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

aaronj

What he should look at is how those rented properties are owned. If they are held as joint tenants, then on the first owners death the survivor will automatically own them outright, which means they can’t be left in a will. If he does not have an up to date will in place he needs to sort that, and put LPAs in place if not already done. 

Thank you for this advice, I had a conversation with him yesterday and he was unsure of the setup of the rentals so that will be our first jobs we will do. He doesn't have an up to date will, so that has become a priority now. LPA we had been planning to do.

Transferring his home is plain madness, as he would be throwing away his security, and if any part of this idea is to avoid care costs it won’t work as it would be classed as deliberate deprivation of assets, because frankly there is no other reasonable explanation for doing such a transfer. 

Although he requires no care currently, it was a part of his thought process, another being it has been his family home for a couple of generations and he would hate for it to be lost to pay for his care, should he need some, but as you say if it is classed as deliberate deprivation of assets then it is what it is now.

Keep_pedalling

aaronj said:

What he should look at is how those rented properties are owned. If they are held as joint tenants, then on the first owners death the survivor will automatically own them outright, which means they can’t be left in a will. If he does not have an up to date will in place he needs to sort that, and put LPAs in place if not already done. 

Thank you for this advice, I had a conversation with him yesterday and he was unsure of the setup of the rentals so that will be our first jobs we will do. He doesn't have an up to date will, so that has become a priority now. LPA we had been planning to do.

Transferring his home is plain madness, as he would be throwing away his security, and if any part of this idea is to avoid care costs it won’t work as it would be classed as deliberate deprivation of assets, because frankly there is no other reasonable explanation for doing such a transfer. 

Although he requires no care currently, it was a part of his thought process, another being it has been his family home for a couple of generations and he would hate for it to be lost to pay for his care, should he need some, but as you say if it is classed as deliberate deprivation of assets then it is what it is now.

Apart from DDOA, there are quite a few other downsides to giving your home away. What happens if the new owners run into financial difficulty, get divorced or pre- decease you? Unless he also pays full market rent then it is considered a gift with reservation, so even after 7 years it remains part of his estate, which could hit the beneficiaries with a double tax hit, because his estate would lose its residential nil rate band, which could increase the the IHT tax bill by up to £140k and when the beneficiaries sell the house they could also find themselves facing a capital gains tax liability as well.

Finally, if he ever does need residential care, would he like the luxury of choosing who, where and when or would he prefer to risk ending up in “over my dead body grange”. Most people don’t actually end up in care, and hopefully he won’t, but as he gets older he may find that sheltered housing or assisted living may be more suitable, and being able to sell or rent out his current home will give him those options.

Organista

My Dad has recently moved to a care home where he will end his days.  He's 98 and quite frail.  His estate is over the IHT free band.  Does anyone know whether he has to own his own residence *at death* to benefit from the tax-free  band on primary residence?  I tried asking the HMRC Inheritance and Probate "Helpline" but all they could say was "Since he hasn't died yet I can't give you that advice"!!!!!!!!!!!!!!!!!!  We are looking at whether or not to put his flat up for sale now, or to mothball it until he dies.  Thanks.

uknick

Organista said:

My Dad has recently moved to a care home where he will end his days.  He's 98 and quite frail.  His estate is over the IHT free band.  Does anyone know whether he has to own his own residence *at death* to benefit from the tax-free  band on primary residence?  I tried asking the HMRC Inheritance and Probate "Helpline" but all they could say was "Since he hasn't died yet I can't give you that advice"!!!!!!!!!!!!!!!!!!  We are looking at whether or not to put his flat up for sale now, or to mothball it until he dies.  Thanks.

https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

This link says;
In addition, legislation in Finance Bill 2016 will provide that where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence or had ceased to own a residence on or after 8 July 2015, that part will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants. However, the total amount available won’t exceed the maximum available residence nil-rate band. The technical details of how the additional nil-rate band will be enhanced to support those who have downsized or ceased to own their home will be the subject of a consultation to be published in September 2015 ahead of the draft Finance Bill 2016."

Whilst this is the policy paper making the proposal for the change, it's not often the legislation changes much.  I'm surprised the HMRC staff couldn't point you to it.

badger09

Organista said:

My Dad has recently moved to a care home where he will end his days.  He's 98 and quite frail.  His estate is over the IHT free band.  Does anyone know whether he has to own his own residence *at death* to benefit from the tax-free  band on primary residence?  I tried asking the HMRC Inheritance and Probate "Helpline" but all they could say was "Since he hasn't died yet I can't give you that advice"!!!!!!!!!!!!!!!!!!  We are looking at whether or not to put his flat up for sale now, or to mothball it until he dies.  Thanks.

This is the up to date official guidance. It looks more complicated than it is. 
https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Basically, RNRB can still be claimed if estate left to direct descendants.

If, when the time comes, you are Executor and decide to apply for Probate yourself, head over to this board where you'll find lots of helpful info.
https://forums.moneysavingexpert.com/categories/deaths-funerals-probate
Hope you don't need this any time soon though

Organista

Many thanks for the helpful advice regarding RNRB.  I also cannot understand why the "Helpline" couldn't point me to this.

I will apply for Probate myself, having been the executor for my Mum's estate a few years back.  I learned a great deal about Probate at that time, even though it ended up being simple.  I don't expect any difficulty with my Dad's probate when the time comes.

Doc_N

Normal expenditure out of income - a frequently missed opportunity to give away money, reducing the size of the estate where there’s a surplus of income over expenditure. See extract from HMRC guidance below:

Lifetime transfers: normal expenditure out of income: introduction 

The exemption under IHTA84/S21 applies where the taxpayer can show that a gift (transfer of value):

• formed part of the transferor’s normal expenditure (IHTM14241),
• was made out of income (IHTM14250), and
• left the transferor with enough income for them to maintain their normal standard of living (IHTM14251).

Seven year rule does not apply, so useful for those in later years.  But there has to be a regularity to the payments to make it normal expenditure.  Relative of mine has just made first of a series of annual payments, recording that fact and intention, but now wishes to make those payments monthly (same total amount in the year) instead.

Any thoughts as to whether the change from yearly to monthly might cause any problems at the eventual day of reckoning with HMRC?

RatherConfused

no problem changing the timing just make it regular. Thats what i read in the excellent book called "How to save IHT by Carl Bayley.", Absolutely superb book. He knows more than pretty much anyone in the whole of the UK imho. 

tickydicker

I am unclear whether the Residence Nil Rate Band can only be applied to main residence or to the whole estate. I have a uk home and a holiday home in france. My share of their value together with other assets is more than £325k but less than £500k. If I leave all my assets to me children will they have to pay Inheritance tax?

Doc_N

tickydicker said:

I am unclear whether the Residence Nil Rate Band can only be applied to main residence or to the whole estate. I have a uk home and a holiday home in france. My share of their value together with other assets is more than £325k but less than £500k. If I leave all my assets to me children will they have to pay Inheritance tax?

https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band