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

rainy-day_3

Hi localhero,

Many thanks for your helpful and quick response. As neither of us is likely to desperately need the £300k we would leave to our son in the foreseeable future, my thinking is that a Discretionary Trust is unnecessary. However, I take your point (and I guess it is a point that applies to everyone) that wills should be reviewed periodically to make sure they are still appropriate to circumstances.

We may well make some lifetime gift(s) to our son, but I wasn’t planning on this being as much as £300k until the time comes when only one of us survives. I am writing my will with ‘what if I died tomorrow’ in mind. As my retirement continues I hope to spend a chunk of my son’s inheritance! So, as time goes on and I review my will, I guess I need to make sure that £300k (or whatever the nil-band rate is at the time) of bequeathable assets is always in my name. Maybe on reflection then, I would be better having my house as ‘tenants in common’ rather then ‘joint tenants’ to ensure this.

This raises another question (hopefully my last … thanks for your patience): if say on death my estate is worth £200k plus my share of the house, the balance of £100k left to my son would come from the ‘tenants in common’ house … but could you confirm that in practice this does not mean that the house would have to be sold, rather that my wife (as then 100% owner of the house) could use £100k of her other assets to top up the £300k bequest?

Many thanks in advance.

localhero

Hi Rainy-Day,

The scenario you have in mind could work like this. Property owned as tenants in common. Your Will leaves the maximum possible to a discretionary trust. The trust property can consist of any asset owned by you when you die. So the £200,000 and a percentage of the home form the asets. They can then be loaned to spouse until she dies. When she dies her estate repays the trust and the fund can be distributed to your son.

What remains of your wife's estate is distributed likewise. You've both used your allowances fully without any disdavantage to surviving spouse. (Her Will is set up in the same way in case you die first.)

If instead you left £200k in your will to your son, your wife loses the benefit of it and you've not used up £100,000 of your (current) allowance - a future tax liability of £40,000

If you leave the maximum possible to son and you own the property as tenants in common, then he would be entitled to the £200,000 and possibly his share of the house (depending whether you have other assets that can top up the £300,000). To protect spouse you could give her a right to remain (or life interest) but that raises other tax issues - and therefore not really advisable.

You are right to consider your Will to take effect upon the current circumstances, but you will need to evaluate the following:

1) the value of the house
2) the value of the other assets that you own
3) the value of the other assets that your wife owns
4) the likelihood of either of you inheriting money
5) your future financial needs (I know, near impossible to calculate)
6) your ages and state of health

If the total of 1-4 is significantly greater than £600,000 then you will need to consider how best to set things up in a tax efficient way without compromising either of your standards of living.

If your combined estate exceeds £300,000 and is less than £600,000 then I would advise owning the property as tenants in common and setting up discretionary trusts.

If your combined estate exceeds £600,000 then the above plus considering lifetime gifts.

I hope this helps. Kind regards.

Sandz

When my mother was diagnosed with Cancer , she and my father gave & made over the house entirely to my brother , so my father would then lived in it til he died..
My mother died in 1994 & my father went on to live to 2004 , then my brother got the entire house..and has just sold it for £154000.00 , but he doesnt live in this country...
Was this legal ?? I did go to a Solicitor to see how I stood as inhereting half the house , and he said it would be very costly , upset my father at the time if it was done with his knowledge , and cause a family rift , so not to bother..
Was I entititled to any of the house at all , as it was not in any of the wills as this was disposed of before my brother then wrote out both wills at the time & they were signed by the appropiate Partlies needed..
It it seemed very underhanded when I looked back on this..and just wondered what your inputs would be ...


Thanks All

Sandz

My Husband & Myself want to make a will but do not know the right way to do it ...
We have a house which is payed for , worth about £160.000 , and savings of about £100.000..
Neither of us can work due to illnessess , and as were not enititled to any disability we have to live off this til we reach our State Pensions in 3yrs...
We want to leave any house/monies left to each other , then to our 2 children ..
How would this work out , as we do not know how much we will spend up to then , or if we would have to move thro disability ...


Thanks All for any input

localhero

Hi Sandz,

From what I understand, the house was made as a gift to your brother whilst your mum and dad were alive. He was then able to sell the house when your dad died.

What was left over went in dad's will to your brother I take it? The law entitles you as a child of the deceased to challenge your dad's will if you believe it makes insufficient provision for you.

Unless you were financially dependant on him, you are unlikely to succeed (and at the same time cause friction with your brother).

Perhaps there may be grounds to have the Will rendered invalid if your dad didn't have mental capacity at the time he made his Will, or he was under undue influence from your brother.

Who witnessed the Will? You could find out from them if your brother was present. If your brother witnessed it himself (or his spouse did), he is not entitled to benefit from it.

But is it worth it? If the house had previously been given away beforehand, what was left in the estate to claim against? Unless the remainder of his estate was sufficiently sizeable, what's the point challenging it?

I don't personally see what grounds you have regarding the gift of the property which happened long ago (undue influence again possibly, but it would be difficult to prove so long after the event). The fact that your brother was abroad when the house was sold is irrelevant - it's his to sell wherever he's based.

With regard to your own Wills, I don't uderstand the problem. If that's what you want to do, your will will say that "if my spouse has already died then I leave my estate to....." This will be what you own at death - you don't have to list everything in the will, so if you've already spent your savings, your children will receive whatever is left.

