Stormybay

Hi all,

I first posted this out on the general tax board, but thought I may get a little more advice here. Since the original post (see below), the bungalow has been valued at £240K and my brother has given all at his business 12 weeks notice of closure!!!!!!

Any advice would be gratefully received


Briefly, the story is that my father recently passed away and left all his assets jointly between me and my brother. He had a bungalow worth about £200,000 and about £50,000 in cash and premium bonds. All the above will be split equally and seems quite straight forward.

BUT, 5 years ago, my father retired and sold his lucrative business to my brother for £1 and he had since run the business sucessfully. At the same time, my brother bought my fathers then house, worth £350,000, for £90,000 and dad bought the bungalow (detailed above), for the £90,000 he recieved from my brother.

My queston is - Do the business and my brothers house form part of my father's estate as they were 'gifted' to my brother less than 7 years ago, or does my brother just have to pay IHT on the original house and business, or will it come out of the joint assets of the bungalow and cash?

I know it seems strange, but when my mother and father were alive, they had a will that left the business to my brother and the original house to me, but when Mum died, 6 years ago, it all changed and my brother seemingly got both, and Dad changed his will to leave his bungalow to both of us, presumably not thinking he would pass away within the 7 years of gifting to my brother.

I could do with some advice please as my brother has not mentioned the business or his house to our soliciter who is executer of the will, along with myself and my brother. I suppose my main worry is that I will have to pay IHT for my brothers' 'gifts'?

Thanks in advance for any advice,

Stormy

Tiggs_2

Stormybay,

I have cut and pasted my last reply so people can read what you know thus far and add to it rather than repeat stuff i have already said (or they can comment on my opinion!)

A gift in the eyes of the IR is a "loss in value to the estate"...so, for example, the purchase of the bungy by your brother for 90k was really a gift to him from your dad worth £450-90k = £360k.

Jumping up to current times the situation is that the executor needs to declare gifts made in the previous 7 years. your dads nil rate band will be offset against these first but, from the osunds of things the gifts will exceed that. Any excess over the Nil band in gifts value means the gifts are due to pay some IHT (although taper relife will apply to that liability).

Of course....the knock on effect of this is that with the nil band used up on gifts (if thats the case) a "simple" esate of a £200k bungy and £40k in assets becomes £240k @ 40% = £big old chuck of tax.

quite a common problem when people gift to one child and dont consider the knock on effect to the other/s who benifit via the will once the tax is all paid.

Hopefully the solicitor can explain all this simply enough (but you DO NOT want to hide the details from him!!!!)

Stormybay

Thank you Tiggs, I appreciated the reply. Does this mean that the IHT will come out of MY half of the proceeds? i.e I will be paying IHT on what my brother has already received?

Stormy

Tiggs_2

if your brother has had gifts that exceed the nil band then the first step is those gifts may have some IHT of their own....this only happens where gifts are over the nil band and death is within 7 years - that bill will be the gift value less the nil band and whatever is above is taxed at 40% then taper relife applies.


thus the rest of the estate has no nil rate band so every penny of it looses 40%.....unless the will says otherwise its probable the tax will be paid first then whats left is split between you....so yes, your bro will have benifited from a nil band that you wont.

with hindsight its not great planning unless the intention was that it was suppose to play out that way....whenever making gifts a good adviser should always make it clear how the residule esate will be taxed as a result of those gifts in case it leaves things "unfair" in the mind of the client.

Straykitten

TPA - TaxPayer’s alliance

Has anyone heard of this group?

They sound good and appear to have a sound argument for the lowering of taxes…

Check it out at:

https://www.taxpayersalliance.com/

They’re asking for support for their campaign by getting as many people to register with them as possible. Doing this, they argue, means that the more supporters they have, the more governments will have to listen to them, and then cut taxes.

Excerpt:

Middle class is made to pay too high a burden
John Blundell
While inheritance tax "entirely avoids hitting the wealthy", it certainly "hits the middle classes - and mostly those confused in their old age... The only enlightened policy is to scrap the tax."

What do you think?

Cheers,
Gail

Tiggs_2

gailcarty wrote:

While inheritance tax "entirely avoids hitting the wealthy", it certainly "hits the middle classes - and mostly those confused in their old age.
What do you think?

Cheers,
Gail

Patronising, incorrect, misleading.....other than that, pretty good!

happi_2

Apologies if this has already been covered (have looked but can't find anything too similar), but would appreciate your help before we take any formal legal advice. My mum is thinking about writing her will and plans to leave her house to me and/or my son. The house is valued at around 450K and she wants to know the best way of avoiding IHT - would it be best to leave half of it to me and the other half to her grandson in some form of trust? My mum would really like to give the house to me now and continue living there, but to do that she'd have to pay me rent to live there which just seems mad. If anyone knows of any way to avoid that it would be good to know.

Many thanks

Andy_L

Awkward question, is you Dad still alive and married to your Mum? If so you can use a descretionary will trust & effectively get double the IHT threshold by leaving less than the IHT threshold to the trust & the rest to the surviving spouse.
If not its tricky, especially if the house is the only, significant, asset. You then enter the world of having to live with your Mum or charging her rent after she gifts you part/all of the house.
Really this is one of those times where you need to bit the bullet & speak to/pay a professional