Inheritance Tax Planning

emma3000

Thank you, getmore4less, CTA and Sam.

Yes, we should consider the big picture. I suppose trusts may be handy, though I was under the impression that the various entry/regular/exit taxes on them these days make them less attractive. Is that correct? This is where I am concerned that a professional we engage may be biased in favour of them because it gives them a chance to earn more fees.

Speaking of fees, would you recommend we arrange a fixed fee with a solicitor or allow them to bill every X hours at their hourly rate? I'm not sure how a fixed fee could function as the full amount of work may only unfold as one goes along.

Thanks,
Emma

shraga

I am in need of some quick advise. My mother passed away some years ago and left everything in her will to my father. The only exception was some small gifts to registered charities. My father has now been diagnosed with a terminal illness and it is estimated he will die this year (I am sorry to be so matter of fact but this is the business end of the situation).

I understand that the entire 100% of my mother's IHT allowance is transferred to my father since the charity gifts are exempt. Therefore my father's inheritance to my two sisters and I will be £650K. My father's house is worth around £650K give or take. On top of that there is around £15K in cash accounts (cash ISAs and savings accounts), £10K in shares and managed funds, pension funds that are being drawn down and possibly others. Our assumption is that assuming the house uses all the IHT allowance all these other funds will be taxed at 40%. (we don't yet know whether the pensions pay out on death or not)

We are now planning to arrange a £6K gift from our father to one his children and £250 to the other two siblings. We also plan to arrange gifts of £250 to the 5 grandchildren too. This is all planned to reduce the tax liability ASAP. This all seems legal to us. Assuming this is the case what evidence is required to document all of this since we don't want to get in trouble with the taxman. I should add my father is very keen to do this ASAP.

Given the relative lack of complexity of his affairs and the lack of time is there anything else we can do and can we handle the probate ourselves or do we need to hire an expert? Thank you.

John_Pierpoint

You seem to understand the basics.
You have to claim the second nil rate band, a copy of mum's grant of probate will probably be sufficient.
"Which" publish 3 guides - make sure you get the editions printed recently (ie post 2007)

If you employ a solicitor, it will still be the family that has to do most of the work. The guides that come with the IHT tax returns are pretty comprehensive.

So if the executor is a careful worker, with time and determination, and the estate is reasonably tidy, DIY is is probably the best option.
Only yourself to chase!

We are here to advise on the "odd situations" that might occur.

shraga

John_Pierpoint wrote: »

You seem to understand the basics.
You have to claim the second nil rate band, a copy of mum's grant of probate will probably be sufficient.
"Which" publish 3 guides - make sure you get the editions printed recently (ie post 2007)

If you employ a solicitor, it will still be the family that has to do most of the work. The guides that come with the IHT tax returns are pretty comprehensive.

So if the executor is a careful worker, with time and determination, and the estate is reasonably tidy, DIY is is probably the best option.
Only yourself to chase!

We are here to advise on the "odd situations" that might occur.

Thanks. Just bought the 2012 Which Guide and will see if this empowers me to do it myself. Usually as a money saver I get the second hand editions on Amazon but it seems sensible to get the latest version! I reckon I can and will be able to save a lot of legal fees. I guess that could be between £500 and £1000 - that is a guess. I have no idea how much that actually costs.

Just one question, what evidence for the gifts is required. Just a list written by my mum?

getmore4less

shraga wrote: »

Thanks. Just bought the 2012 Which Guide and will see if this empowers me to do it myself. Usually as a money saver I get the second hand editions on Amazon but it seems sensible to get the latest version! I reckon I can and will be able to save a lot of legal fees. I guess that could be between £500 and £1000 - that is a guess. I have no idea how much that actually costs.

Just one question, what evidence for the gifts is required. Just a list written by my mum?

I think you would be looking a lot more then £1k.

Get the PA1, IHT205 and IHT400(set) and the notes that go with them.

do a practice run while father is alive and can fill in any blanks.

beware cashing things in and CGT.

value shares yourself don't get the brokers to do it.

There is a lot to learn, most of it is relatively easy especialy if you have the list of assets.

Get ready to notify people quickly especialy pensions it can save work later if payments continue

Think about the house, utilities and cash flow.

There is one other stratagy some some use that is to dispose of as much as possible that does not incure CGT simplifying what is left, it does not have any IHT tax advantages but can avoid delays in access and distribution

shraga

getmore4less wrote: »

There is one other stratagy some some use that is to dispose of as much as possible that does not incure CGT simplifying what is left, it does not have any IHT tax advantages but can avoid delays in access and distribution

I have jsut received this exact advice elsewhere - to get the property transferred into the siblings ASAP. Won't say IHT but avoids it being caught in probate and those delays. Also means estate value is lower and hence the fees for probate are lower in case we don't do a DIY probate. We are also arranging power of attorney too for some of those other financial aspects too. Great tip and thank you.

Patr100

John_Pierpoint wrote: »

You seem to understand the basics.
You have to claim the second nil rate band, a copy of mum's grant of probate will probably be sufficient.

On a general point, for this , is any actual proof necessary other than perhaps a death certificate? For example, if a parent died several years ago when any estate was under the IHT threshold at the time so no IHT was payable (HMRC will know if any was paid) but since then the value of the surviving parent's potential or actual estate has increased but still for example, remains under the 650K figure?

John_Pierpoint

I have had trouble getting HMRC to effectively check their own records - I had to prove that the deceased wife had left an "excepted estate" and that it all went to her husband.
As she died intestate and they had no children, the "admon" (Letters of administration taken out by the husband in this case) did both in one document.

getmore4less

shraga wrote: »

I have jsut received this exact advice elsewhere - to get the property transferred into the siblings ASAP. Won't say IHT but avoids it being caught in probate and those delays. Also means estate value is lower and hence the fees for probate are lower in case we don't do a DIY probate. We are also arranging power of attorney too for some of those other financial aspects too. Great tip and thank you.

The estate value still has the house in it for IHT but less work dealing with the assets.

With cooperetive executors house is not a big issue unless you want to sell very quickly

If you do get professional help look carefully at the fees.

I think it may be worth getting some pro advice in case there is some mitigation that can be done

certainly looks like a case where getting a valuation on the house as low as possible is going to be benifitial.

so do some research and see what a low ball figure might be based on actual sales. Think of every negative thing you can about the place

As above get the info needed to get the nillrate band transfered, this is explained in the IHT forms and a preemptive call to HMRC of what they will accept might stop any delays.

shraga

Thank you - yes I was slapdash with my language. I think I should have said it means the probate value is lower. The estate in terms of IHT is the same!