Inheritance Tax Help!

ims-ltd

In 2003, I was persuaded to take out a discounted gift trust on my father’s life. He was in his late 80’s and needed an income to pay towards care fees.

He had about £100,000 in cash assets and this was placed in the DGT. I was advised that the donor’s fund would be about £35,000, thus reducing his estate for IHT by this amount. The remaining £65,000 would fall outside his estate after 7 years if he lived.

It all sounded fine. Sadly, my father died three years later in 2006. He still owned his house on death and this was valued at £350,000.

HMRC have now advised that the donor’s fund is only to be treated as £8,000 because his life expectancy was short (he was medically assessed I found out later to be five years older than he was). So the DGT has only removed £8,000 from his estate leaving £92,000 in it.

There is no taper relief on the £92,000 because gifts use up the nil rate band first, so it seems to me his estate will be assessed as:

£92,000 + £350,000 house = £442,000 less nil rate band of £285,000 = £157,000 x 40% = £62,800 IHT

I feel somewhat misled but am not sure how else I could have structured things to better advantage.

If he had gifted me the £100,000 I would have used it to pay the care fees. This I understand would have been a gift with reservation, leaving the whole £100,000 in his estate.

Even if I hadn’t used it to pay care fees, it still wouldn’t have attracted taper relie and so I guess the whole £100,000 would have used up part of the nil rate band and then the house would have used up the rest. Result - the same tax bill as for a gift with reservation which I calculate as:

£100,000 + £350,000 house = £450,000 less nil rate band of £285,000 = £165,000 x 40% = £66,000 IHT

Is my thinking right on this? Have I got the IHT calculations correct?

In particular, how could I have structured things differently? I still don’t think I got the best of advice (the bank did nicely with a 7% commission on the £100,000!) but I’m not sure how to challenge it.

Many thanks to anyone that can advise.

Fairwinds

What is the situation with your mother?

I ask as if she had already died and not used her allowance the two allowances can be combined.

I did this when my other died in 2007 and I had to explain it to the solicitor, who didn't know anything about it.

It was relativly new at that time but I believe it was backdated ( don't know the details)

Fairwinds

Sorry that is of no use to you

"The threshold can only be transferred on the second death, which must have occurred on or after 9 October 2007"

roger_c

Take legal advice? Sue the bank perhaps?

roger196

ims-ltd wrote: »

In 2003, I was persuaded to take out a discounted gift trust on my father’s life. .

Who persuaded you to do this. What were his instructions. Was it to minimise IHT or to pay for care home fees or to protect assets against care home fees). Was the bank advising you or merely selling you a product on which you had already decided.
What written advice was given. The life expectancy for a male at 87 is 4.59 years ( figs from life tables produced by govt actuary's department....don't know how up to date these are). This would mean that the IHT planning advice should definitely included what happens if he snuffs after 3years, 5 years and just before 7 years.
I would recommend you check the statutory authority that the valuation can rely on a shortened life expectancy. Was a shortened life expectancy taken into account when the dgt was taken out.
Getting into a legal battle on prof negligence can be extremely costly. Your potential loss could easily outweigh any gain. I would only go down this route if I could find a no win / no fee lawyer to take this on.
Search the IHT manual for the order of taper relief.

dzug1

roger196 wrote: »

Search the IHT manual for the order of taper relief.

Taper relief is irrelevant unless he gave away more than the NRB - which doesn't appear to be the case.

SKIPPY

Sorry I am unable to offer any further advice. Many parents work their whole lives, pay their taxes, purchase property etc all to leave to their children when they've 'gone' why should this then be taxed again - I know this makes my parents particularly angry. I just tell them to spend their money on themselves!!!