Inheritance Tax Planning

lisyloo

Have you considered an interest only mortgage, secured on the property. The capital to be repaid when your Mother's house is eventually sold (for whatever reason). As I understand it, this reduces the IHT bill too.

What happens if the mother requires long term care and the house proceeds are used to cover that and there's nothing left over?

System

For us, this is an important topic.  Really don't want to have to give the Tax Man any more than we will already have done.  Still don't understand enough about it, so any comments or tips which appear on this board will be viewed with great interest.

Many thanks.

I am just looking into inheritance tax and would like to say that you can draw up a Discretionary Will Trust. Does anyone know about this and what do they think of it?
Appartently you have to change you deeds to Tenants in Common then when the first partner dies £263,00 goes into a i.o.u. trust when the second dies the first £263,000 is taken off the estate and then another £263,000 for the second death then the estate will be added up for inhereitance tax. This means you get two £263,000 rather than what most couples do and that is use only one.
Mo

klondyke

silly question :P. In my will can I say" I leave my nil-band inheritance tax rate(or words to that effect) to my children." or do I have to specify amount? TIA

I am sure I have seen suggested wording somewhere to achieve this, but I would be interested in replies on this, too.

lisyloo

john ivens - are you going to give us the answer to your question?

Thanks

lisyloo

Wouldn't you then qualify for CGT and loose the PPR exemption.
Doesn't seem to me that would work out well if you find you need to sell.

MJSW

I suspect he was talking about Business Property Relief, and in particular its application to AIM shares. You don't necessarily need to set up your own business to qualify for BPR, any unquoted shares in trading companies usually qualify (except for companies dealing in land/shares).

For most tax purposes (including BPR), shares quoted on the AIM market of the London Stock Exchange are treated as unquoted. Therefore if you buy most AIM shares and hold them for at least 2 years, their value is excluded from your estate for IHT purposes if you should die. The assets still remain in your name and you can sell whenever if wish if you need the money.

There is of course some risk to your capital by doing this, as the value of the shares could fall (of course it could rise as well!). But if you would have been paying 40% IHT on the money anyway, then the shares would need to fall by more than 40% before your beneficiaires would be worse off. If you spread the investment over a portfolio of different AIM shares, then that reduces the risk of one bad share wiping out your investment!

Yorkieds

I understand, again as a layman,

If you own shares in an unquoted trading company, you are entitled to 100% relief.

In addition to achieve 50% bpr on the property or land owned and used by a family business you must have a controlling interest, ie over 50% or 50% with a casting vote.

MJSW

Don't you have to be a major shareholder (25% or more) in an AIM holding to qualify for BPR or have the rules changed?

No, most unquoted trading company shares are eligible for BPR, irrespective of the size of the holding. The rules have changed, but a long time ago. The requirement to hold 25% of the voting rights ended with effect from 6 April 1996.

As for VCTs, to be honest I'm not sure. I wasn't aware that VCT were quoted on AIM (although they do frequently invest in AIM listed companies), I thought they were on the main market. However, even if they are on AIM, I still don't think they would qualify since they are not trading companies. They just take minority holdings in other trading companies, but do not actually trade themselves. I'll try and find out for certain.

MJSW

Right, I've checked and was right, no BPR on VCTs I'm afraid.

kayspain

Does anyone know of how to cut the impact of inheritance for a property in Spain. i.e. if we pass the ownership to our son how long does he need to be the owner for him to avoid inheritance tax on it. The properties in Spain and the UK would put him into the bracket, but one on its own doesnot. I also believe that inheritance tax is higher in Spain but if you are a UK residence is it charged in Spain or the UK or both?