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

margaretclare

Red_Eye wrote: »

Hello, recently my father passed away & we are sorting out his estate. My mother & father lived together but were not married. The house is in my fathers name but just under 3yrs ago he added my mother onto the deeds & made her a tenent in common, also he did a basic will where I inherit half the house & my mother gets the other half + all contents & wealth.

My question is, Do I only have to pay IHT on my half of the estate (approx £500k) in which case where does that leave my mother, who wants to stay in the house at all costs. What sort of cost will my mother have to pay on her side of the IHT?

Can she sign her half of the estate over to me (based on the 7yr rule) to avoid paying any more IHT in the future when she dies.

If I was to inherit half the house, where do I stand regarding tax on 2 properties?

All we want to do is avoid paying as much IHT as poss, due to the fact that we've paid tax all through our working lives !!

Thanks

This is complicated by the fact that your parents weren't married. If they had been, your mother would have inherited your late father's nil rate band so that when she eventually departs, there would have been no IHT to pay on £650K (£325 x 2).

You've paid tax throughout your working lives? Join the majority of the population! DH and I have almost a century of working and paying tax between us and, as he is fond of saying, it's a 'so what' situation.

Mary_Hartnell

OMG are you saying that dad has given away half of a 1,000,000 estate within the last 7 years to his "girlfriend" and left the other half in his will to his child. (and as he presumably continued to live in the house after giving half of it to his "girlfriend" it will not count as a gift under the reservation-of-benefit rules.- you might get away with it because I don't know how carefully they check but see below - solicitors dare not help you to "fiddle" the situation.)
Or are you meaning what you have written that he gave away half his 1,000,000 "under 3 years ago" and has now split the remaining half roughly 50:50 with his "girlfriend" and his child?
What is the "other wealth", given to the "girlfriend", worth?
Are you both living in the house?
Are you happy to carry on living in the house?
Would the house make two flats?
How old is your mother and what is her health like?
Presumably mum and dad were living together south of the Scottish border judging by the terminology you are using?

Here are four links that may prove useful

http://www.hmrc.gov.uk/cto/customerguide/page13-2.htm
http://www.hmrc.gov.uk/stats/inheritance_tax/description-of-tax.pdf
(I've only just found this - it is a good summary of just how much the tax man is after - because (as it explains) it tends to take two years for the figures to come in; the effect of transferable nil rate bands from autumn 2007 are not discussed)
http://www.telegraph.co.uk/news/uknews/1563730/Crackdown-on-7-year-inheritance-tax-gift-rule.html
http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm


Unless I've got the decimal point in the wrong place, this does not look like good news.

You need to read all the answers you can find since autumn 2007 (when other things being equal your mum & dad should have got married).

Of course all this might be forum nonsense unless you post the wording of his will (having changed the names & addresses)
The two of you could do "A deed of variation" within two years to re-write the will, if you can trust each other. That might avoid the need to start off another 7 years but is unlikely to save much tax looking backwards..

J15

Eleven years ago my parents signed their house over to me, however they have continued to live at the address with a lease being in place stating that every year they continue to live there a peppercorn rent on the address will be payable. I live at another address on my own. I am not married and do not intend to be. What happens if 1. One of my parents dies or if they have to go into a home? I have owned the house for over 7 years, but do not reside there, do not get an income from it. Does the house have to go into an 'estate bundle' even though I own it if my parents die, as the value will be over the 325000 threshold for IHT?

If so, is would the house be better going into name of parent/s and me to bring the IHT level down if one or either passes away?

IHT seems to be the biggest con ever.

harryhound

There are two capital taxes that are similar.
Capital gains tax, payable when you have something that goes up in value, from when you acquire it to when you dispose of it.
You will notice that I have said acquire and dispose, not buy and sell.

The best know exemption from CGT is each person's "principal private residence".

Currently, you can realise gains each tax year up to the value of 10,100 without paying CGT - this is the nil rate band.
Special rules allow those with a legal union (husbands and wives etc.) to transfer normally taxable assets to each other, without triggering a capital gains tax liability

There is another tax called InHeritance Tax, that normally gets levied when assets change hands because their owner dies. At he moment each person gets a nil rate band of 325,000
http://www.hmrc.gov.uk/rates/iht-thresholds.htm
Here again assets left within a legal union are transferred tax free.
Since October 2007 there has been a special rule that allows the estate of the second death in a legal union to have two nil rate bands less the percentage of the nil rate band used up by the first death.
Provided the first spouse to die, leaves everything to the second spouse, the estate of the second spouse to die will have a nil rate band of £650,000.

There is a third capital levy - If an old person needs care for their own protection but cannot afford to buy it (and their family are not prepared to help) the local council will provide that care, BUT will charge the shortfall in the old persons contributions against any assets the old person still owns. The most obvious asset is the family house and a charge at the Land Registry can prevent the sale of the house until the charge has been paid off.

