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

localhero

Hi Thefox,

Ok good. I'm not sure why they advised that you have to appoint a professional. Since I don't your circumstances it's possible that it might be advisable in your case.

I personally ascertain the family's circumstances and explain the pros and cons and (with a little guidance where necessary), let the clients decide for themselves.

I'm sure you're in capable hands - perhaps you can let us know how you get on.

Caterina

Hi all

I am finding this thread half very informative and half very confusing - it does not reflect on the advice given, just on my ability (or lack thereof) to take it all in!

I got a question:

My father, who died 2 years ago, left a property in Italy, where my mother was living. The inherited ownership was split among the family members (mum and three siblings, including me).

Now my mother is selling the property, with all our agreement, and is sharing the money among us. I shall therefore receive a sum of money, which my mother is planning to send me to the UK where I live. I have no property in Italy but am part owner of a house in the UK, joint with my husband. My mother has already paid any inheritance tax that was due in Italy, for all of us.

On receiving this money in the UK would I need to pay any tax again? Is there any charge for receiving money from abroad into my own bank account?

Thank you for your help in advance.

Caterina

localhero

No, you will not have to pay any further tax on the money, but your bank may charge a fee to convert the currency into sterling.

Caterina

Thank you LocalHero.

I am aware that there will be a charge - what's the best way to do it? I have also wondered whether it is better to convert euro to £ first or let the bank do it - I mean, buying the £ in Italy or in the UK?

Thanks again anyone who knows!

Caterina

countryliving_2

Hi,

Inheritance tax is currently being discussed in our house, but none of us really know the best way of avoiding it - please advise.

My nan (81 in good health) owns half of the £1m estate with my dad (57). She is mortgage free, he still owes £250,000. Nan is leaving her half of the house to dad and he will in turn leave the whole house to 3 children (we all currently live in the house with spouses). Would the tenants in common route be beneficial to us? Could nan put the house in dad's name now? If they gave the house to us now, would we have to make them pay rent so the 7 year non benefical gift would count?

Please help

Thank you

localhero

Hi Countryliving,

This will require a bit of careful thought and future planning.

There's 2 issues that arise here 1) inheritance tax payable on nan's death, and 2) the IHT on your dad's death.

First of all if the house is owned as joint tenants with your dad it will pass automatically to him irrespective of what any Wills say. As things stand nan's estate will pay IHT of around £80,000.

The second issue further ahead is your dad owning an estate worth £750,000 (£1m less the mortgage) - that estate would potentially have to pay £180,000 (under the current rules). Though if he dies quickly after your nan there is quick succession relief so that IHT isn't paid twice on the same property.

So what to do? Nan (or dad) can't give away the whole property whilst still benefiting from it. Ideally what you need to try and organise is for both nan and dad having an estate worth less than £300,000 when they die.

Therefore since dad is already close to his own nil rate band threshold, it would make more sense if nan left her estate directly to her 3 grandchildren. That would deal with dad's future liability.

But since nan is already £200,000 over the threshold some more immediate planning will be worth considering. Since her 3 intended beneficiaries all live in the house at present, there's nothing stopping her making a gift of a share of the property now.

There's 3 provisos -

1) Provided she gives a reasonable proportion (ie a proportionate share) rather than her whole share this would work.
2) Only 4 people can own the legal title.
3) she needs to survive 7 years after making the gifts.

So here's a suggestion.

1) Nan and dad sever the joint tenancy and own as tenants in common.
2) Nan makes a gift of a 1/3 of her share (ie 1/6) to one of the grandchildren now.
3) Nan makes a gift of another 1/3 of her share to another of her grandchildren now. (leaving herself owning 1/6)
4) All 4 legal owners sign an ownership document agreeing what shares they own.
5) Nan hopefully survives 7 years and her estate is then less than £300,000 = no IHT
6) Nan leaves her 1/6 share in her Will to the 3rd grandchild.
7) Dad leaves his half share in his Will in equal shares to the children = £500k less the mortgage = no IHT.

Couple of drawbacks:

1) Nan must survive 7 years (she's old but healthy, so it is possible)
2) If either of the beneficiaries of her gift now want their share the others would have to find the money to buy them out.
3) Ditto when the 3rd grandchild inherits. Dad therefore faces a threat that this could happen anytime in his lifetime. (And so do the others).
3) There's also the risk of one of the beneficiaries going bankrupt or getting divorced.

This scenario would be relatively straight forward to set up and there would be no capital gains tax issues, nor any stamp duty - though there would be a land registry fee of £100.

Yes, there's risks which your dad may not be comfortable with and unfortunately I can't think of a perfect solution - but the alternative is a potentially vast inheritance tax liability. Here's to a lively discussion over dinner. Best wishes.

IanG2

I've done all the wills with trust & loan, etc but now I've got L&G pushing investments with a discretionary trust for the interest/gain while I'm alive.
Are these worth doing or not worth the bother? If they are, how come we haven't heard more about them? Or am I going to get stitched up later by their fees for administering them later?

localhero

Hi IanG2,

They are usually unnecessarily complicated and expensive and best avoided. The most efficient method of IHT planning is for you and your partner to use your allowances fully (including making gifts in your lifetime).

If after all that you find that your combined estate is above £600,000 and you want to minimise IHT further, I would recommend you contact a member of the Society of Trust and Estate Practitioners for further options and advice.

I'm afraid banks/financial institutions generally offer poor value for money so I would decline their overtures and seek advice elsewhere.

rainy-day_3

Hi, I’ve read ALL the thread on Inheritance Tax (many thanks to everyone who has contributed and improved my knowledge) … and I think I’ve got it as far as my personal situation is concerned. But, I’d be very grateful if any experts out there could confirm my thinking:

I’m in the fortunate position where, if I died tomorrow, I would have over £300k of assets excluding my house (which is jointly held with my wife). My plan then is to will assets equal to the current nil-rate maximum (£300k) to my son, and the remainder to my wife. This would ensure no inheritance tax payable on my death and would still leave my wife’s £300k (currently) nil-rate band intact to off-set against her estate on her death.

My wife is in a similar position to me. Currently, each of us would be able to survive financially after the death of the first without need of the £300k left to our son, so our plan is the have ‘mirror’ wills. Can anyone see a flaw in this?

As an aside, my wife and I only own one property, and this is as ‘Joint Tenants’. Given the above circumstances, I see no need to change this to ‘Tenants in Common’. Or am I missing something?

Many thanks in advance for your replies.

localhero

Hi Rainy-day,

As far as using your nil rate band thresholds your plan works fine. However by giving £300k away upon first death may disadvantage the surviving spouse - if not right away but later on perhaps?

One way of the surviving spouse to retain use of the £300k and using your nil rate bands is for the first to die to leave the maximum amount possible (ie £300k at the moment) to a discretionary trust. The whole fund can then be lent to the surviving spouse on first death against a promise to repay it upon their own death.

Another consideration if there's surplus assets, is for either of you to consider making a lifetime gift of the £300,000 (and hoping to survive for 7 years) and then owning the home as tenants in common - half of which could form the trust property that could be lent to the surviving spouse.

Of course, I don't know the value of your home or other assets, but if your joint estate exceeds £600,000 (which sounds like it may be the case), then I feel you would benefit from some estate planning to minimise the IHT upon second death. This need not be too complicated or expensive, but could reduce the IHT burden significantly for your family.