Inheritance Tax Planning

John_Pierpoint

emma3000 wrote: »

I am really amused by your idea of building a house in the garden. No way we can get planning permission here but I am still curious to know what your thinking was?!

You are missing out on your right to have a tax free (council tax??!!!) primary residence to occupy or for your retirement from certain trades.
If you do some more research on here
or
http://www.taxationweb.co.uk/
or
http://www.gardenlaw.co.uk/
You should be able to unravel the rules for getting planning permission for further development on a sub plot, and its tax consequences. - The idea being that the younger generation would realise the value uplift, not their mother.
Like any such ideas HMRC supposedly has a catch all power to challenge a transaction that appears to be primarily to avoid tax.

There have been some examples of HMRC trying to insist that the executors apply for planning permission in order to increase the IHT take.

I have no practical experience because I am living in the Green Belt so permission is most unlikely, though I do know personally of two "corner plot" fortunes.

emma3000 wrote: »

Thanks for the 'discounted gift trust' tip-off - I am reading up on that. You mention 'dubious tricks' - can you name any particular schemes or strategies that we should say 'no thanks' to when we approach an advisor? (Either because they carry too much risk of not being accepted by HMRC or because they are designed to enrich the advisor with a hefty commission.)

I too have read of such ideas and come to your conclusion - in my case the potential benefits are not worth the potential legal costs etc.

emma3000 wrote: »

When you mention 'to be playing the game and in business with your mother' – is that to say that a good strategy is to set up a company that the 3 of us own that our mother puts money into?

Thanks. Sounds like you endured quite a saga as a trustee - some people just keep going!

Simply living off accumulated wealth is politically regarded as a fairly parasitic way of life and does not qualify for the same level of IHT potentially available to those "earning" a living in business.

[Even though we have been trying to do that as a nation for many years].

Sometimes there are potential opportunities within a family for rearranging things to achieve less of a tax take overall. For example skipping a generation.

xylophone

Surely your mother will take expert advice from a professional qualified to advise on wills and trusts?

emma3000

Thanks, John. Really good point about me not taking advantage of having a primary residence. How about if my mother was to gift me her house and then pay full market rent to me? Wonder if that generally works out ok these days with HMRC?

Now I'm wondering what kind of business to set up with my mother! Of course, it seems that to impress HMRC it has to involve actual goods/services rather than trading/investment activity.

CTA_2

emma3000 wrote: »

Thanks, John. Really good point about me not taking advantage of having a primary residence. How about if my mother was to gift me her house and then pay full market rent to me? Wonder if that generally works out ok these days with HMRC?

Now I'm wondering what kind of business to set up with my mother! Of course, it seems that to impress HMRC it has to involve actual goods/services rather than trading/investment activity.

Been a while since i dabbled in this area, but this may fall foul of the gifts with reservation of benefit rules and as such the house may continue to form part of the mothers estate for IHT purposes.

emma3000

Sure, xylophone, we will be getting expert advice. However, we started to get some advice before from an IFA. He was keen on a scheme relating to an investment bond. I looked it up and found that he was on to make an immediate 7% commission out of that scheme. We did not consult him any further. Given that experience, I would really like to be properly informed before approaching the next person!

So, I'll be interested if anyone can name any...

1) IHT schemes that are mainly for the benefit of the advisor?
2) IHT schemes that could easily fail with HMRC?
3) IHT schemes that are really vulnerable to a change in tax law?

Thanks,
Emma

CTA_2

emma3000 wrote: »

Sure, xylophone, we will be getting expert advice. However, we started to get some advice before from an IFA. He was keen on a scheme relating to an investment bond. I looked it up and found that he was on to make an immediate 7% commission out of that scheme. We did not consult him any further. Given that experience, I would really like to be properly informed before approaching the next person!

So, I'll be interested if anyone can name any...

1) IHT schemes that are mainly for the benefit of the advisor?
2) IHT schemes that could easily fail with HMRC?
3) IHT schemes that are really vulnerable to a change in tax law?

Thanks,
Emma

You would need to consult a reputable firm for that kind of information. Qualified practitioners will give good advice as they are under a professional obligation to do so and forever worry about negligence claims for bad advice.

xylophone

http://www.step.org/system_pages/call_to_action_navigation/member_search.aspx?link=header-menu

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/intro-iht-plannning.htm
http://www.amazon.co.uk/Financial-Inheritance-Probate-Estate-Planning/dp/0273729969

emma3000

Thanks for the advice CTA and the links xylophone.

I wonder what kind of professional you would recommend we should approach for our situation (a large estate with complex IHT planning needs)? There seems to be a few choices:
* IFA
* CFP
* STEP solicitor
* (CTA) tax accountant with IHT specialism

Which of the above would you recommend approaching to get the best advice? Or a combination?

grey_gym_sock

IFAs are supposed to be moving to a charging model where they only charge fees agreed with their clients, and rebate/offset any commissions they may receive. this is the retail distribution review (RDR), coming into effect at the send of this year. but many IFAs are already compliant.

typical fees might be 2% or 3% for a one-off review, plus (if required) 0.5% per year for on-going service. it should be possible to negotiate lower charges when there are larger assets. (IFAs might find it worthwhile to deal with clients who have as little as, say, £100k in investable assets; their minimums will vary.)

however, often an IFA will outline a plan, and only charge a fee if the client wants to go ahead. which is not ideal if what you really want is advice on whether any IHT plan at all is worthwhile. on the other hand, if you actually want an IFA to advise on investments generally, with any IHT plan as an optional extra if it makes sense, then this charging model may be fine.

if you don't want an IFA to advise on investments generally, then perhaps you'd be better off with an advisor who charges a fee for one-off advice. i wonder if that would mean going to some other profession (e.g. a solicitor)? that's an open question - i don't know the answer.

i'm not a expert, but i'm sure the simplest way out is to make gifts (other than of the house the donor is living in) and then live at least 7 years. note that IHT is reduced, though not eliminated, for gifts between 3-7 years before death:
http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm#4

i am rather suspicious of companies promoting investment bonds as an IHT planning vehicle. presumably what they want is to manage ppl's money. if this kind of arrangement is effective, it's because of the form of legal ownership used (e.g. interest in possession trust). surely it should be possible to pay to have the trust set up, and then put whatever investments you like in it. if it's necessary to use a professional as a trustee (is it?), there would also be on-going costs, but i'd prefer to see them explicitly charged for, rather than hidden in investment management charges.

CTA_2

emma3000 wrote: »

Thanks for the advice CTA and the links xylophone.

I wonder what kind of professional you would recommend we should approach for our situation (a large estate with complex IHT planning needs)? There seems to be a few choices:
* IFA
* CFP
* STEP solicitor
* (CTA) tax accountant with IHT specialism

Which of the above would you recommend approaching to get the best advice? Or a combination?

i would always recommend a CTA as from practical experience they are the best :cool:

but in all seriousness, CTA's who practice IHT do not tend to be accountants. I for instance, am not a qualified accountant even though I work in corporate tax.

My recommendation would be a decent sized accounting firm. It would depend on the size of the estate, but i would go on linked in and search for IHT/estate planning CTA's and send them a message. A free meeting would of course follow and you can take it from there.

99% of firms these days do not charge on a per hour basis but instead will offer an agreed fee which provides comfort for all parties.