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

SeniorSam

Mary_Hartnell wrote: »

I don't really have "circumstances", but I do take an interest.
This written in trust always seemed to be a self evident way of dodging intergenerational IHT.
When poor old grandad dies you kids/grand kids get the proceeds of this policy tax free (?!?).
So are you saying that the policy is now treated as an asset of a trust and subjected to a liability to the periodic IHT charge of 6 percent every x years?
In these circumstances grandad might as well give away the money and hope to live 7 years?

........... Just to add what I believe to be correct on life policies. If a trust value exceeds the nil rate band allowance of £325,000 in a tax year, then when the trust is assessed each 10 years any excess of the then current nil rate band would be charged at 6% and be payable then.

The way around this if more than the nil rate band is to be gifted into Trust, ( including any gifts in the last 7 years) is to set up several trusts each within that limit or the expected limit in 10 years time.

Life premiums are normally considered exempt, but if the assured value exceeds the nil rate band allowance then the excess could attract a 6% tax........ again several policies would be better.

Hope this helps

Sam

localhero

SeniorSam wrote:

Life premiums are normally considered exempt, but if the assured value exceeds the nil rate band allowance then the excess could attract a 6% tax........ again several policies would be better.

If there are assets to be in trust that exceed the nil rate band (ie gifts to grandchildren) then to avoid the 10 year/exit charges then a number of `pilot trusts` can be opened to avoid this.

John_Pierpoint

I may have "circumstances";)

I am in the process of inheriting a 6 figure sum from someone who died about a year ago. So far I have received nothing from the estate.

If I were to ask that this inheritance (which is within the nil rate band) should be set up as a trust for my grand-child/children ( until they are of "age") are there any pit falls I should be aware of ?

Presumably my wife and I would retain our individual allowances and rights to transfer unused nil rate IHT bands to each other (plus any other methods with loans allowing us to live like royalty and die like paupers? (I wish:rolleyes:)).

SeniorSam

John_Pierpoint wrote: »

I may have "circumstances";)

I am in the process of inheriting a 6 figure sum from someone who died about a year ago. So far I have received nothing from the estate.

If I were to ask that this inheritance (which is within the nil rate band) should be set up as a trust for my grand-child/children ( until they are of "age") are there any pit falls I should be aware of ?

Presumably my wife and I would retain our individual allowances and rights to transfer unused nil rate IHT bands to each other (plus any other methods with loans allowing us to live like royalty and die like paupers? (I wish:rolleyes:)).

Hi John,

It would have been better to consider a deed of variation within two years of death, so that the gift did not enter your own estate and if you have considered this, then if gifted tomothers it is not yours to benefit from.

So, if you wish to reatin benefit, then it comes to you and is then placed in trust, and setting up a trust or preferably more than one trust will depend on the accessibility required and the amounts involved bearing in mind the nil rate band allowance and the 10 year review of trusts with a possibility of 6% tax if the value in 10 years was above the nil rate band at that time.

If you are setting up trusts for your grandchildren, then the assets are not for you and your wife, although you as trustees could access funds for the benefit of those children, say for education, support etc. but not for yourselves.

If you want trusts for yourself, then you have the choice of Loan Trusts, where all growth is in the Trust but you can take withdrawals or the loaned capital back, not subject to income tax at that time, but all growth is in the trust and not in your estate. On death the asset passes to your beneficiaries but your spouse is a discretionary beneficiary and before her death, could continue taking withdrawals with permission of other trustees any remaining Loan would be counted in the value of your estate when you die.

You could consider another type of trust where you gift the money to children/grnadchildren, or others, which passes to them on death but after 7 years is outside your estate completly, but you retain an ongoing right to an annual amount. That amount is by way of the original investment being split into say 10 policies, one of which matures each year and you can take all or part of this. Any not taken can be reinvested in the remaining policies.

Remember only to use Discretionary trusts with gifts to children as this can be controlled far better by the trustees, particularly if for children as getting hold of large sums of money at age 18 may not be wise.

