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

uknick

troubleinparadise wrote: »

Dear uknick,

I'm not sure that your father's transferable allowance will be the full threshold as it is at present, as he died before 1975.

This is taken from the HMRC website:



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

Missed that. I thought it was too good to be true, somebody dying so long ago gets some form of allowance transfer.

troubleinparadise

uknick wrote: »

Missed that. I thought it was too good to be true, somebody dying so long ago gets some form of allowance transfer.

It may be that the rules will change again, perhaps in your favour, by the time you need to deal with any of this - but as always, forewarned is forearmed

John_Pierpoint

uknick wrote: »

Missed that. I thought it was too good to be true, somebody dying so long ago gets some form of allowance transfer.

It is critically important to understand exactly what happened back in the 1960's.
Back then the tax was called death duties and only paid by a small fraction of the population. There was no spouse exemption, the widow had to find the money BUT there were provisions to ensure that when "the little woman" died, normally a year or 10 later, then there was not a second dose of taxation.
These provisions still exist to this day (I believe) and applied to my dad's house, with its 1967 probate valuation £11.5k.

I don't know of we can sort it out for you on the forum, you may nolonger have the documentation to demonstrate what happened back then, but don't jump to the conclusion that you won't have a "get of of jail" card for the IHT400 claim forms.

uknick

John_Pierpoint wrote: »

It is critically important to understand exactly what happened back in the 1960's.
Back then the tax was called death duties and only paid by a small fraction of the population. There was no spouse exemption, the widow had to find the money BUT there were provisions to ensure that when "the little woman" died, normally a year or 10 later, then there was not a second dose of taxation.
These provisions still exist to this day (I believe) and applied to my dad's house, with its 1967 probate valuation £11.5k.

I don't know of we can sort it out for you on the forum, you may nolonger have the documentation to demonstrate what happened back then, but don't jump to the conclusion that you won't have a "get of of jail" card for the IHT400 claim forms.

Thanks John, very useful. I'll look into it, although I'm pretty sure no "tax" was paid when my father died. If it had been I'm sure my mother would have been moaning about it over the years

Whilst my mother's estate is only border line for IHT (all depends on what house prices do), I hate having to pay something I might not have to.


Edit: Is this what you were referring to?


http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04343.htm

John_Pierpoint

Good find, that is exactly it.

My not very successful business man father died in his early 50s leaving a mountain (well a hill) of debt plus a house. Fortunately his house was covered by a mortgage protection policy.
However he had also just inherited a life interest in most of his mother's estate. This beneficial interest pushed him just into estate duty, though there was almost no realisable cash there either.
Perhaps his mother realised he was trying to achieve the "clogs to clogs in three generations" trick.
Any way the intestacy rules of the first £x to the widow (an annuity for my mother from the purchaser of the business) plus a life interest in half the remainder left my sister and I with a dependent widow living in a capital taxes free house.
A life interest is an interest in possession trust in legal speak.

The 1970s inflation cut the burden of the debts though it did not feel like it when the last payment of death duties came out of my joint account together with the mortgage payment on my modest new home.

I had an "amusing" correspondence with the capital taxes office along the lines of
"You don't qualify, your father's net worth was less than £5,000"
http://www.hmrc.gov.uk/rates/iht-thresholds.htm
- So why is the Land Registry still carrying a legal caution against sale of mum's home from your office?

The CGT aspect of the half of mum's home that her two children already owned was covered in this document (see Section 21 on page 20).
http://www.hmrc.gov.uk/agents/toolkits/cgt-land-buildings.pdf

[The world's second most complicated tax code really has "Alice in Wonderland" aspects about it, when you get under the surface]

uknick

John_Pierpoint wrote: »

Good find, that is exactly it.

My not very successful business man father died in his early 50s leaving a mountain (well a hill) of debt plus a house. Fortunately his house was covered by a mortgage protection policy.
However he had also just inherited a life interest in most of his mother's estate. This beneficial interest pushed him just into estate duty, though there was almost no realisable cash there either.
Perhaps his mother realised he was trying to achieve the "clogs to clogs in three generations" trick.
Any way the intestacy rules of the first £x to the widow (an annuity for my mother from the purchaser of the business) plus a life interest in half the remainder left my sister and I with a dependent widow living in a capital taxes free house.
A life interest is an interest in possession trust in legal speak.

The 1970s inflation cut the burden of the debts though it did not feel like it when the last payment of death duties came out of my joint account together with the mortgage payment on my modest new home.

I had an "amusing" correspondence with the capital taxes office along the lines of
"You don't qualify, your father's net worth was less than £5,000"
http://www.hmrc.gov.uk/rates/iht-thresholds.htm
- So why is the Land Registry still carrying a legal caution against sale of mum's home from your office?

The CGT aspect of the half of mum's home that her two children already owned was covered in this document (see Section 21 on page 20).
http://www.hmrc.gov.uk/agents/toolkits/cgt-land-buildings.pdf

[The world's second most complicated tax code really has "Alice in Wonderland" aspects about it, when you get under the surface]

My head hurts after reading that

Looking into my father's estate, I found a document yesterday quoting a probate value slightly above the threshold for estate duty. It is not the actual probate papers, just a document from a building society used to settle the mortgage with the mortgage protection he had.

One assumes therefore some amount of tax must have been paid. But, my mother is still adamant there was no tax payment. I think the solicitor doing the executorship dealt with it all and left her to get on with bringing up her young children.

I'm thinking of getting hold of the actual probate papers from the registry to see what was actually recorded.

kuepper

Re the 7 year rule, how would 'they' know when you'd given assets away?

getmore4less

kuepper wrote: »

Re the 7 year rule, how would 'they' know when you'd given assets away?

It is the executors responsibility to check for all gifts that are PETS and document them on the IHT forms.

It is a good idea to create a paper trail for all PETS and exempt gifts to assist the executor reporting the estate and any HMRC investigation.

John_Pierpoint

It is a matter of degree isn't it. Someone worth £325,000 or £650,000 is amosst sure to have left an audit trail on the HMRC computer; and then they suddenly die almost a pauper ?!?

DamienLeo

I have come across this nice article on IHT on Care Accountancy website. It might help.