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

John_Pierpoint

I am not a lawyer, just qualified by bitter experience - so double check every observation I make.

As a couple would it be fair to say your parents might have been worth £400,000 including the £320k house ?
Putting half the house into trust would be the easiest way to protect (probably) the whole against the local authority.
IHT only become an issue if the combined estate gets over £650k
You need to be guided on this by the solicitor.

Anyway the specific questions:

tootingbec wrote: »

Thanks for your reply.

There are no minors involved. Myself and my siblings are all in our 30's.

The exact wording of the will and the powers given to the trustees might be significant. This is called busting the trust and is problematic if the beneficiaries are not adults. If you 30 somethings have kids; the will tust might say "for my heirs for 124 years" in which case are the trustees acting fairly if they nick the grandchildren's inheritance for their own generation ? [It won't say 124 years because half a dozen years ago the perpetuity law was different and lower].

So can I confirm then that the Interest in Possession Trust would mean that when my mother passes, that we would then qualify for twice the NRB?

That is my understanding

Also if my mother is a beneficiary of the trust, whose name would be on it? We were under the impression it would just have the 4 children's names on it. And would this mean the property would be liable for CGT if my mother was to downsize in the future?

Have a Google and a search of HMRC's web site - there are some special rules, be guided by you solicitor. In my case, mum left it too late to downsize and was still rattling about in a 4 bed house, when she had a stroke - a lucky accident in some ways as she had suitable accommodation for herself and a carer when she could no longer manage the stairs.

The solicitor has said it would be easier to manage, do you know what would be involved ie tax returns, annual meetings etc?

Nothing if you don't have assets that create income - unlike your father's will trust that was probably a discretionary trust and so paying 50% income tax (after the first £1,000).

https://forums.moneysavingexpert.com/discussion/1263781



We have been told that probate is expected to be a maximum of £2000 plus vat which includes the DOV. Does this sound like a reasonable amount?

My DIY efforts have cost several hundred in legal advice, where I needed a bit of back up or wanted my opinion endorsed in the eyes of the beneficiaries.
Sounds like good value to me if you compare it with the fees some have had to pay on this forum. Is it clear who is doing what in the probate process? Are dad's affairs in good order. Income tax up to date? etrc. etc.
Obviously a solicitor who does not know their job is worse than useless.

Sorry, one last question, I promise! My mum has been told that she will need to wait 6mths after probate has been granted to do the DOV In case her mental health should deteriorate. Is this normal?

I am not sure I understand this point. It can take about 6 months to get probate and for "dependants" to claim against the estate and two months plus to advertise for un known creditors in the local paper.

You have two years from the date of death to get the DOV signed.

I don't mean to fire so many questions at you, I'm just so relieved to have found someone who is willing to try and help.

Thank once again.

My latest family estate turned out to be a bit of a nightmare, after my confident "now we have transferable nil rate bands I cannot see a problem" at the funeral.

If you put Mr Dog into the search key and John_Pierpoint into the author/poster search on the forum's advanced search (see above) you should be able to read most of it. Obviously starting with the two year old stuff first. Without the support of this forum, I think I would have had to throw in the towel.

https://forums.moneysavingexpert.com/discussion/3564225

Drantley_Gicks

Hi there, I am hoping this is the easiest question asked on this board, but as I am sealing with my mother-in-laws estate I best get it right!

My Father in Law passed away late 2011 and all his assets have passed to my mother in law. The total estate will be worth £345k. After reviewing this forum and the the direct Gov can you please confirm I have this right:

My Father in Laws IHT allowance is passed to my Mother in Law making hers £650K. This means on the event of her death there will be no tax to be paid.

No forms need to be sent to the taxman until the death of my mother in law as the allowance transfers automaticly.

My mother in law can make any gifts she likes as she will be under the £650k allowance. So she doesn't have to worry about 7 year rules etc.

Thanks in advance for you advice, if I have made a hash of it please let me know!!

David

tootingbec

Thanks John for all your help and advice, you have certainly helped me get my head round the whole thing.