Hope this helps

Sam

John_Pierpoint

As I have not received anything from the will as yet and the death was only 14 months ago,
presumably my options are still open? My intention is to "generation hop" by setting up a trust for my grandchildren.
HOWEVER there may be a glitch in the system coming up.
I am one of several beneficiaries and the sale of the house in likely in the near future.
It is looking like the sale could be for more than the agreed probate value.
Ideally the capital gain could be spread across the nil rate band of the several beneficiaries BUT would I be endangering the other beneficiaries if I repudiated my inheritance after the exchange of contracts?
Presumably at the very least my share would then be liable to capital gains tax under the arrangement for trusts rather than individuals?

SeniorSam

John_Pierpoint wrote: »

As I have not received anything from the will as yet and the death was only 14 months ago,
presumably my options are still open? My intention is to "generation hop" by setting up a trust for my grandchildren.
HOWEVER there may be a glitch in the system coming up.
I am one of several beneficiaries and the sale of the house in likely in the near future.
It is looking like the sale could be for more than the agreed probate value.
Ideally the capital gain could be spread across the nil rate band of the several beneficiaries BUT would I be endangering the other beneficiaries if I repudiated my inheritance after the exchange of contracts?
Presumably at the very least my share would then be liable to capital gains tax under the arrangement for trusts rather than individuals?

John,

If you wish to 'skip' your inheritance to pass the benefit to your children, there needs to ba a deed of variation within 2 years of the date of death.

The inheritance tax on the deceased estate has no bearing to you skiping a generation.

The executors will deal with the inheritance tax with the Revenue and the value of the property at date of death, if accepted, will not relate to the sale price being higher.

Sounds like you need help so seek the advice of a good IFA who specialises in this area or a solicitor that is STEP qualified and can advise you in CGT.

However, with all the questions you seem to ask on this site, are you trying to keep this particular thread going rather than starting a new one - or is there some other reason ????

I'm a bit sceptical!

Sam

John_Pierpoint

No ulterior motive, it is just that my life is evolving.

To mis-quote Margaret Thatcher "we are a grandfather" for a week or two now.
So I need to understand all the options, not just for myself BUT so that I can explain things to the other people who might think they have a vested interest.

I might be jumping the gun, and expecting other family members to think along these lines:
My other child (daughter) will think "why is my brother's new kid getting this benefit?"
My wife might think "He will die at any moment, he has already out lived his father by 13 years; I could be left in penury?".
Etc.
Etc. for other family members.
At the back of my mind, I would like to do something like create an accumulation & maintenance trust (unfortunately now limited to age 18 by Gordon Brown's meddling) and the trust would help the parents to buy a home for the 3 of them - leaving the testosterone fuelled 18 year old to inherit a somewhat illiquid asset!

Any thoughts?

Barton52

Unfortuantely my dad did not make any iht provisions and left a home made ambiguous will. we are left with a situation where we need to vary the will to clarify it.

On the one hand we (3 siblings) can take the tax limit and pass the rest to my mum - about another £200,000. She has said she would then pass it on to us, but would that be looked at as a circular transaction? If so would we then possibly be liable for IHT on that amount from both my dad's estate (ie we didn't pay tax on it when it was in his estate) and then again from my mum's estate should she die ?

WE keep going round in circules and the solocitors seem very reluctant to give a view on any of it really. WE have considered going to a tax advisor but are now nearing the 6 month deadline cos its all taken so long.

Would we be better to just pay the tax on it now and then its a done job. Can you borrow (from where) to pay iht?
Thanks any help appreciated.

Barton52

Also - this may sound really stupid - I really can't see on this site how you just post a simple question within a particular forum - I'm not sure where I've ended up as there doesn't seem to be a 'post your question here' button - just reply to existing things?

John_Pierpoint

Barton52 wrote: »

WE keep going round in circles and the solicitors seem very reluctant to give a view on any of it really. WE have considered going to a tax advisor but are now nearing the 6 month deadline cos its all taken so long.
.

Welcome to MSE.
What 6 month deadline would that be?
John

PS To create a new thread:
> Forum > cutting tax > Forum Tools (its in the green row at the top of the cutting tax list of threads) > Post a new thread.

Probably best to start your own thread with details of situation and indication of assets available.
For example if there is a house you could mortgage it to raise the tax.

I am just finishing off a probate situation that started in Autumn 2008, complete with dodgy will:

http://forums.moneysavingexpert.com/showthread.html?t=1164505