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

pommy

Hi all ,
I have some questions , this week my dad rang me to speak about what would happen in the event of his death and it got me thinking .
people involved are Dad 67- unmarried and myself 40 and my brother 43.

Apparently my dads estate at present is worth 3.5 million ( hes always been tight ) and basically he is looking at the best way to leave it to us in event of his death .

He is favouring the idea of putting all the property he has in a trust fund , rent from this is currently £70 k a year of which tax is paid . leaving approx £20k a year to me and my brother .
my dad is also thinking of naming the grandchildren ( we have 2 each ) as trstees also but i feel this may complicate the issue .
Also I would like to have a lump sum as you can imagine it would be a life changing inheritance . but I am stumped on this and the best way to go forward .
The property he lives in is currently worth about 450k and when my Mum and dad divorced in 1982 she left and didnt take anything from him as long as us brothers were left the house apparently this was in the divorce agreement .

all very confusing i know

thanks for any clarity

chris

dpf2005

Some information with anyone with a fair sized IHT liabilty. I did find it quite easy to get an appointment with a STEP solicitor and pay him for a few hours on a time basis. I had a real problem trying to get a second opinion from a Chartered Financial Planner. Most of them only want long term clients from whom they can collect fees regularly on a minimum of an annual basis. My first appointment with a CPF was a free initial appointment and in spite of being told over the phone that I would later be able to have a few hours hours paid for IHT advice this was not the case when we attended the appointment. I was informed that they would only give me IHT advice as part of a full financial review (which I did not want), at a fixed fee of £5000. I was not impressed, not very ethical and waste of my time. I did eventually find a CPF who would give me a couple of hours advice, without strings attached, at £200 per hour + vat.

John_Pierpoint

Under "know your customer" regulations they probably legally have to do a full fact find before making suggestions - just as I would have trouble employing an electrician and saying "this is what I want" when the government has decided I am so incompetent that the electrician needs to do a full fact find before agreeing with my diagnosis.

John_Pierpoint

pommy wrote: »

Hi all ,
I have some questions , this week my dad rang me to speak about what would happen in the event of his death and it got me thinking .
people involved are Dad 67- unmarried and myself 40 and my brother 43.

Apparently my dads estate at present is worth 3.5 million ( he's always been tight ) and basically he is looking at the best way to leave it to us in event of his death .

He is favouring the idea of putting all the property he has in a trust fund , rent from this is currently £70 k a year of which tax is paid . leaving approx £20k a year to me and my brother .
my dad is also thinking of naming the grandchildren ( we have 2 each ) as trstees also but i feel this may complicate the issue .
Also I would like to have a lump sum as you can imagine it would be a life changing inheritance . but I am stumped on this and the best way to go forward .
The property he lives in is currently worth about 450k and when my Mum and dad divorced in 1982 she left and didn't take anything from him as long as us brothers were left the house apparently this was in the divorce agreement .

all very confusing i know

thanks for any clarity

chris

Where did dad's wealth come from? Did he inherit some of it or did he make it all himself?

Does he have any cause to think the old saying "clogs to clogs in three generations" might apply to his "boys" (or their dodgy spouses)?

Will he manage to live 7 years?

How old and "mature" are the grand children? Do they have special skills at what must be a young age?

By doing it this way, he is trying to bind together his family and put in enough checks and balances, hopefully without creating the French curse of total inertia and or lack of working capital.

However trusts do not have votes, nor do cadavers, so both present an opportunity to politicians, ever ready to buy votes with other people's money.

The above is slightly sardonic and I am slightly younger than your dad (I will have to live over a dozen years before any of my grandchildren could qualify as trustees).

purple_haze

I wonder if your father in law has misunderstood what his accountant told him. A capital gain on a share sale is not income for the purposes of the normal expenditure out of income exemption. There is detailed information in HMRC's inheritance tax manual here http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM14231.htm

John_Pierpoint

I set my late mother up with an "investment" engineered to sell enough equity to mop up most of her then CGT annual nil rate band.

I am wondering if HMRC (capital taxes) on death would have realised that the 6 monthly investment "income" was not "income" - come to that would a solicitor acting as executor have realised?

This technique of turning "income" into "capital gain" was widely used on gilt edged bonds until "bond washing" legislation was introduced.
A similar exercise using equities tended to stop making sense when charities and pension funds could no longer claim back the tax on dividends.
[Not to mention the dozen years when western equity markets have on average been going nowhere]

joe134

Hi, Been following this thread for ages, and now thinking about changing from joint tennants to tic, so that we can minimise iht.
wife and I own a property approx 300k, + £400k in cash, bank a/cs.
Both been married before, and I have 1 son from first marraige, and wife has 2 children from her first marraige, one of which has 3 children, giving us 3 grandchildren.
We have at present just mirror wills , which I did myself, stationers, leaving everything to each other, depending on who goes first.
What,s the best and simplest way to change to tic, and draw new will up, so whoever goes first inherits the whole estate, and after the second death, the estate is divided to 3 children equally, using 70%, and the 3 grandchildren getting the other 30%, equally?
Do I have to set trust funds up, or just rely on the wording in the will?
none of the kids get anything until both of us are dead.only gifts.Once we have changed to tic, does the iht, nil rate band automatically transfer from one to the other on death, so kids get all £650k tax free?
So many questions , sorry, done lpa,s myself, so would like to try diy route if possible.Any advice appreciated.

xylophone

so would like to try diy route if possible

If you need to ask these questions you don't have the knowledge.

See a solicitor experienced and qualified in wills and trusts. http://www.step.org/system_pages/call_to_action_navigation/member_search.aspx?link=header-menu

In the meantime, some reading http://www.primewills.co.uk/will_writers_cambridge.htm

joe134

xylophone wrote: »

If you need to ask these questions you don't have the knowledge.

See a solicitor experienced and qualified in wills and trusts. http://www.step.org/system_pages/call_to_action_navigation/member_search.aspx?link=header-menu

In the meantime, some reading http://www.primewills.co.uk/will_writers_cambridge.htm

Hi, xylophone, thanks for reply. I know I don,t have the knowledge,Yet, but pretty quick learner, but don,t mind going to a solicitor, et.al, if"" neccessary.
Is it neccessary to do tic to avoid iht, or does the nil rate band transfer from one to the other on first death, and just leave joint wills.?
The links you have given are directing me to firms of either solicitors or will writers.rather defeats the object of posting anything on here;which I use regularly, better advice, and impartial.
I am just starting the proccess, so need to know what,s what before approaching either, if neccessary.

dzug1

Just a few semi-random thoughts to aid in your learning process:

TiC is easy - you just send a form to the Land Registry with the fee. Whether it's necessary with today's IHT rules is debatable

What you have in mind is not as simple as it sounds. The way you have described it, whoever dies first will not inherit the whole estate - they will inherit a life interest in it. Either the will or a separate document needs to set out the terms of that life interest - like does it include the house, if so who is responsible for maintenance, can it be sold to eg downsize. Who are the trustees - can they cope with the bureaucracy involved? What do you/they know about the taxation of trusts?

Do you really want to dictate to your wife what she can do with your assets once she has inherited them? Or vice versa? If you don't the second bit of the will is redundant - it can be changed after your death just as quickly as another will can be drawn up.

You say three grandchildren - what if more come along?

The IHT band does not transfer automatically - you apply for it in the course of applying for Probate

It will be a long learning process - even with professional input.