Parents have asked for some help so where better than to start here

EdInvestor

Hi JG

As I understand it (not an expert on IHT!) you can give away up to 3k a year completely tax free ( plus other bits and pieces from capital plus as much as you like from income) and above that it becomes a "potentially exempt transfer", that is, if you die within 7 years of the gift it will still be counted in your estate.However if your estate remains under the nil rate band level (300k from April) it will have been not just potentially exempt, but actually exempt, all along.

Andy_L

seven-day-weekend wrote: »

A State Pension is not a handout, it is something you have paid for for around forty years!

Sort of

For around 40 years you've paid for the state pensions of previous generations of workers.
Come your retirement you're relying on the acceptance of future generations to pay your pension.

Jake'sGran

Hi EI again, I have learned an awful lot about IHT recently so that was why I asked. Would you believe I actually instructed a solicitor about my will last week, after all this time:o I hope someone replies with regard to the Power of Attorney question. My son in law did do this when his parents went into a care home but they were both quite poorly and his Dad had completely lost interest in any case.

seven-day-weekend

Andy_L wrote: »

Sort of

For around 40 years you've paid for the state pensions of previous generations of workers.
Come your retirement you're relying on the acceptance of future generations to pay your pension.

Yes, you are right of course.

The point I was trying to make was that it isn't a 'hand-out' in the way that the OP meant, i.e. something for nothing.

:beer:

mike1976_2

Hi Paul,

Thanks for taking the time to reply. Much appreciated.

The £22,500 that you talk about above. That would be assets in the form of savings etc. This would not include the house if it is in Tenancy In Common? If it was in Tenancy in Common, the rule of thumb that half a house is worth nothing would apply, so only cash, isa's etc would be taken into account.

Thanks again
Mike

EdInvestor

Be careful with investment bonds: the charges and taxes paid may be higher than the IHT saved. :rolleyes:They can also fall under the avoidance rules.

Depending on the age of the person going into care, an immediate needs annuity can be quite cheap. Their big advantage is they provide a guarantee there will be nothing more to pay - which usually means that a part of the value of the home will remain for an inheritance.

Note also that the income is tax free when paid direct to the care home.

http://www.sharingpensions.co.uk/annuity_immediate_needs.htm

This would only really apply in Mike's case if both parents ended up in care at the same time.

dunstonh

Be careful with investment bonds: the charges and taxes paid may be higher than the IHT saved. :rolleyes:They can also fall under the avoidance rules.

As has been said hundreds of times before, the charges can be lower than other investment options (such as unit trusts, oeics etc). Ed's record on "advice" in these forums about investment bonds is poor.

dunstonh

I agree that can be the case i.e. avoiding care fees, but the Council would have to prove that! This would be eifficult to prove as Investment Bonds are generally seen as a 'retirement product' anyway!

This is where the IFA can come in handy. The suitability report written by the IFA will detail it as an investment to obtain potentially higher returns etc. As long as no mention of avoiding local authority care costs is mentioned and it was done a number of years before the need arised, then that report would act as your proof that it was an investment and not an avoidance vehicle.

EdInvestor

Paul_Varjak wrote: »

What is this nonsense?

The high charges and commissions on IBs are well known, but you can check on the regulator's site if you like:

https://www.fsa/gov.uk/tables

Gains in the bond are subject to 20% coporation tax.This may not affect you so much as your investment is in property, but most people will have a fairly large chunk of a bond in equities.A basic rate or lower taxpayer has no tax to pay on dividends outside the bond ,and an annual allowance of almost 9k on *realised* capital gains so normally nothing to pay there either.The bond not only doesn't shelter the investor from tax, but imposes taxes that he wouldn't otherwise pay.There are plenty of threads on this in the Savings forum, no need to repeat the story here again. In your case, you will be paying more tax than you would outside, though not as much as the equity investor.

A healthy 90 year-old woman going into care would probably have to pay £80,000 to get a £20,000 p.a. return!

Possibly, but most people won't need that much - I believe the typical cost would be more like 50k for a top-up to their pension and other income, plus attendance allowance etc for a 90 year old.

I think Immediate Care Fee annuties are only for those that have enough cash to buy one!

Obviously. But the average pension income in the UK is 14k p.a, so many will have income well above that and savings of 50k or more.

But there would be no money to buy the care fee annuities until the house is sold!

But as I mentioned, even if the house has to be sold to fund the annuity, there will usually be a chunk left over for an inheritance as the cost will then be capped. People seem to think they can sell the house, put the money in a savings account and pay for the care directly.Perhaps they think their relative will die before the money runs out. Very often this gamble goes badly wrong and the money runs out, leaving no inheritance and the relative in the hands of the council.Lose/lose all round IMHO .

People may want to choose their own care and not be lumbered with one the Council will pay for.

Agreed: the more cash-strapped councils get, the more likely it is old people in care homes are going to feel the pain of being moved around and generally treated according to the council's budget rather than their wishes, sad to say.

EdInvestor

Paul_Varjak wrote: »

You have also forgotten that people investing in equities effectively pay a 10% tax anyway! That used to be reclaimable - but no longer is (even inside an ISA or Pension fund)!

Not so. I agree this is very confusing because of the different way the system worked historically, but the position now is that the dividend comes with a 10% notional tax credit which pays the tax liability for an individual on basic rate.No tax is actually paid on the dividend by the company or by basic rate taxpayers, it is only notional (dividends are not taxed any more, the liability was swicthed into the corporate tax liability in 1997). Those on higher rate pay 25% tax on the divi after the tax credit is taken into account (which is still cheaper than the 40% they pay on income from bonds or property funds).

IMHO as far as your own investments are concerned , you would be better to hold equity income funds or high dividend income shares direct,as there would be no tax to pay on the divis,and a high CGT allowance, while using your ISA and pension for your commercial property funds, any corporate bond funds and perhaps cash. N&SI tax free index linkers might be worth a look also for cash.There is no need now to use an investment bond to access property funds.There are quite a lot of property unit trusts and also offshore income paying investment trusts run by the big insurers avalable now.Mostly brocks and mortar with 4.5-5% yields.

The above however depends on further research into benefits rules on different kinds of income as mentioned on the other thread.

[It would be very useful to have someone on MSE who understands the details of pensions/tax and benefits interactions,BTW, should you have time to get to grips with it ]