You appear to be in danger of having done things that make the tax situation worse. I cannot really comment unless you put values on all the assets involved.:
Is the house in which you are living, owned by you or rented by you.
Would it be feasible to make your principal private residence the part of the family home you own?
Will the assets from the parents' generation, including all the house that they still occupy, be worth more than 650,000 ?
What do you think will become of the family home when the parents move out - if it is sold you will probably have a CGT liability even though its full value is also potentially liable for IHT should the parents die within 7 years of moving out.

If you search this part of the forum you will find many other families, with ageing parents, waking up to similar dilemmas.

J15

Hello
Thank you for replying, although I have to say it all seems extrememly complex.
I only have approx values, however here goes.
In 1999 parents had house valued at £250,000 and signed over to me with lease for them to live in it for the remainder of their lives with 'peppercorn rent' to pay yearly (which in effect is nothing)!
I have my own house which I live in and which I purchased in 1996. As you can imagine we are only trying to safeguard our assets in the hope we are not forced to sell to pay either huge tax bill or for care. From some of the reading I have done it sounds like the gift made to me of the house is a 'gift with reservation'. Should I start taking a payable rent from the address and declaring that to taxman, is there a 'paper excercise' that can be done as effectively my parents are caretakers and housekeepers for me and their upkeep of the house, maintenance and gardening etc almost balances out the cost of a rental payment.
The house is probably now worth in the region of 450 to 500K, it is very old and has NO mod cons or central heating. Does this help you understand a bit more? In replying you have to imagine explaining it to a child almost as it seems so complicated to me. Thank you for taking the time to respond to my post in the first instance. Hopefully this information will assist you further.

J15

In the event of parents death I would probably keep the property for a while but would depend on my circs at the time

harryhound

I'm out of my depth with your situation.

Normally what happens is the mother and father dies and the first 650K of their combined estate is IHT free (with the rest of it taxed at 40%).
The probate value of the assets are then freed of any embedded capital gain.

Ideally their estates add up to just less than 650K and in a rising market the beneficiaries keep the assets for a year or two until the capital gain has grown from zero to just less than their nil rate bands (currently 10,100 GBP each)

Your best bet is to start an new "tax saving" thread, with a title like - Caught by the "gift with reservation rules" when parents gave me the home? - (perhaps using one of the icons offered). Then repeat the bare facts as above - the regular posters in this big thread appear to have lost interest, as most of the possibilities must have been covered by now.

You might be in a position where you risk paying IHT & CGT:eek:

Joe._4

Can anyone advise me about suitable Fixed Interest Bonds to place in a simple Family Discretionary Trust? Most institutions will not allow their Bonds to be held by a Trust. :eek::eek::eek:

harryhound

How about those Building Society, permanent interest bearing shares securities, they can be bought via a stockbroker.
Are you thinking of life insurance companies?

Childof12months

Hi Everyone.

Are you sitting comfortably – then I will begin.

I might be very young, but I have been listening to the grown ups talking.
Sometimes they are talking about me and my future. It seems they have quarter of a million pounds that appeared just before I did.
Seems it used to belong to a great great aunt, who died when I was just a bump in mum’s tummy.

Let me tell you about my family and me:
I have one great grandmother (Mary) – She is really really old about 100 and a carer looks after her. Sometimes she cannot remember who I am :eek:

Then there is her daughter (Liz – 60) my nan married to grandad (Phil – 65).

Their son (Chas.- 32) is my dad and he married (Diana-28).
I have one auntie (Ann – 28) who is my dad’s sister she is married but has no children (yet?).

My mum is the eldest of a younger family, where her brothers and sisters are still at college.

So that is my background – you can call me Will. We are just an ordinary hard working family with no shopping debts and a lucky windfall – nothing like royalty.

The grown ups have been talking about something called “a trust” and most of them know no more about “trusts” than I do.

(I would ask grandad Phil, who has just inherited the money, but you know what old people are like - get all embarrassed and won’t talk about interesting things like death, money etc. I think he would get all gruff and want to keep “the trust” a secret.).

The confused grown ups are also talking about “cousin Fred”. It seems Fred was a “Trustafarian” and became an orphan as a teenager. This meant he got loads of money on his 18th birth day. It did him no good at all – perhaps he would still be alive today if he had not been given lots of money?

So I can follow the discussion and not end up like cousin Fred, can someone help me by explaining what “a trust” is and what sort of trust the grown ups are talking about?

Baby Will..


(Perhaps I am a "Trustafarian" too? Didn't that Scottish Mr Brown arrange for the neighbours to give me some sort of Trust Fund for being born?)