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

margaretclare

Please do your best to persuade Grandad NOT to withdraw any large sum from his bank and 'keep it in a safe place'.

There are NO safe places!

We are constantly seeing reports in local papers about 'distraction burglaries', 'opportunist burglaries', miscreants who get in through a window. It always seems to be older people who are targeted. The usual comment from the victim seems to be 'he was only in here for a couple of minutes' - the obvious inference is that all these wrongdoers know exactly where all the 'safe places' are that people keep their life's savings, their week's pension, it makes no difference about the actual amount - it can be thousands or hundreds.

We had an opportunist burglary a few years ago when someone very small and agile got in through a bedroom window. Fortunately he (or it could have been she!) only got a £5 note and some small change, because DH and I never keep money in the house. Large sums of money belong in a bank - let them look after the security for you, that's why they're there!

localhero

Hi Ian2deep,

In order to make a more informed decision you will need to consider the following and let us know:

1) What is the current value of the trust fund?
2) What is the total value of your father's assets and what do they consist of?
3) What is your father's state of health?
4) If he required care later on, would you like your mother's estate (ie the assets in the trust fund) safeguarded from the liability to care fees.
5) Would you like to safeguard your mother's estate from your father remarrying or frittering it away?

joemarch1

localhero wrote: »

Hi Joemarch1,

The information you have provided is very unclear.

What does your granddad's estate consist of please and what are the assets worth?

Is he a widower?

Also what is he trying to achieve in the way he distributes his estate - ie does he want it split equally between you and 1 other person?

I assume he owns a property already, but he's now bought a second one for £100k which he wants to give to you?

What does he want to do with the other £100k?

Sorry for not being more clear.

My grandfather is worth about 320000 pounds all in, he does not have another home, he lives with family and is divorced.

He has bought the house at 100k, leaving 220k. The house is to be left to me, the cash is to be distributed to his daughter, the 220k is mainly cash based along with a few shares and premium bonds.

He has just had some good news from the doctor that his heart problem can be curred, in this situation would he then be best to sign the house over to me, and hope he lives beyond seven years.

I know the house, even in this declining market is worth more than we purchased it for.

Thanks in advance for your help and advice

localhero

Hi joemarch1,

If the market value of the house is £100,000 and his estate is worth £320,000 then he is currently only £8,000 over his IHT threshold of £312,000.

The IHT threshold from next April will rise to £325,000.

If in the meantime the house is improved and is actually worth £200,000 when he dies then there will be a potential IHT problem. An estate worth £420,000 would be liable for IHT of £43,200.

If his intention is for you to inherit the house and he doesn't require it to live in or for a rental income, it would make sense for him to give it to you now at its market value and before you make any improvements that increases its value.

If he doesn't survive for 7 years then the value of the gift will be added back into his estate. Crucially it will be at the current market rate (ie £100,000 rather than the later higher value).

In the meantime to reduce the value of his estate he can gift £3000 to his daughter for this year and if he made no gifts in the last tax year then he can also use last year's allowance. That will bring his estate down to £314,000. If he then did die this year then the cost of his funeral would reduce his estate further, ensuring there is no IHT.

It is the task of the executors to declare the value of any gifts made in the last 7 years, and so if he does give a large sum of cash to his daughter, this will need to be disclosed. There are penalties and crimininal sanctions for executors who provide inaccurate/dishonest information to the authorities.

He doesn't need to get the cash out of his estate, and as Margaretclare says this should be somewhere safe and earning interest for him.

So in conclusion, I would suggest gifting the house now, but not the cash (apart from 2 x £3000 annual gift allownce).

He could actually gift the house himself using a TR1 form and an AP1 (available from the Land Registry) as well as a SDLT60 (exemption from stamp duty form). There will be a £50 Land Registry fee.

Hope that helps.

joemarch1

Thanks Local Hero

Thats great, i'll have a discussion with him,

he did mention signing it over now, but also thought about putting it in joint names, i don't think this would work though.

Thanks again for clearing this up

Dave-Geo

My first post so please be gentle

I wonder if anyone can help me with the following scenario.

My mother in law lives in a large property which due to her age and mobility is no longer suitable for her needs. My wife and I have offered to build a new house in the garden after which the existing house will be demolished.

We would fund the building of the new house and the new house would then be jointly owned, 80% by us and 20% by my mother in law.

We are trying to find out what implications this project might have in relation to tax.

My mother in laws estate will be subject to inheritance tax and we are trying to work out the best way forward and minimise tax as far as possible. We have had several conflicting bits of advice so we still have the following questions.

1.Would we have to pay 20% tax up front as a lifetime gift on the property? If so could she use her IHT allowance towards this during her lifetime?

2.As long as my mother in law survives 7 years from the date of the transfer would this mean that no IHT was payable.
3.Would stamp duty be payable on the property transfer?

Any help with the questions or any suggestions as to the best way forward would be greatly appreciated.

Many thanks,

Dave

localhero

Hi Dave-geo,

In order to answer your questions you will need to supply a bit more information.

1) What is the current value of the property together with the land?
2) How much do you intend to spend on the new property?
3) Does your mother in law have savings of her own to pay for it or is she reliant on your money to build it?
4) What will the new property be worth?
5) What value (if any) does the old site have and will your mother in law retain ownership of it?
6) Is she widowed?
7) What is the total value of her estate?

Dave-Geo

localhero wrote: »

Hi Dave-geo,

In order to answer your questions you will need to supply a bit more information.

1) What is the current value of the property together with the land?
2) How much do you intend to spend on the new property?
3) Does your mother in law have savings of her own to pay for it or is she reliant on your money to build it?
4) What will the new property be worth?
5) What value (if any) does the old site have and will your mother in law retain ownership of it?
6) Is she widowed?
7) What is the total value of her estate?

Thanks for your reply localhero.

The answers are as follows.

1. Currently the house and land would be valued at about 500k,

2. The new build will cost about 400k.

3. My mother in law does have funds to build the new property but we want to do this ourselves using the sale from our own home, savings and a small amount of borrowing.

4. New property will be worth approx 900k

5. Mother in laws total estate including house is currently about 1 Million.

If you need any further information please let me know.

Thanks again,

Dave

harryhound

The material & labour costs of a one-for-one house seem to be very high given the current slump in the building industry and the "free" land? Are you replacing a small bungalow with a three floor palace?

Without being specific, where in the country/what sort of terrain & surroundings is the site?

How big is the garden?

The challenge of DIY property development like this can be the interplay of CGT & IHT. On death you pay IHT not CGT but mess it up and you could pay both.

There have been notorious cases where HMC&R has tried to say "There is a million pound house and if you think about it there is another 600K plot at the end of the garden - So now tell me why you don't owe tax on the 1,600,000".

(I think the clerk wage slaves probably get all green eyed when you send in the return of such ill gotten gains).

localhero

Hi Dave-geo,

You are right to be concerned about your mother in law's IHT position.

I think if you box clever the value of her estate could be increased whilst the IHT could be substantially reduced. But from the information provided so far, I fear that you may not be doing yourselves any favours - and I agree that the building costs seem very excessive to me.

Sorry to be so pedantic, but it would be helpful if you could state whether mother in law is widowed or not.

Also: What is her age and state of health?

Does she intend to give you (or others) any of her estate before she dies?

What will happen to the site of the old property (ie is there planning permission to build 2 houses on the site).