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

getmore4less

Shed_Head wrote: »

Hello to all,

Just been scanning through the pages, as I have a situation which I need advice on. My Dad has an estate valued at around £460K. The biggest part of this is of course his home, valued at around £300k.
Which is the best direction for us to start looking at reducing his IHT liability? My dad has reached the tender age of 80, and his health is not to bad.
I have looked at gifting the first £3k which we could for this, and next tax year, but what next? Dad has several investments which have reached maturity and remain invested (bonds) would it be best to cash them in and make lifetime gifts now?

Will a financial adviser be the way to go? I don't see what they can do in particular, would a tax specialist be better?

Any advice would be welcome.

Start with any spouse transferable nillrate band?

He can always spend some of it.

what is the income situation

Shed_Head

Thanks for your reply. My parents divorced many years ago, so no spouse involved. I have one brother, and we each have children, and Grand Children.
Dad has state, and private pension income, of which there is a residual income each month (not a huge amount though, say a couple of hundred pounds).

I have looked at the tax free allowances and will list out for him what can be gifted tax free for this, and the next tax year. As dad didn't use his 2011/2012 allowance for gifts, can he carry forward the allowance to this tax year to use? including the £250 for each of his Grand Children?

Beyond the tax free allowances, and spending residual income, I think that we will have to look at lifetime gifts, and the potential of an IHT liability if he does not live past the seven year period.

John_Pierpoint

I have looked at the tax free allowances and will list out for him what can be gifted tax free for this, and the next tax year. As dad didn't use his 2011/2012 allowance for gifts, can he carry forward the allowance to this tax year to use? including the £250 for each of his Grand Children?

Yes for his annual major gift(s) probably no for his trivial ignored £250 gifts to other people and their spouses.

I think I would look first at dad's potential care needs.
The statistics I have seen is that one woman in 3 and one man in 5 ends up in residential care [£500 thru £1,000+ a week] though most old men have an old woman to look after them "for free".

Does dad have a "lady friend" (or even a "boy friend" come to that)? I know of two families where the wealthy property owner contracted "a legal union" late in life.
One where the "lady friend" was a fair bit younger and there is some resentment amongst the children/grandchildren waiting for the second death.
Another where the "gentleman friend" was actually older than the cancer sufferer and the "interest in possession" trust arrangements seem to have worked out as intended [They had no other choice as the property was multi generational, and the survivors risked being put out on the street by the IHT payments.]

Life is not all about tax - personal relationships do come into the equation - £50k IHT (say) is a meaty sum but it is not a life changing amount when split (say) 4 ways.

getmore4less

Shed_Head wrote: »

Beyond the tax free allowances, and spending residual income, I think that we will have to look at lifetime gifts, and the potential of an IHT liability if he does not live past the seven year period.

Loads of ways to increase spending and make money disapear.

He could easily add £5k-£10k to the pension income and increase the quality of life*

eg :
I bet GD loves taking the families out for meals.
any extended family holidays planned
Any of you live close so can do the odd job helping out, grandkids use up some of their personal allowance doing errends.


*IME those brought up during the war have difficulty letting go and spending a bit.


One other thing is the house suitable long term, should health deteriorate

if th plan is to provide support/care yourselfs starting that plan now may be a good idea while Dad is still fit.

Shed_Head

John_Pierpoint wrote: »

I have looked at the tax free allowances and will list out for him what can be gifted tax free for this, and the next tax year. As dad didn't use his 2011/2012 allowance for gifts, can he carry forward the allowance to this tax year to use? including the £250 for each of his Grand Children?

Yes for his annual major gift(s) probably no for his trivial ignored £250 gifts to other people and their spouses.

I think I would look first at dad's potential care needs.
The statistics I have seen is that one woman in 3 and one man in 5 ends up in residential care [£500 thru £1,000+ a week] though most old men have an old woman to look after them "for free".

Does dad have a "lady friend" (or even a "boy friend" come to that)? I know of two families where the wealthy property owner contracted "a legal union" late in life.
One where the "lady friend" was a fair bit younger and there is some resentment amongst the children/grandchildren waiting for the second death.
Another where the "gentleman friend" was actually older than the cancer sufferer and the "interest in possession" trust arrangements seem to have worked out as intended [They had no other choice as the property was multi generational, and the survivors risked being put out on the street by the IHT payments.]

Life is not all about tax - personal relationships do come into the equation - £50k IHT (say) is a meaty sum but it is not a life changing amount when split (say) 4 ways.

