Inheritance Tax Mitigation via IOU Trust

stanmoresaver

Hi,

It has been suggested to me that i should discuss an IOU trust with my parents.

Their (financial) worth is around £400k (house £270k)

Has anyone any ideas/ views especially with regard as to whether this method may be scrapped in future budgets??????


Thanks in anticipation.

SS

lindabea

I'm not sure what you mean by an IOU trust. Do you mean some sort of a discretionary trust?

stanmoresaver

Hi Lindabea

My understanding of an IOU trust is a trust that is set up on the first death with up to the nil band and then can be borrowed from by the surviving spouse so that they aren't financially prejudiced, but the IOU is repaid on the 2nd death therebye making sure the estate is out of the IHT band.

elliebean_2

Your understanding of these is correct stanmoresaver. Nil Rate Band Discretionary Trusts with promissory note or IOU are accepted by the Inland Revenue at present provided they are set up and run correctly - they are quite complex and need professional advice in setting up. There is no sign of the IR attacking these or disallowing them at present but nobody can know for sure what the future holds. Personally, I think for the potential savings involved, it's probably worth the risk.

stanmoresaver

Thank you for your help!!!!

Any idea what a reasonable set up cost would be?

TIA

SS

elliebean_2

It depends who you go to, I guess. I would say about £500, but a solicitor will probably charge more, probably around £700 - £800. It also may depend on what part of the country you're in. I'd suggest you find somebody via the Institute of Professional Willwriters IPW members' fees tend to be more reasonable than solicitors'.

HTH

moonrakerz

I am surprised by the reluctance of people to spend a few hundred pounds to set up their wills and financial affairs so that more of their hard earned money goes to their kids (or the Battersea dog's home !).

I set up two new wills, tenants in common, nil rate band discretionary trust etc, etc about 5 years ago, it cost me less than £400 in solicitor's fees etc. The estimated saving to my estate at that time was £90,000.
If you try and do it yourself you run the risk of your estate having to pay a solicitor thousnds to sort it out and you could end up with what you have tried to not being legal anyway.

By the way, I am not connected with legal profession in any way !