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

Mary_Hartnell

Hi "Baby Will"

Are Granddad & Nan rich enough to give away 250,000K?

What do your mum & do to make a living?

Childof12months

Well Granddad & Nan have both retired recently.
They have a detached house with a garden & gardener.
Just back from some posh holiday on a cruise ship.
Nan was a civil servant and Granddad talks about having a company pension.

My dad is a college lecturer and my mum works for the NHS and the three of us have been viewing semi detached houses as a step up from the flat where we live.

Baby Will

harryhound

It seems to me that Granddad is wanting to avoid his inheritance paying more 40% tax, when he dies.
He cannot give the money to a baby, so it would have to be looked after by "trustees" until such time as the junior generation are sensible enough to be trusted with it.
I don't know much about trusts so cannot explain further.

ben303

Hi all need a bit of advice.
My father is a farmer who is 68 and my mother is 60 working in a care home.
There are 5 children
My father owns approx 30 acres of land with 2 dwellings (my wife and I live in one)
I have been at him to make his will which he says he will do!!!!
He has been talking to his solictor about IHT and she has advised him to leave half his to my mother and on his death she will have 650k before she has to pay IHT.
The house that I am currently living in on the farm is small and to close to the main farm buildings. I have a site passed on the farm which I intend to building on next yr.
My problem is that if my father dies before my mother this will mean that she will control the two houses and farm. I want to farm the land but I have a feeling that my mother has other ideas for it. My father wants me to farm it but he is saying that it has to go to my mother because of IHT reasons.
Is it possible for me own the farm and house's with my mother as a tennant????

Mojisola

It would be worth getting advice from the NFU. They will know the best way to pass the farm so it stays in the family.

John_Pierpoint

Your Dad has latched onto the rules that were changed in 2006 and especially in autumn 2007, when the nil rate band of the first of a legal partnership to die could be inherited by the survivor (The nil rate band is currently 325K).

It is possible for dad to give mum a life interest (Called an interest in possession trust) so she gets it for her life time BUT she cannot leave it to the cats home and would have to ask permission of the trustee if she wanted to do something radical with it (like make it a gravel pit). My mother accidentally found herself in this situation because my father died intestate (no will). Most women don't understand the trust concept and are worried (perhaps with some justification) that when they have out lived their husbands by several years they will get stuck into some inferior care home ( a modern day version of the Dower House). I used to have discussions with my mother, rattling about in a 4 bedroom house she could not afford to heat, about her plans to take it with her when she went. I think you will find Interest in Possession or life interest discussed somewhere on this thread - search for it.

As agricultural land is involved - search HMRC's web site for Agriculture (al) Land and Inheritance Tax (IHT). You will find mind boggling amounts of minute rules "Is this a tenancy prior to 1981 defines as ..... tenancy act...." So you need to pay for the best advice possible or you will shoot yourselves in the foot.
[I my opinion a lot of the high price of agricultural land is it role as a way of avoiding massive amounts of IHT legally. Given the number of landowners, from the queen down, in the administration of this country, I don't expect any changes to these rules in the near future]

Are you managing to make a living out of 30 acres ?? Poly tunnels? Boot sales?????

apcee

Any advice would be really appreciated.
My mother in law died recently leaving an estate valued in the region of £500k: (£200k = her half share of the family home + £300k cash investments). My father in law continues to live in the family house.
The estate was left in a ‘discretionary trust’. My father in law, and his two adult daughters (one of which is my wife) are trustees. My father in law wishes for the estate to be divided equally between his two daughters either now or on his death. He is 94 years old; he is in good physical & mental health. They have been told by the solicitor dealing with the estate that whilst the trust is a flexible vehicle, in their opinion there are two main options. The first is to disband the trust and immediately share out the estate equally between the two daughters. The second option being that the estate be passed on to my father in law, and then divided on his death.
My father in law’s estate is in the region of £500k. He has a comfortable level of income, but is keen to maintain sufficient funds to pay for any future nursing home fees.
Could anyone confirm whether the advice we have been given is accurate? We are aware that my father in law will eventually have a fairly hefty tax bill on his estate over £325k. However, is anyone aware of there being any obvious tax advantages to dividing the estate immmediately or waiting until after his death?

John_Pierpoint

When was the will signed?
I ask this because this arrangement feels like a will dated prior to October 2007. It was in 2007 that Gordon Brown allowed the unused nil rate band for Inheritance Tax (IHT) to be passed to legal partners (ie husbands & wives and registered same sex partnerships).

I have seen it suggested on here that leaving it to the spouse as an Interest in possession trust (life interest) also qualifies for the transferable nil rate band and protects against the survivor doing something "batty" with the investments and stops the local authority from getting access to the family home for care fees. (Hopefully not going to be a problem in your example).

Running a discretionary trust requires an annual meeting of trustees and the keeping of accounts - a bit of a responsibility if you do it yourself and somewhat expensive if you pay a professional to do it for you.
It is like having financial power of attorney for and elderly relative whose facilities are failing.

http://www.hmrc.gov.uk/trusts/cgt/intro.htm
http://www.hmrc.gov.uk/trusts/income-tax/income-types.htm
http://www.hmrc.gov.uk/trusts/iht/transfers-in.htm
http://www.hmrc.gov.uk/trusts/iht/which-trusts-pay.htm

If there is any logic to the tax treatment of anything and it it not just a load of arbitrary rules, then trusts are treated as the top slice of a family's wealth and pays Income tax at 50% (subject to small allowance) Capital Gains tax at 28% (subject to a small allowance) and regular Inheritance Tax if it is above the nil rate band.

There could be an issue with your trust as your mother has (presumably) had to pay some IHT already and the trust is not a nil rate band trust.

http://www.hmrc.gov.uk/trusts/iht/ten-year-charge.htm

Did 100% of your mother-in-law's wealth (car? furniture? cash in the bank? etc.) go into the trust or will the IHT nil rate band need to be apportioned across some assets other than those that went into the trust?

apcee

John,
thank you for your helpful reply.
You are quite correct - the will was pre-2007.
I believe that all of her estate went into the Trust.

My wife and her sister are only basic rate tax payers, and are both approaching retirement.

If I understand you correctly, as far as tax liability is concerned, there appears to be little difference whether the estate is divided sooner rather than later?

John_Pierpoint

It seems pretty daft to me to pay out 70K now (500K -325K = 175 * 0.4 = 70K) from a liquid fund of 300K - other things being equal.

I think "Pop" has left it a bit late to do much in the way in IHT planning and realistically what are his chances of making it to 101? 25% ?
(buy some farm land? there are other ideas but they tend to use life assurance company law so it might be a bit too late- one option is to insure against the one chance in 4 (?) that "Pop" will need more than 12 weeks care in a hospice/nursing home/care home (Both the NHS and local authorities have a fund and a duty of care towards the possibility that nobody can activate the Lasting Power of Attorney and thus pay for the first 12 week - my previous postings show how I had to go round this loop 2 years ago with "Mr Dog" my uncle).

But it is a matter of family dynamics. Presumably the will could be changed with a DOV (Deed of variation) and perhaps a nil rate band trust could be created ?
That would get more favourable treatment than putting the full 500K of assets into a discretionary trust. Perhaps someone with more knowledge and experience than I have will be along in a moment.

[Why oh why do solicitors write wills (I'm making an assumption here) and not write to their clients explaining a major change in the rules like trusts being messed about in 2006 and the transferable nil rate band being introduced in 2007 - I would have thought that would been a nice little earner for them for little outlay].

Unlike "Pop" I don't have the problem of being a millionaire.