I like your reply, but I cant quite see my Dad with a "Gentleman Friend" Lol. There is no one on the horizon, and I don't forsee that changing.
As to the potential care needs, thats tricky, I have thought of asking if would like to sell his property and buy something that we could share with him, as his home is not entirely suited to some one who maybe frail. A discussion I think that will need to be had sooner rather than later.

I agree with the sentiment of my Dads generation being very different in their approach to spending.

getmore4less

Shed_Head wrote: »

as his home is not entirely suited to some one who maybe frail. A discussion I think that will need to be had sooner rather than later.

Definately if the house is unsuitable, many leave thiis too late and have issues settleing into a new home even if with family.

if still fit they can establish their own identity/life/friends especialy if they move areas.

John_Pierpoint

Having spare rooms means that it is possible to find a self employed carer - if the family is unable to pitch in themselves - the costs work out similar to a care home, but it is a lot more responsibility for the younger generation.

raza_2

I am a divorced maleof 77 years in reasonable health and have a 68 yr lady friend, who lives in Europe, and we would happily marry, but both of us prefer to retain our roots and homes in our own counties. At present we see no financial benefit in tying the knot, as we are happy, simply living together, part in the UK and part in Europe.
(More on this below)

I have three adult children, but my two oldest children are in far greater need of financial help than my youngest son, who has already enjoyed a considerably gift from me for a project of his own, and is financially stable. Therefore I want the majority of my estate to go to my two eldest children, to help when they are older and in even greater need than now.

I am reluctant to appoint a solicitor as my executive, but I fear my two eldest children would find the stress of administering my will too much for them, even though they will get the majority. Is there anything like an"Executor" advisory service they could call on if necessary for advice and guidance, at reasonable cost, to assist them to administer my will? My youngest who already has received a large portion of his share, is capable of doing it, but I fear he may disagree with my wishes and siphon of what he thinks is a fairer amount for him. .

My estate is currently worth say £450K and consists of my home, ISA’s/shares and cash. With prudent planning it could still grow which is why I am only making annual gifts to the older two of a little less than £3000. Would creating a trust help them to be more secure in the future, and would I still have some control over it. If so how do I create it, and at roughly what would it cost?

I invite your comments on another possibility I am considering. Which is to marry my friend from Europe who owns her own house, and I can trust her implicitly. Then when I die, it would mean the IHT allowance would be £650K resulting in no tax to pay. Then she and my oldest son, could be executors, and I would be sure that my wishes would be carried out. The bulk of my cash would be left for my two eldest children and my home to my wife, but with the proviso that when she sells it, (quickly I would imagine, as she would wish to return to her own home in Europe), the bulk of the proceeds are to be passed to my two children most in need. This would then be a gift from her to them, so I presume there would be no tax to pay?


Incidentally, if I did marry, would we both automatically obtain duel citizenship, and would there be any advantages?

getmore4less

raza wrote: »

I invite your comments on another possibility I am considering. Which is to marry my friend from Europe who owns her own house, and I can trust her implicitly. Then when I die, it would mean the IHT allowance would be £650K resulting in no tax to pay. Then she and my oldest son, could be executors, and I would be sure that my wishes would be carried out.

MAJOR FLAW

For your allowance to be £650k she would have to die first and not use any of her nill rate band.


The other point is that gifts of more than £3k rarely make the tax situation worse.

grey_gym_sock

if you have capital you won't need - which may not be clear-cut, i realize - then you could make larger gifts now to your elder sons (of any free assets, i.e. not of part of your home). these would be outside the scope of IHT providing you live for another 7 years.

i don't know enough about trusts, but i was under the impression that putting assets into a trust now would also require you to live another 7 years in order to avoid IHT on those assets. what i think it can enable you to do (with some kinds of trusts) is to continue to use some of the trust assets for your own benefit (i.e. unlike simple gifts), while still setting the 7-year clock ticking (i.e. like simple gifts).

you can make any person an executor (if they accept), including your lady friend, whether or not you get married.

if you get married, you do not get a £650k IHT on the first death (which i think you were implying). you get complete exemption for anything left to the survivor, and a £325k exemption for anything not left to the survivor, and on the second death, if (part of) the first £325k exemption was unused, the remainder is now available. e.g. if everything is left to the survivor, then £650k exemption is available at the second death.

if you wanted to leave most assets to your sons, while paying no IHT, you could leave £325k directly to your sons, and the rest to your wife.

if she then made large gifts to them, then ... i'm not sure what happens, given she's not based in the UK. if she were permanently based in the UK, there would be no IHT on your estate as a result of the gifts, but the gifts would come within the scope of IHT on her estate if she died within 7 years of those gifts.

bear in mind that you can't be sure who will die first.