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

John_Pierpoint

I think I was initially confused by the changes made by GB in 2006, clashing with my own previous experience. Specifically the concept of Nil Rate Band trusts. and the subsequent InHeritance Tax treatment of people dying, who have an Interest in Possession Trust.

However I am aware that a government, that spends half of the peoples' money on the peoples' behalf, should be raising a 50% tax on average.

Am I right in thinking that "Discretionary Trusts" will be facing 50% income tax soon? (You can tell them the truth, they don't have votes at the next election).

Does anyone want to have a go at explaining the concept of a "pilot trust".

John_Pierpoint

oneskintdad wrote: »

Hi...wonder if anyone can sort the bones from this??My auntie[dads sister] has just past away and i believe the term is died intestate[without making a will]..nospouse, no children, no living parents so my father as only living sibling, is unlikely to be challenged when he applies [STRIKE]next in line[/STRIKE] to become administrator as I understand?

Auntie has left [STRIKE]leaving [/STRIKE]in the region of £325k plus a very run down house (I've become sickened after reading that IHT could take 40% of the value of the house - this is.......APPALLING..

Any help or advice would be greatly appreciated although after spending nearly a day reading up on this. I'm now convinced I need to consult a leach....sorry a solicitor...Dad is 75 himself and all this is hard enough..HELP..

Hi oneskintdad,

Please forgive me for tidying up you posting and amending it to the question I want to answer;).

1. Having done a fairly complicated estate - I think a "good" solicitor earns the money. However you only discover that the solicitor is "good" afterwards, unless you have a string of relatives to cremate..

2. Who looks like inheriting everything good and bad - just your dad ?

3.. Was auntie a widow and did her husband leave her all his wealth and so a second nil rate band for IHT ?

4. Are there any other family members (or others) who auntie has been supporting - the state does not want to be lumbered with them?

5. How complicated was auntie's life, as far as relationships go, but especially financially?. Could her affairs be "in a tangle"?

6. Who in your family has the TIME and ORGANISATION skills to lead on this one? An existing family solicitor, might already understand the relationships, but someone new would have to rely on the administrator to do a lot of the work.

It is probably a good idea to start your own thread, if you need further advice.

John

RobS77

John- Re the point for income tax on trusts- yes it will be 50% income tax on trusts but there are two solutions to that- appoint the income tax out to a lower rate tax payer so it is paid at the lower rate or alternatively bundle it up in an investment bond where it will only pay CGT at 18% and then remove 5% capital withdrawals as you are permitted to do each year.

A pilot trust is a shelf settlement, which sits with a token amount until activated.

RobS77

localhero wrote: »

It might be worth putting in less than the current nil rate band and also allowing a bit of room for the assets to `sweat`.

If you can keep the assets beneath the nil rate band then you will avoid 10 year/exit charges.

Also, take into account the fact the Chancellor has frozen the IHT threshold next year despite an earlier pledge to increase it to [FONT=&quot]£[/FONT]350,000.

Why not set up a discretionary settlement via a deed of variation and then loan the sum to John, who can then give it straight onto his grandchildren, so you thereby have a double saving for tax as the funds never entered his estate?

John_Pierpoint

RobS77 wrote: »

John- Re the point for income tax on trusts- yes it will be 50% income tax on trusts but there are two solutions to that- appoint the income tax out to a lower rate tax payer so it is paid at the lower rate or alternatively bundle it up in an investment bond where it will only pay CGT at 18% and then remove 5% capital withdrawals as you are permitted to do each year.

A pilot trust is a shelf settlement, which sits with a token amount until activated.

Thanks Rob,

Am I right in thinking that the beneficiary, if not a higher rate tax payer, will be able to reclaim the "excessive" tax paid?

The Investment Bond with 5% a year withdrawal, had already caught my eye - especially with current levels of interest rates.
I don't know how this situation came about historically, but it is looking to me like a target area for increased tax. I can remember the days of income tax relief on all interest payments on loans and half income tax relief on life insurance premiums, even when regularly cancelled;)

Pilot Trusts: What is the advantage of having a mini trust on the shelf waiting to be charged up with money ?
Does some sort of administration have to be reported every year to keep it alive?

RobS77

John_Pierpoint wrote: »

Thanks Rob,

Am I right in thinking that the beneficiary, if not a higher rate tax payer, will be able to reclaim the "excessive" tax paid?

The Investment Bond with 5% a year withdrawal, had already caught my eye - especially with current levels of interest rates.
I don't know how this situation came about historically, but it is looking to me like a target area for increased tax. I can remember the days of income tax relief on all interest payments on loans and half income tax relief on life insurance premiums, even when regularly cancelled;)

Pilot Trusts: What is the advantage of having a mini trust on the shelf waiting to be charged up with money ?
Does some sort of administration have to be reported every year to keep it alive?

If the income is appointed out to a lower rate tax payer, then it can be taxed at source, and ordinarily wouldn't have to be reclaimed. I would normally do a deed appointing the income to the Settlement in this regard. It would be declared on the income tax return for the settlement.

You would normally do a letter notifying the Revenue of the trust (would have to fill in form 41G) but as the shelf settlement is non-income producing, they wouldn't issue returns ordinarily until assets were transferred to it, as long as you explained it would be non income producing initially.

Advantage with a shelf settlement- each trust has its own IHT threshold- therefore if it is anticipated that the assets will remain longterm in trust, you can separate assets out, thereby avoiding 10 year anniversary charges, as long as they remain below the 300k threshold.

RobS77

localhero wrote: »

Be careful - ordinarily if two trusts are created within 7 years of each other, then 20% IHT would be immediately due on anything that exceeds the nil rate band - in this case a liability of [FONT=&quot]£[/FONT]15k on [FONT=&quot]£[/FONT]75K.

Though in JP's case he may of course consider executing a DOV for the first trust.

Although in John's case, as he is married, he could transfer half the assets to his wife who could then settle them herself, thereby utilizing two nil rate bands.

localhero

RobS77 wrote:

Why not set up a discretionary settlement via a deed of variation and then loan the sum to John, who can then give it straight onto his grandchildren, so you thereby have a double saving for tax as the funds never entered his estate?

RobS77 wrote:

Although in John's case, as he is married, he could transfer half the assets to his wife who could then settle them herself, thereby utilizing two nil rate bands.

I had previously suggested a deed of variation, but without knowing the full circumstances of JP it is impossible to offer any meaningful practical advice. I think the important thing is for JP to get himself in front of a competent professional who can provide tailor made advice.

sloughflint

RobS77 wrote: »

Advantage with a shelf settlement- each trust has its own IHT threshold- therefore if it is anticipated that the assets will remain longterm in trust, you can separate assets out, thereby avoiding 10 year anniversary charges, as long as they remain below the 300k threshold.

RobS77 wrote: »

Not that I have ever heard of, and I have worked as a private client solicitor for over 5 years.

You are way out of date RobS77.
:eek::eek::eek:

RobS77

sloughflint wrote: »

You are way out of date RobS77.
:eek::eek::eek:

Really- are you saying that each settlement if dated on a separate day doesn't have its own IHT allowance? I am talking about the tax allowance for each trust, not the NRB of the individual Settlor. I use the figure £300,000 as I prefer not to go too close to £325,000.00, thereby permitting natural income to be accumulated if necessary. Tell me if you think Chris Whitehouse is wrong, as he advocates the use of an umbrella series of pilot settlements to avoid the incursion of anniversary charges........ particularly useful in respect of business and agricultural property.