After reading through your previous posts and all the problems you have encountered I realise that it's not going to be half as complicated as it could be. It's just getting use to dealing with something that you've previously had no experience in whatsoever!

I've spoken to my mum and she feels a lot happier now to go ahead with the solicitor so fingers crossed it should be fairly straightforward.

Thanks once again.

John_Pierpoint

Drantley_Gicks wrote: »

Hi there, I am hoping this is the easiest question asked on this board, but as I am dealing with my mother-in-laws estate I best get it right!

My Father in Law passed away late 2011 and all his assets have passed to my mother in law. The total estate will be worth £345k. After reviewing this forum and the the direct Gov can you please confirm I have this right:

My Father in Laws IHT allowance is passed to my Mother in Law making hers £650K. This means on the event of her death there will be no tax to be paid.

http://en.wikipedia.org/wiki/Ceteris_paribus

No forms need to be sent to the taxman until the death of my mother in law as the allowance transfers automaticaly.

My mother in law can make any gifts she likes as she will be under the £650k allowance. So she doesn't have to worry about 7 year rules etc.

As things stand at the moment, M-i-L is within the combined nil rate band, having 100% of her own nil rate band and having inherited an entitlement to 100% of a second nil rate band at the time of her death.

Thanks in advance for you advice, if I have made a hash of it please let me know!!

David

Wish that is was that simple.
We don't (yet) have joined up government and from time to time court cases surface where where a family (usually the widow) has simply kept going as though no death had occurred (and to end up in court, the benefits have continued to be paid).

It is not clear where you are with father in laws estate, but given the need for probate and technically the advisability advertising the grant in a local paper, you would be doing well to have got that all sorted out by now.

On the second death the executor has to prove what happened at the first death. If the first death has created an estate with a net worth below £325k (**) there is a simplified procedure for "excepted" estates.
The great majority of estates are "excepted estates" and in the majority of cases there is also a bit of income tax to calculated and a refund claimed

The following books are a good starting point (it is vital to get the latest editions (*) - not the ones with photos on the front).

http://www.amazon.co.uk/Giving-Inheriting-Which-Essential-Guides/dp/1844901181/ref=pd_sim_b_4

Get all three and you could be an instant bar-room expert.:D

http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

(*) Needless to say in the country with the world's second most complicated tax system, there are ifs and buts that are unlikely to apply to your case.

(**) even these may not include the latest changes to the "excepted estate" procedures, where the executor of the deceased is trying to claim the nil rate band of the former spouse.

Drantley_Gicks

John_Pierpoint wrote: »

Wish that is was that simple.
We don't (yet) have joined up government and from time to time court cases surface where where a family (usually the widow) has simply kept going as though no death had occurred (and to end up in court, the benefits have continued to be paid).

It is not clear where you are with father in laws estate, but given the need for probate and technically the advisability advertising the grant in a local paper, you would be doing well to have got that all sorted out by now.

On the second death the executor has to prove what happened at the first death. If the first death has created an estate with a net worth below £325k (**) there is a simplified procedure for "excepted" estates.
The great majority of estates are "excepted estates" and in the majority of cases there is also a bit of income tax to calculated and a refund claimed

The following books are a good starting point (it is vital to get the latest editions (*) - not the ones with photos on the front).

http://www.amazon.co.uk/Giving-Inheriting-Which-Essential-Guides/dp/1844901181/ref=pd_sim_b_4

Get all three and you could be an instant bar-room expert.:D

http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

(*) Needless to say in the country with the world's second most complicated tax system, there are ifs and buts that are unlikely to apply to your case.

(**) even these may not include the latest changes to the "excepted estate" procedures, where the executor of the deceased is trying to claim the nil rate band of the former spouse.

Thanks John, it sounds like I am going down the right lines. Probate was granted in March and I have informed the taxman etc and even got a refund (nice change)!

All things remaining equal I will be dealing with an excepted estate on the event of my MiL death. The sealed copy of probate will show the estate was transferred in full leaving 100% IHT being transferred to MiL.

