Inheritance Tax Planning

Tiggs_2

happi wrote:

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

Ok...this is pretty simple - because your choices are few.

(assume mum is widow?)

She has only one nil band of £285k so it doesnt matter if she gives house to you, your son, me or the milkman - its over the band and tax is due on the surplus at 40%.

So couple of things.....why do you mentionn your son? is that to skip IHT on you passing the asset to him later? if so- good idea, she shouldnt leave you anything you dont need if you will only give it to your kid anyway (if hes under 18 it will haveto be held in trust for him)

As for things she can do......

She could buy life assurance to cover the IHT due.....only going to work if shes young enough/helathy enough and doesnt deal with the issue - it just covers it up.

She could borrow against the house and give you the cash, the debt she is left with is against her estate so a "good debt" - its one of those things where if it all goes to plan it will sve loads......if it doesnt the debt will grow to exceed the value of what she gave you and it will be pants (she also may not like the idea of some monster debt in her old age!)

She could give you the house and pay rent.....not nice for her (in many ways_ and not something most solicitors will like doning but.....it would work if done right (and prob save money)

Thats about it for your normal little old lady with big house and not much else scenario. (she could downsize and give you the surplus....depends on where you are - if she is round near me a downsize from £450k would put her in a caravan park!)

happi_2

Hi,

Thanks for your quick replies.

My mum is a widow - my dad died just under three years ago and although he wanted his half of the house to be left to me he didn't make a will and my mum and I have only just found out about the two year period in which to sign over his half.

I mentioned leaving half the house to my son as I thought that iht was based on the amount each individual received rather than the total amount being left but assume that is not the case (can grandparents not set up a trust for grandchildren as a way of avoiding int?). What are the implications if she left the house to just my son - could the house be sold and used to buy another property for him to live in etc and also if we had another child would they be left with nothing?

I don't want to go down the route of having to charge my mum rent to live in her house (how mad is that!) or her having to remortgage and especially don't want her to have to move to a smaller house (she was born there!). As for covering the cost of iht that is something I would do as I wouldn't expect my mum to take out insurance to cover it. It seems really unfair that an individual can't do what they like with their own home without the tax man taking his share, particularly as my parents worked really hard to buy their home.

I will arrange to speak to a professional (should I speak to an accountant or solicitor or both?) and see what they suggest. I need to sort my own will and things out as well as this has made me realise how important doing this really is, particularly as I'm now a mum.

Once again, many thanks for your help and any other thoughts you have would be much appreciated. Cheers.

Tiggs_2

"can grandparents not set up a trust for grandchildren as a way of avoiding int?"

They can leave a house in trust to who they like, the IHT impliactions of that are no different to any other asset being passed on

"What are the implications if she left the house to just my son"

he would now own a house...but him some bubbly as a moving in present! (i assume he's 18? if not - its held in trust for him

"could the house be sold and used to buy another property for him to live in"

if he is 18+ and owns it he can do what he likes with it once its his - if the trust owns it the trustee have to decide

"also if we had another child would they be left with nothing?"

if your mum dies and gives house to kid A then kid B (born later) gets nothing - is that what you mean?


"It seems really unfair that an individual can't do what they like with their own home without the tax man taking his share, particularly as my parents worked really hard to buy their home."

Your parents will never pay a SINGLE PENNY of IHT. They are free to do as they please....what you mean is its unfair YOU cant get their stuff when they are dead. I understand your point but you cant argue your folks are affected by this (no pockets in shrouds and all that!)

"should I speak to an accountant or solicitor or both?"

Solicitor


hope that helps

happi_2

Once again many thanks for your help - will look into finding a solicitor that specialises in this area.

"Your parents will never pay a SINGLE PENNY of IHT. They are free to do as they please....what you mean is its unfair YOU cant get their stuff when they are dead. I understand your point but you cant argue your folks are affected by this (no pockets in shrouds and all that!)"

Take your point about my parents not having to pay iht but want to stress that I'm not some money grabbing daughter who is moaning about having to pay it. Although my mum, as you said, will not have to pay iht, she equally doesn't want me/my son to have to pay the taxman for something that belongs to her - which she paid for out of previously taxed earnings. I wasn't trying to say that my parents are affected by it, simply that they feel it is unfair.

Once again many thanks.

Tiggs_2

no worries, i was just being mean

good luck with a solicitor.

Elizabeth_T_2

We are thinking about IHT and redoing our wills.
Own 2 properties jointly, dont owe anything anywhere and are well over the £285 threshhold. So, to reduce Iht on both our deaths, we thought, will away the property we don't live in on first death, worth aprox 180K to our 2 daughters, which would reduce the estate of the surviving spouse a bit....... But...if we own it jointly, does that mean that only half can be left to a beneficiary as the other half is still owned by the surviving spouse ? Or if we both agree we want this to happen on first death can it?
Would there be any tax implications if the half that was owned by the surving spouse was "given "away?
Not sure i have explained this clearly enough, would appreciate any suggestions Thanks

elliebean_2

Elizabeth_T wrote:

We are thinking about IHT and redoing our wills.
Own 2 properties jointly, dont owe anything anywhere and are well over the £285 threshhold. So, to reduce Iht on both our deaths, we thought, will away the property we don't live in on first death, worth aprox 180K to our 2 daughters, which would reduce the estate of the surviving spouse a bit....... But...if we own it jointly, does that mean that only half can be left to a beneficiary as the other half is still owned by the surviving spouse ? Or if we both agree we want this to happen on first death can it?
Would there be any tax implications if the half that was owned by the surving spouse was "given "away?
Not sure i have explained this clearly enough, would appreciate any suggestions Thanks

As joint tenants you can't Will your property or part of it to anybody. If one dies the other automatically owns the whole property by survivorship. But what you can do is sever the tenancy and become tenants in common so you both own 50% shares each. Then you can set up what are called nil rate band discretionary trusts in your Wills with the surviving spouse, your children and maybe grandchildren as potential beneficiaries of the trust.

On first death the value of up to the IHT threshold can be put into the trust, whether that be through property and/or cash assets. The surviving spouse can continue to use the assets in the trust, by giving the trustees an IOU note. Then on second death the loan is repaid to the trust, the trust wound up and the assets distributed. If the total of the two estates is equal to or less than 2 X the IHT threshold at that time, there will be no IHT to pay.

This is a very simplistic explanation and given wthout knowing the full facts about your situation and assets. You need proper face-to-face advice.

Elizabeth_T_2

Thank you for the above advice, not as straight forward as I hoped.........how do we go about becoming tenants in common?, is that advisable for both our properties (the one we live in, and the one we rent out) is it something a solicitor has to arrange? sorry to ask too many questions, but want to be a bit prepared, thanks in anticipation...

caveat_emptor

Yes, best done by solicitor who can also update your Will to cover all the IHT angles.

elliebean_2

Elizabeth_T wrote:

Thank you for the above advice, not as straight forward as I hoped.........how do we go about becoming tenants in common?, is that advisable for both our properties (the one we live in, and the one we rent out) is it something a solicitor has to arrange? sorry to ask too many questions, but want to be a bit prepared, thanks in anticipation...

No problem about the questions, Elizabeth_T. Yes, it's a good idea to sever the tenancies on both properties. This involves signing a couple of severance agreements and signing and submitting a couple of RX1 forms to the Land Registry. But that alone won't help. As caveat_emptor said, you also need to get your Wills updated to include the appropriate trust provisions. You could use a solicitor who specialises in Wills and Probate or a qualified will writer from the Institute of Professional Willwriters http://www.ipw.org.uk