Funding Inheritance Tax

SeniorSam

Another possibility that may not have been considered assuming the wife died first. If her estate were left totally to the spouse, the IHT would not be payable until the spouse then died and both nil rate band allowances would be offset before calculation of inheritance tax. At present this would be 2x £325,000.

If the spouse then made immediate gifts of the amounts that the wife intended to leave to beneficiaries, those gifts would be PET's, but if he lived 7 years then the gift value would be out of his estate .................. if not, no big deal, the tax payable is just deferred.

This arrangement could be made by both husband and wife in new Wills, so IHT not payable until both have died, but if the remaining spouse decides to make gifts when a widow or widower, it is up to them.

Sam

littlepikelet

Thanks Sam, but I don't think that's a possibility. The mother is very reluctant to discuss anything to do with money. It is with great difficulty that the sisters persuaded her to part with any as PETs, and they did try to get her to take proper IHT planning advice. My friend did ask about the IHT liability, the mother was very uncomfortable and just said that there was enough in cash. But we don't think there can be. The size of the estate is known, roughly, however, so they are thinking of saying 'are you sure there's enough cash, it would be 3/7 of x you know' (obviously quoting the actual number). Then just maybe the mother might come clean about the amount!

That's why I was hoping someone could check my algebra - the actual size of the estate is irrelevant to the calculation.

With fuller knowledge the sisters could get a contingency plan together for raising the difference between IHT and mother's cash when the time comes.

SeniorSam

OK, but sometimes people don't think about the benefits of Trust investments, particularly when IHT is a concern. She could think of it as just another place for her money to sit ................. that could be with her shares by selling and buying back into the Trust. Then although the value is still counted in the estate value (not any growth) ALL of the investment is accessible before Probate to help pay IHT and she can keep the shares she wishes........................ it's just a move 'sideways', but with greater tax efficiency. She also has the opportunity of tax free/deferred income of 5%. A competent IFA could explain that in detail.

Sam

littlepikelet

She is funny about selling shares because of CGT, this was one reason why she was reluctant to do PETs. Is of quite advanced age although might well go on for a while!

However, your advice could be very useful to the sisters when they inherit, provided the tax system doesn't change too much.

SeniorSam

Understood. It's not an easy subject to bring up when a person is set in their ways. However, CGT at 18% if she makes a gain in that tax year after her alloance, but should be used each year to save tax. On death ALL assets count in the estate, so the shares may add to the 40% tax of IHT?

Best of luck

Sam

John_Pierpoint

littlepikelet wrote: »

She is funny about selling shares because of CGT, this was one reason why she was reluctant to do PETs. Is of quite advanced age although might well go on for a while!

However, your advice could be very useful to the sisters when they inherit, provided the tax system doesn't change too much.

I had to take some hard decisions about an "aunt", who had been left a small annuity plus a life interest in a house (not an IHT exempt interest in possession situation) in addition to her own wealth.
I found myself looking up life expectancy tables to avoid the trust getting into financial difficulties.

taxing

Find this all a bit disconcerting...surely the lady in question is entitled to deal with her affairs as she sees fit?

Okay, there may be a tax cost to the (damn lucky) beneficiaries and a worry for the Personal Rep on where to finance the IHT from in order to get the Grant but, hey...it's still the lady's money to with what she will (or won't, as it happens).

Me, I hope she has willed a large chunk to charity - which is even more tax efficient since the Budget. :T

littlepikelet

Of course it is hers to do with what she wishes - all my friend and her sister wish to do is prepare themselves to deal with the results of that.

John_Pierpoint

Let us be cheerful: Has the lady in question got an enduring/lasting power of attorney in place?
Dementia, a stroke or a crippling accident could happen at any time - IHT would then appear as a fairly minor problem.

littlepikelet

Yes, all sorted thanks.