Thanks for your advice on this one and previous posts I have viewed.

DG

missslbell

Is there an article or thread out there on avoiding IHT after a death ?

I the midst of seeking professional advice but would be interested to read about any principles knocking around

Thanks in advance

John_Pierpoint

Tax law tends to be a rag bag of political expediency, court cases and gold plating; so don't expect a logical thread to run through the rules for individual taxes and certainly don't expect individual taxes to logically knit together with each other.
After the death it is probably too late BUT if you explain the circumstances of the deceased, then we might be able to make suggestions.

[Possibly you are thinking of avoiding a second dose of 40% confiscation in a few years time?]

SeniorSam

Missslbell,

Within two years of death, the deceased Will can be changed by a Deed of Variation. This may give benefits of saving inheritance tax on that estate, or on the estates of beneficiaries. You should seek advice from a solicitor who specialises in Wills and Trusts, as not all solicitors are so capable.

Sam

thestens

This doesn't seem like other forums just one thread and nowhere to post a question so I will do it here.
My mother in law has had two husbands . The first died in 1967 and was intestate the second in 2005. The second husband left all to his wife except for £25000 to his daughter from first marriage and his wife choose to vary the will so that £40000 went to his step daughter ( my wife).
My question is this my wife mother's nil rate will be £325000 the nil rate for second husband would be £325000 minus the proportion already used up but will my wife as executor be able to claim the nil rate allowance of her father ( first husband)?

John_Pierpoint

It looks like the executors have to average it, as no spouse can inherit more than the value of one transferable nil rate band. [I have now had a chance to reconsider this post & it looks like with two previous husbands, it is possible to inherit (say) 66% of a nil rate band from each, but this is 132% and therefore tops out at 100%.
So the full allowance less 65k was available from the second husband in 2005 (275K - 25k - 40k = 210k = 76%)]

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/5178041/Inheritance-Tax-How-to-keep-it-in-the-family.html

http://www.hmrc.gov.uk/agents/toolkits/iht.pdf

http://www.saga.co.uk/images/content/money/inheritance_tax_guide_2007.pdf

(out of date but still useful)

I have a nasty feeling that the death in 1967 will have lost the executors[STRIKE] half [/STRIKE] 24% of a nil rate band because there was no such thing as a spouse exemption back then and the nil rate band was:
(04/04/1963 to 15/04/1969) £5,000 .(the value of a house and probably mopped up by the legacy to the children under the rules of intestacy?)
I think the "statutory legacy" to the widow had been increased to £8,750 by 1967 (*)

However if in 1967 the estate paid death duties, even when some of it was left to the wife. It is possible that the widow only had a life interest in half the assets she "inherited" under the intestacy. Technically/legally these assets were owned by trustees & the widow had a beneficial interest in possession under that trust.

Did the assets in 1967 amount to enough to trigger the "widow gets the first X thousand and a life interest in half the remainder" clause in 1967?
If so what did the children get ? What did the widow keep?
What became of the family home in 1967?

I think you are going to need specialist advice on this, if you can find it.

My circumstances were similar, in that my mother became a widow in the 1960s, but she did not remarry and she did die before Gordon Brown restructured the tax treatment of trusts.

However if you can post some more details of the outcome in 1967, there might be similarities to take into account.

I was able to use this magic phrase:
"Relief [is claimed] under the provisions of S5(2) Finance Act 1894 as modified by S(14)(a) Finance Act 1914 as applied to Inheritance Tax by paragraph 2 schedule to Inheritance Tax Act 1984 - see letter ..............." The letter was part of a correspondence getting HMRC to dredge up the details of my late (near bankrupt) father's death duties.

(*)
In 1966, the Lord Chancellor was given the power to alter the amount of the
statutory legacy by statutory instrument. This power was first exercised in 1967
and has since been used a further six times, most recently in respect of deaths
from 1 February 2009. The lower level of statutory legacy is currently £250,000
and the higher level is £450,000.[no kids]

Source: Law Commission