Should father be planning to reduce inheritance tax

JohnDeere8530

A difficult subject really.

My father in his late '60s has a farm (largely exempt from IHT) and has quite a few residential and commercial lets.

He is on average buying 1 a yr and adding them to his portfolio. Trouble is as far as I can see he has never given death duties etc a thought. He has no will, wont spend the money on one and keeps plodding on with further purchases regardless.

Obviously his estate is way out of the threshold of nil death duties, but he doesnt seem to want to at least investigate whether he can ultimately hand it down to his two children and save them tax in the process. If it were me I would get satisfaction in making this process as tax efficient as possible

He is typical old school farmer, moans about spending anything like £5 on a new tap washer, has literally never spent a penny on himself, drives around in a 20yr old knackered Merc that doubles as a farm car, but doesnt seem to care for some reason about spending larger sums such as combine, property etc. It makes me kinda mad !

Dont get me wrong I am not after any sort of hand out, as I dont need it, both me and my brother are reasonably well off, but this does not negate the problem of not being IHT efficient.

What should I do, I feel I cant mention wills to him as he thinks he will go on forever and he may think I am merely after his money which I am not.... Even if I did he would think spending say £1k or so on a decent drawn up Will a total waste of money as he hates solicitors or more precisely their bills !

Is it possible he could put any further houses into a trust or even into our names. However I guess the revenue are wise to this ? Is there a fairly easy way out. He is single and has said we are beneficiaries to his estate, so is him not having a Will that much of a disaster. As you can tell I have not researched this and know hardly anything about Wills IHT tax management etc

A tricky situation Im sure you will agree

atush

Does he like to pay Tax? Does he like what the govt does with it? Is your mother still alive and does she have any influence?

I would ask him what he is buying all the property for, as the govt will get half of it when he dies? Ask him to list for you which properties that you and whoever else is left should hand over the HMRC. Will that shake him into action? Surely he will hate it foing to the govt, most like him do.

He may not care who in the family gets his money, but he will care if the govt gets to have it instead.

Otherwise, make some plans with your mum (who will inherit it all w/o tax) and put them into place the day after his funeral.

JoeCrystal

Except JohnDeere8530 mentioned that his father is single...

Anyway, reading up Intestacy may be good idea as well. As far I am aware of, the Estate will be equally shared among all children of the deceased in the case of no surviving spouse or civil partner.

Cheers

Joe

atush

I missed the single bit- too bad.

So he needs the shock of what will happen when he's gone. He is like a magpie hoarding his shiny bits and he will hate the idea of someone else having them. Probably also why he wont write a will.

JohnDeere8530

my mum unfortunately died a while back now.

He is single in every sense. I assume him not having a Will will make not difference to his beneficiaries, ie me and my brother. It is just the tax (in)efficiency I'm worried about

Is he better off leaving it in a bank account? or carrying on as he is? I guess neither is the correct answer here.

So does it come down to a trust?

I feel bad about talking about this, as I dont need his money, but would hate 40% of his hard earned to go to the government

xylophone

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10013642
http://www.hl.co.uk/news/feature-articles/archive/dying-without-a-will-in-scotland-and-northern-ireland
http://www.primewills.co.uk/dying_without_will.htm
http://www.hmrc.gov.uk/cto/customerguide/page17.htm
http://search.hmrc.gov.uk/kb5/hmrc/hmrc/results.page?qt=IHT

Get reading!

JohnDeere8530

widowed 20yrs ago.

atush

Like I said, make a plan (with xylo's handy links). then the short sharp shock of asking him which properties and assests he wants to give the govt for his Death Duties.

Do you guys have kids? Is he very fond of them? Ask him if he's rather property xyz to them instead of the govt?

If he says yes, have the plan ready and get ho to sign a will ;-)

Aegis

Ultimately it's his decision as to whether he looks into IHT issues. You can talk to him about it or ask him if he's like to speak to someone, but you can't make him optimise his situation to account for IHT. If he doesn't care to, that's his decision.

With regard to trusts and properties in your name, it's not a problem at all, and is a legitimate workaround for IHT, however any such action will count as either a potentially exempt transfer (PET) or a chargeable lifetime transfer (CLT). PETs are fully exempt from IHT if the donor survives for at least 7 years from the date of the gift, CLTs are subject to an immediate 20% tax which is later uplifted to the equivalent PET amount if the donor then dies within 7 years. As such, it can be the simplest and most effective method of reducing IHT if he survives for that long.

That said, it's still him giving money away, which you seemed to think he wouldn't be a fan of.

There are some schemes which allow him to retain control of the capital while the growth and income are built up outside his estate. Maybe that would be an interesting halfway arrangement to discuss with him?

JohnDeere8530

Aegis wrote: »

Ultimately it's his decision as to whether he looks into IHT issues. You can talk to him about it or ask him if he's like to speak to someone, but you can't make him optimise his situation to account for IHT. If he doesn't care to, that's his decision.

With regard to trusts and properties in your name, it's not a problem at all, and is a legitimate workaround for IHT, however any such action will count as either a potentially exempt transfer (PET) or a chargeable lifetime transfer (CLT). PETs are fully exempt from IHT if the donor survives for at least 7 years from the date of the gift, CLTs are subject to an immediate 20% tax which is later uplifted to the equivalent PET amount if the donor then dies within 7 years. As such, it can be the simplest and most effective method of reducing IHT if he survives for that long.

That said, it's still him giving money away, which you seemed to think he wouldn't be a fan of.

There are some schemes which allow him to retain control of the capital while the growth and income are built up outside his estate. Maybe that would be an interesting halfway arrangement to discuss with him?

Thanks for this. Sounds as if the PET is the way to go. However can he still legally get the income generated from properties within this scheme?

Also existing properties, can these be transferred too?

I assume he loses control, ie cant sell any etc?

Aegis

JohnDeere8530 wrote: »

Thanks for this. Sounds as if the PET is the way to go. However can he still legally get the income generated from properties within this scheme?

Probably not directly. If he were to gift the properties to you but retain the income, it's likely to be considered a gift with reservation of benefit and therefore ineffective for IHT purposes. In fact, this could be worse than doing nothing, as the disposal would trigger a capital gains tax test and inheritance tax might still be due on his death.

A trust arrangement might be able to synthesise this arrangement though, so it might be worth speaking to someone about such issues.

Also existing properties, can these be transferred too?

Yes, though this might still trigger a CGT test, as indicated above.

I assume he loses control, ie cant sell any etc?

He would, unless a trust is used and he is a trustee.