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

unab2003

I am a single mother of 2 young children (aged 14 and 7)with my own property which is in my sole name, I also inherited my parents property a few years ago. My current assests today upon death would be in excess of £500,000. I am therefore only allowed £300,000 threshold and thereafter the government would take the 40% of the remaining approx. £200,000+.
Can someone please help me get around this situation.

UGB

jem16

Depends on what you want to do with the money you have. There are various investments that can be used to reduce inheritance tax such as Investment Bonds written into trust.

I would seriously advise seeing an IFA who can specifically advise after learning about you.

Adriver

Hi

My friend recently passed away and I am the sole executor of his will.

His estate is only small but enough to have to apply for probate.

As I've had to deal with clearing his house myself - most of his stuff being of no value so I'm having to pay to get it taken away! - and couldn't have done this without help from my friend, can I claim an allowance for this from his estate?

Any help would be appreciated.

Thanks.

moon-pig_2

Yes it is a legitimate expense. Obtain several quotes and pay your friend what's reasonable. Obtain a receipt from your friend and account for it.

harryhound

moon-pig wrote: »

Hi Kirt,

Since married couples can transfer unused nil rate bands we decided that the later expense could be avoided, so we set up new Wills.

As we already owned our property as tenants in common we could simply have made simple Wills leaving our estates to each other and for inheritance tax this would largely have the same effect as our old wills.

I was concerned however that once I had departed this earth my wife might remarry or wind up in a care home and I wanted to safeguard my children's inheritance from all that.

So instead we left our estates to the children, but gave each other a life interest (right to carry on living in the house until the second of us died). That way our house is safeguarded from care fees and it's tax efficient too.

Presumably the statement about tax is correct, because nobody else has queried it?
From my untrained view, I would have thought that the first to die, lets say it is the husband, has left his half of the house to an "interest in possession trust" NOT to his wife? The wife now has an interest in a trust, the value of which counts as part of her estate when she dies.
Given a 600K house under present zero rate bands, would the husband not have used up his 300K zero rate band by leaving his half a house to an "interest in possession trust"?

Harry

Adriver

moon-pig wrote: »

Yes it is a legitimate expense. Obtain several quotes and pay your friend what's reasonable. Obtain a receipt from your friend and account for it.

Thank you for this. She worked so hard and is skint so even a 'few bob' will be of help to her.

Cheers.

moon-pig_2

Harry, from what I understand giving my wife a life interest is regarded (for IHT) as if I had made an outright gift to her.

This I understand would have been off limits before the thresholds became transferable, as the surviving spouse would have been taxed at 40% above 300k (including the value of the life interest).

I can't quote where in the legislation all this is, but I've been reliably informed by my willwriter that this is the case - and they seem to be very clued up.

harryhound

Thanks moon-pig,

I've checked back to my old postings and found #114 and then #116.

In the latter posting "localhero" confirms that the "emergency" changes made last Autumn do indeed allow one to bequeath a life interest to one's spouse (or legal partner;)) and this interest in possession trust does not count against the couple's zero rate band. [As you point out it also protects to some extent against care home fees, should the surviving spouse be the one woman in three or one man in five who needs residential care].

My late father "accidentally" left half the family home in such a trust arrangement to my mother - she didn't like it much, but as the other trustee I used to jolly her along with jokes about "was she taking it with her". In the event she rattled about in it until her death.
We did once get as far as looking into the idea of her moving into a "nice little bungalow", but quite frankly she had left it too late. At that time we got some very confusing advice about the capital gains tax situation.

Would someone else like to confirm the CGT position, when the widow decides to down size?

Harry.

moon-pig_2

Harry, from what I've been advised, if myself or my wife died, as we'd be entitled to occupy the whole property it would therefore preserve principle residence relief for Capital Gains Tax on its disposal. I'm no CGT expert but that seems to make sense to me.

Incidentally, what happens to the excess capital can be stipulated in the Will as either the income to go to the spouse or to be given straight to the children (depending if you want to safeguard the income from means testing from care fees). If you deprive the spouse from an income he/she can be given loans from the trustees.

kirt_2

Hi Moon-Pig,
Thank you very much for taking the time to explain your situation which was helpful and also for giving me a useful contact no.

With the situation we are in now, at the death of the first spouse the remaining spouse has to set up a will trust. Not sure what the cost for that will be.

Regards,
Kirt