You currently do not need to worry about inheritance tax, but if you do want to reduce your future liability to care fees I would advise seeking professional advice, so that this can be set up in your Wills without disadvantaging the surviving spouse.

contact the Institute of Professional Willwriters at https://www.ipw.org.uk to find a member in your area. Best wishes.

colettejm

Hi I am totally new to inheritance tax lingo and have never had to be until now as my dad is v ill. He has well over 300k and we do not have any idea of what to do to try to avoid paying out thousands. I have looked at the main sites tips and advice but I am still unsure of how and why you inform inland revenue, how they know how much money the deceased had, and what we can di in the immediate future as 7 years is not likely. He has made a will but I am sure it totals to more than 300k The bulk is in accounts but I have read somewhere that even though they may be joint they still take into account how much they put in to it, does that mean that the other person does not automatically take over? I am totally confused and appalled

localhero

Hi Colettejm,

The executors of the deceased must provide valuations of the estate when applying for Probate and if there is any tax due they must pay it.

Where there is jointly owned assets including bank accounts or land the same applies and the value is not always necessarily half. The jointly owned property passes automatically to the other co-owner.

You don't say whether your dad is married or not, because if so there is more potential for tax planning. If not then he may wish to make use of certain gifts allowances in which he may use each year. Amounts greater than £3000 are known as potentially exempt transfers and he will need to survive for 7 years after making these or they will form part of his estate for inheritance tax purposes.

harryhound

There was a previous thread on which I posted, that might help you.

The "Which?" books are a good starting point for explaining the system and its tax implications.

But the old joke still applies: "If you are not pretty confused, you obviously have not begun to understand the the situation".

Beware of the interaction between capital gains tax, income tax and inheritance tax; I wasted a day and a half of my life proving to the tax man that not only was no IHT payable, but no CGT was either, when my mother died.
So don't assume that the tax people understand their own rules.

Articles in the newspapers tend to be simplistic and assume that you already know the basic rules.

Do NOT assume that there is some grand logic to the tax system, it is a largely cobbled together mess from politicians needing to spend our money to buy our votes. After someone has died they don't have a vote and if politicians make it complex, the beneficiaries get mad at the poor old solicitor who appears to be charging a fortune to make even more of a muddle.

Fortunately you can always come back here and probably find someone who has had your problem before;)

Harry.

http://forums.moneysavingexpert.com/showthread.html?t=436991

chris2fer

Hi , I have been reading this thread with interest as my parents are thinking about setting up a will and would greatly appreciate some advice.

There are four of us in the main family my mum and dad me and my sister. I have my own home (which i have previously lived in) but are currently living with my parents and renting my house out. My sister does not currently own a house but rents one instead.

My parent’s house is worth about £220,000 and they have about £80,000 in savings which is just about at the current IHT limit. He is retiring soon and as such will be using the interest and occasionally some of the capital, so the savings are unlikely to increase. The house will probably increase in value but overall with the IHT limit increasing they will always be just about under the limit.

My parents are currently joints owners and are planning to change that to tenants in common and then make a will that on 1st death giving the remaining spouse all savings but giving me and my sister there ½ of the house (a ¼ each). Then on 2nd death leaving all savings and remaining ½ of the house to me and my sister.

They are doing this mainly because

If the remaining spouse re marries and then dies first it ensures that we get at least half of the house.

If the remaining spouse has to go in to care they can only put a charge on half of the house.


From what I have learned sofar I believe there could be some dangers in doing it this way, Could you please tell me if this is correct


1. At present neither me nor my sister are married but if we were then the ¼ we may own in the future would become part of any divorce proceedings and could force the sale of my parent’s house while the remaining spouse is still living there to pay for any settlement.


2. Because I already own my own house on 2nd death the ½ share I would have will be treated as my second house and when the house is sold I will have to pay CGT @ 40% on my ½ share.



This is where it gets a bit confusing for me

a. Even though there estate will probably never be above the IHT limit, i think they would still be better off setting up either a discretionary or interest in
possession trust. This would enable them to still give me and my sister a ½ share but by putting it in to trust it would give the remaining spouse some protection if me or my sister became involved in a divorce or fallout, is this correct ??

b. Because ½ of the house would be in trust they could only put a charge on the other half the house if the remaining spouse has to go in to care, is this correct ??

c. And finally if they put our share in to a trust would I still be liable for CGT when the trust was eventually closed and the house was sold ??? (I am still unclear when CGT comes in to play)


Sorry if this is a long post but any help would be appreciated.

thanks
chris2fer

monkeyspanner

I have heard that tenants-in-common is a way of trying to avoid care home fees but I have also been advised that it is important to draft the wills in such a way that the benefit of this arrangement is not damaged.

It is actually illegal to deliberately try to avoid care home fees by rearranging or giving away your assets but I guess as long as you can demonstrate this was done some time prior to a care home being a serious possibility and that the arrangement had other benefits your parents will be ok.

You should check your own position regarding your own house as I believe there time limits regarding what period elapses between you living in the house and its sale for it still to be regarded as your principle residence and therefore fully CGT exempt.

Regarding shares in your parents house you should also consider what would happen if any party became bankrupt. Sorry I can't help with info on trusts.

The IHT limit is £300,000 per person so as your parents house is in joint names only half the value would be assessed on first death. I believe it would also be possible for the surviving spouse if sole beneficiary to use some of the IHT allowance by changing the terms of the will under a deed of variation in favour of the children. So any decision about giving away part of the house or other assets could be left until that time.