Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

Savvy_Sue

My brain won't cope with sums tonight, but ...

Marrying your partner would remove from IHT anything you left to her. That might be enough.

Making a will if you DON'T marry your partner is absolutely essential. Yes, she'll get the house, but it will make everything SO much simpler if you have a will.

The pension and death in service benefit might be 'in trust' and therefore pass outside your estate, and therefore not liable to IHT. I'd check that.

Keep_pedalling

Your death in service benefits and pension should not form part of your estate, so IHT is not going to be an issue.

The main tax advantage to being married is the ability to transfer the nil rate bands, which is going to help with IHT for your partners estate if you die first. You would need to ask the pension administrators about the effect of marriage on DIS and pension payments.

Lemonsqueezer78

Thanks for the replies guys - I'll check out and confirm the situation with the DIS thing with the benefits team at work, but I do recall it is managed through a board of trustees so it does sound like this is the kind of arrangement you describe that doesn't need to be counted as part of the estate for IHT purposes.

Does anyone happen to know if the beneficiaries of this have to pay tax (capital gains?) on what I leave them?

Edit: and I'll arrange a Will.

Craighoy

Keep_pedalling wrote: »

Do not forget that she also has a residence nil rate band of £125k (£150k if she survives beyond the 5th April) so depending on what side of £450k her net estate falls the estate my not need the transferable rate at all.

Do you know if your father actually had a will.

Hi Keep pedalling - thanks for the reply.
I'm not sure if the Residence Nil band Rate can be applied - she is in a care home and sold her house to fund this 18 months ago so there is no property - its just a lump sum - and I found out yesterday that there are a couple of ISAs as well.
My father in law did have a will - it was written by his cousins husband who was a solicitor - he died 15 years ago. We know the will said - 'everything to my wife' - his two daughters didn't benefit (one being my wife) and as they recall nor did anyone else.
Is the will absolutely necessary as proof?
As he died 6 years before the introduction of this benefit then it seems a little unreasonable to expect it to have been retained.

Linton

Lemonsqueezer78 wrote: »

Thanks for the replies guys - I'll check out and confirm the situation with the DIS thing with the benefits team at work, but I do recall it is managed through a board of trustees so it does sound like this is the kind of arrangement you describe that doesn't need to be counted as part of the estate for IHT purposes.

Does anyone happen to know if the beneficiaries of this have to pay tax (capital gains?) on what I leave them?

Edit: and I'll arrange a Will.

Beneficiaries only pay CGT on the difference between probate value and the value when they eventually sell. The estate may have to pay CGT on any increase in value from when you die to that declared for probate but this is usually zero. There is no CGT applied for any increase in value before your death.

Keep_pedalling

Craighoy wrote: »

Hi Keep pedalling - thanks for the reply.
I'm not sure if the Residence Nil band Rate can be applied - she is in a care home and sold her house to fund this 18 months ago so there is no property - its just a lump sum - and I found out yesterday that there are a couple of ISAs as well.
My father in law did have a will - it was written by his cousins husband who was a solicitor - he died 15 years ago. We know the will said - 'everything to my wife' - his two daughters didn't benefit (one being my wife) and as they recall nor did anyone else.
Is the will absolutely necessary as proof?
As he died 6 years before the introduction of this benefit then it seems a little unreasonable to expect it to have been retained.

I think most people do actually hang on tho things like wills as valuable family documents, but not having them does not bar you from claiming it just makes things more difficult for the e executor.

Selling a house because you move into care does not remove the ability of your executor to claim the residents nil rate band, and in this case there is a transferable Residence nil rate band that can be transferred as well should it be required when the time comes.

Craighoy

Keep_pedalling wrote: »

I think most people do actually hang on tho things like wills as valuable family documents, but not having them does not bar you from claiming it just makes things more difficult for the e executor.

Selling a house because you move into care does not remove the ability of your executor to claim the residents nil rate band, and in this case there is a transferable Residence nil rate band that can be transferred as well should it be required when the time comes.

Thanks again - It seems then that my wife and sister (who are the executors) will need to get some decent professional help when the time comes as (as you can probably tell) its all a bit of a mystery to us !
But based on your helpful comments - at least it seems there is some hope that they will be able to avoid most of the tax

MrsKatyF

I've been trying to look into inheritance tax and get all the facts but I'm finding it extremely difficult to understand so was hoping someone could advise on our situation and perhaps dumb it down for me a bit.
Sorry in advance it's quite long. It's actually my mother who needs the advice she and my father owned a house which they were in the middle of selling when he passed away in 2005 my mother continued with the sale and purchase of the slightly smaller house which is in her sole name having inherited all from my father.
The current house is now worth roughly between £1 million and £1.2 million and she has probably £20K in savings. My eldest brother (there's 3 children in total) still lives with my mother, he has learning difficulties. As it stands at the moment her will divides the estate between the 3 of us and there will be a reasonably hefty tax bill to pay.
She's now looking at retiring and feels she wont be able to keep up with the household bills. She's concerned about leaving us with lots of tax to pay and she want's to know my eldest brother will be provided for without myself or my other brother going without. The options she's looking at are either:
1) Selling up and downsizing with my brother still living with her.
2) Selling up and moving near me (outside London so cheaper) buying a house with an annex for my brother, the main house would eventually become mine as I will continue to look out for my brother. When she sells her current house she would like to "gift" my other brother his potential inheritance.
She'd like to know what would be best and what the implications would be tax wise and I just don't know what to advise.
I hope that all makes sense. Any advice/tips would be much appreciated.

Thank you

Keep_pedalling

With the amounts concerned I think your mother should take professional advice. Having nearly all her wealth tied up in her home is not a great place to be so should definitely be looking at releasing some capital from the current home.

As it stands if she died tomorrow £900k of her estate would be tax free rising to £950k on April 6th and £1M a year later. If she is in good heath and is likely to live another 7 years then gifting to get her estate below £1M is something to be considered.

swmick

My step-father died June 2013. His will included a £325k nil rate band discretionary trust. The residue of the relatively substantial estate was left to my mother.

Beneficiaries of the trust included my mother, my step-fathers children and me and my own siblings.

As a result of a less than cooperative and trusting relationship between the two families it was agreed that the trust would be dissolved by deed of appointment and the resulting funds passed to my step-sisters in settlement of their interest in the estate. This was done and the funds transferred to them.

Is it the case that the effect was to restore my step-fathers' nil rate band such that it could be passed on to my mothers' estate when the time comes?

In addition, did the payment of the £325k to my step-sisters constitute a gift to them and therefore be accountable in my mothers' estate when the time comes?

If so, would the effective date of the gift be the date of my step-fathers' death, or the date of the distribution of the funds?