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

karie

thank you both, that is very helpful. karie

CLAPTON

Assuming the parent were marrried then there is no IHT between married couples irrespective of how much is involved.

There is no reason why he and his mother can't have a joint a/c; there are a few implications

- any interest earned would be deemed to be split 50-50 so if he were a 40% tax payer then there might be some extra income tax to pay unless it can be shown that all the money is really the mother's

- upon the mother's death, the joint a/c would pass to the son without probate; however HMRC might argue that the money was really the mothers and include it in any IHT calculation but that would be no different that if she retained it.

getmore4less

Mojisola wrote: »

It depends on how the house was owned. If they were "joint tenants" then the house is automatically now owned by your partner's mother. It is not counted as part of the estate.

If they were "tenants in common", they will each have owned a percentage of the property. How much of the value of the house will be counted in the estate depends on what percentage was owned by the father.

If the house was entirely in his name, the whole value will be part of the estate.

The IHT threshold after which tax has to paid is £325,000.

This is a very common mistake people make, Joint assets are assessed as part of the estate for IHT purposes.
(before exemptions eg. spouse/civil partner)

how to do this is explained in the notes for the IHT205 or IHT400
Both worth reading

http://www.hmrc.gov.uk/cto/forms/iht206-2006-1.pdf
http://www.hmrc.gov.uk/inheritancetax/iht400-notes.pdf

from the 205 notes.

For Inheritance Tax purposes, a person’s estate is made up of:

• assets in the sole name of the deceased

• their share of any jointly owned assets
• nominated assets
• assets they have given away, but kept an interest in
• assets from which they benefit, where they have elected not to pay the income tax charge
• assets in certain types of trust, in which the deceased had a right to benefit
• the value of an alternatively secured pension fund (ASP) from which the deceased benefited as the original scheme member, or as a dependant who received benefits from the left over ASP fund of an original scheme member.

The total of these assets is added to the chargeable value of any lifetime gifts made in the seven years before death, to work out the amount on which tax is charged. (The chargeable value of gifts is the value of the gift after any exemptions are deducted.)

Mojisola

getmore4less wrote: »

This is a very common mistake people make, Joint assets are assessed as part of the estate for IHT purposes.
(before exemptions eg. spouse/civil partner)

Thanks for the correction.

From https://www.hmrc.gov.uk/cto/forms/iht206-2006-1.pdf
The deceased’s share of jointly owned assets, owned either as joint tenants or tenants-in-common, are included in the value of the estate for Inheritance Tax purposes.
But if the joint ownership was as joint tenants (most joint bank accounts and many houses are owned as joint tenants) the assets pass automatically to the other joint owner(s) when one dies, so the value of these assets is not included in the value of the estate for the grant of probate or letters of administration.

Have I got it right that a house owned as joint tenants would not be part of the estate but you do have to pay IHT on it?

getmore4less

You have to be carefull with the use of "estate" it is a catch all term so it's meaning is dependant on context.

Joint assest are not available for distribution.

mturner67

My mum is 88 and has savings and investments of around £900,000 and property worth a further £400,000. We’ve only woken up to the inheritance tax issue in the last 3 years since my dad died. We, and they, just did not realise how much money they had accumulated.

One of the steps we’ve been following is following Martin’s advice that income is not counted as part of the estate, so I’m totalling how much comes in from her pensions each month and transfer that into a savings account in my name; I’ve cashed in one of her investments to ensure she has enough to live and will continue to do this as necessary.

My question is about income from savings - she has over £300k in one account and we’ve just had a statement that this brought in £10k of interest in the past year. Would I be able to treat this as income and transfer this into my account without it becoming subject to inheritance tax if she dies within 7 years?

My other concern at the moment is whether there is more we can do to protect the rest of the estate. We were looking at a discounted gift trust but her GP would, understandably, not confirm that she is expected to live beyond 7 years. I would appreciate any other suggestions.

Thanks

Michael

Mojisola

Mojisola wrote: »

Have I got it right that a house owned as joint tenants would not be part of the estate but you do have to pay IHT on it?

getmore4less wrote: »

You have to be carefull with the use of "estate" it is a catch all term so it's meaning is dependant on context.

Joint assest are not available for distribution.

Sorry, I'm still not clear on this. I thought you didn't have to pay IHT on a property owned as joint tenants but the link you gave seems to say that you do.

getmore4less

mturner67 wrote: »

My mum is 88 and has savings and investments of around £900,000 and property worth a further £400,000. We’ve only woken up to the inheritance tax issue in the last 3 years since my dad died. We, and they, just did not realise how much money they had accumulated.

One of the steps we’ve been following is following Martin’s advice that income is not counted as part of the estate, so I’m totalling how much comes in from her pensions each month and transfer that into a savings account in my name; I’ve cashed in one of her investments to ensure she has enough to live and will continue to do this as necessary.

My question is about income from savings - she has over £300k in one account and we’ve just had a statement that this brought in £10k of interest in the past year. Would I be able to treat this as income and transfer this into my account without it becoming subject to inheritance tax if she dies within 7 years?

My other concern at the moment is whether there is more we can do to protect the rest of the estate. We were looking at a discounted gift trust but her GP would, understandably, not confirm that she is expected to live beyond 7 years. I would appreciate any other suggestions.

Thanks

Michael

You might have to be carefull here gifting income and living of capital might not work.

Gifting excess income is OK.

With assets over £1m you need professional advice.

I think you mum should start spending it.

mturner67

Yes my brother is in touch with an advisor,
I just thought it would be worth seeing what I could find out here.

We’re definitely encouraging her to spend it - we say she can get a race horse if she wants one but I don’t think she really takes in how much there is.

Thanks

Michael

SeniorSam

Hi Michael,

It seems a great pity that following the death of your Father, professional advice was not sought from either a STEP solicitor or a qualified IFA. Had that been the case, within the first 2 years of your Father's death, his Will could have been changed in order to 'shelter' his full Nil Rate Band allowance in a Discretionary Trust, which would have been far more tax efficient. That capital would then have been growing in the Trust and not in your Mother's estate.

Additionally, your Mother could have also 'sheltered' capital in Trust investments, which would have allowed her to receive Tax deferred loans/returns from the Trust/s to support her lifestyle, so she would not be disadvantaged.

Another advantage would be that investments in Trust are readily accessible before Probate to help the Executors meet any inheritance tax and so speed up Probate.

It's not too late to get capital into a Trust investment, such as a Loan Trust, but the only advantage would be the ease of access for the IHT.

Also, your Mother could make use of her gifting allowances each year. £3000 as a single gift, plus £250 to any number of other people, as well as gifting on a regular basis out of income that does not affect her normal standard of living

I would urge you to seek Professional advice from specialists in this field as soon as possible and if your present 'adviser' is not completely aware of these avenues, then move away to someone who is, as this is a very 'specialised' area to be advised on.

Hope this helps

Sam

PS Taking all the interest and transferring it to you will count as a gift and if over £3000 per annum will be a Potentially Exempt Gift and would be counted in the estate if she died within 7 years.

In order to use the gifting from income rule, gifts need to be set up to take place on a regular basis out of 'income' that would not reduce her standard of living. Hopefully your adviser has already made you aware of this and suggested that you retain all records of the gifts already made.
Sam