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

Dasa

Is it still worth putting assets such as property in trusts for IHT purposes? Really confused by it all.

Morganic

getmore4less asks: "Does anyone know if they have closed the obvious loophole marrying someone to gain their nil rate band?"

Not as far as I know. The bigger "loophole" (except that it's not really a loophole at all) is that there is no IHT between spouses. IHT only applies insofar as an estate is distributed outside of a marriage.

So at least in theory a family could avoid IHT pertpetually if the surviving spouse keeps remarrying (ideally to someone younger!). The spouses don't even need to be the opposite sex any more; they just cannot be a close relative or someone not already married. If legal, you could marry your sole beneficiary, for instance.

The one case where it might not work is where the new spouse is a non-dom. HMRC disallows the IHT exemption in that case. An EU court recently found that provision to be discriminatory, which it obviously is, but I am not clear where HMRC's rules have been changed to reflect that.

Marrying (and of course changing your Will to favour your new spouse) is probably the only instant way to make IHT go away. I suppose you could call it a marriage of convenience.

Morganic

SeniorSam writes: "I can assure you that HMRC will not simply approve a scheme, they will say that they will look at it when the time comes, which is always a bit annoying."

I don't know whether it is annoying or not but it certainly makes sense, given that nobody can know what the laws around IHT will be at the time of eventual death, which could be decades away. So HMRC's position here is reasonable.

I would not submit any putative IHT-avoidance plan to HMRC for another reason. It will alert them to what you are doing and, if it is considered in any way marginal or speculative, it might lead to a black mark being raised against you. Or if it is a really clever idea, it might alert HMRC to the idea, who might take steps to make it less effective.

I would simply make the plans based on the best information out there and then keep it to yourself and maybe your immediate family. Wherever possible, make the executors and the beneficiaries the same so that, as the Godfather said, nobody outside the family knows what you're thinking

VfM4meplse

Hi all, am hoping for some expertise on this thread.

I am single and have assets exceeding the IHT threshold (the joys of home-ownership in London!). Other than leaving 10% to charity, there any way of mitigating IHT liability?

I'd like to leave a considerable sum of cash to key individuals, and my home to another. What is the hierarchy of payment? Am assuming taxman first, but confused as to which element the IHT allowance applies to first (property, other assets and then cash?). I would prefer that my home is not sold but is passed on, if there is adequate cash in the pot how do I ensure that happens?

Eta: just read this. If the election rumour becomes fact - and I'll guess we'll know on 8th July! - does that mean the first £500k will be IHT-free for a single person with a property?

Obviously I won't care if I'm dead but I'd like to make the right choices whilst I'm alive.

Morganic

There is a useful rule of thumb about IHT planning which says that the things that are the most tax efficient assets while you are alive (primary home, ISA etc.) become the least tax efficient asset for IHT purposes.

The reason is that both are difficult to give way. In theory you can sign away your property but if you continue to live there, then the gift will suffer the dreaded "reservation of benefits" restriction. While ISA's can not be gifted at all.

So I sometimes think that, paradoxically, the best thing to do is offload supposedly tax-efficient assets and convert them into cash, which is much easier to spend, give away or otherwise deploy efficiently.

Hard to do because it is counter-intuitive. But I sold my main property and now rent, and a big part of that is to mitigate IHT. You can even give away your PPR as long as you pay a full market rent to live there, but I think it is cleaner to sell it, especially since it is CGT-free.

To your other question, creditors get the first bite of the apple in probate, and the net proceeds after taxes and debts, is distributable. Personally I would not bother with these putative changes about IHT and properties. I would sell and then give away the cash as appropriate. If you live seven more years, IHT will not be an issue.

Like you say, it won't matter to you at that point, but your beneficiaries will surely appreciate getting 40% more. Or just spend it having a wild time, taking the view that everything you buy is at a 40% discount.

VfM4meplse

^^^^ Interesting advice but I have many years of life left. I was thinking about accidental death and I think the easiest answer is to up the life insurance to cover probate.

getmore4less

VfM4meplse wrote: »

Hi all, am hoping for some expertise on this thread.

I am single and have assets exceeding the IHT threshold (the joys of home-ownership in London!). Other than leaving 10% to charity, there any way of mitigating IHT liability?

I'd like to leave a considerable sum of cash to key individuals, and my home to another. What is the hierarchy of payment? Am assuming taxman first, but confused as to which element the IHT allowance applies to first (property, other assets and then cash?). I would prefer that my home is not sold but is passed on, if there is adequate cash in the pot how do I ensure that happens?

Eta: just read this. If the election rumour becomes fact - and I'll guess we'll know on 8th July! - does that mean the first £500k will be IHT-free for a single person with a property?

Obviously I won't care if I'm dead but I'd like to make the right choices whilst I'm alive.

The will determines how the tax is distributed(by making some asset distributable tax free).

If you have a mortgage you have to explicit on how that gets paid off in the will otherwise the default it goes with the property.

There is then a strict order of abatement if the assets don't cover all the liabilities(IHT,debts,legacies).

You also have to watch out for grossing up on tax free legacies, the tax may be more than you think.

A bit of research is in order then get a will drawn up properly.

VfM4meplse

getmore4less wrote: »

A bit of research is in order then get a will drawn up properly.

Spent the evening in the library researching and hope to get the Which? will signed off shortly.

SeniorSam

VfM4meplse wrote: »

Hi all, am hoping for some expertise on this thread.

I am single and have assets exceeding the IHT threshold (the joys of home-ownership in London!). Other than leaving 10% to charity, there any way of mitigating IHT liability?

I'd like to leave a considerable sum of cash to key individuals, and my home to another. What is the hierarchy of payment? Am assuming taxman first, but confused as to which element the IHT allowance applies to first (property, other assets and then cash?). I would prefer that my home is not sold but is passed on, if there is adequate cash in the pot how do I ensure that happens?

Eta: just read this. If the election rumour becomes fact - and I'll guess we'll know on 8th July! - does that mean the first £500k will be IHT-free for a single person with a property?

Obviously I won't care if I'm dead but I'd like to make the right choices whilst I'm alive.

..................... Replies to such quetions are difficult when your financial position is not known, but depending upon your circumstances, here are few limits to inheritance tax mitigation.

If your home is without mortgage and you have substantial surplus income, one of the ways to protrect your estate for the future would bto gift your home nto Trust. You wiould need to pay a full market rent to the Trust to avoid the gift with reservation rule.

Another method is to gift another substantial asset in Trust and insure your life for 7 years to cover the potential IHT liability. You nust not retan any beneficial interest in that gift.

Trusts can be set to include various sums of money and if the Trust is Discretionary, then the assets are controlled by the Trustees. They may be able to loan or gift assts of the Trust to whoever they wish.

Without knowing your circumstances it is impossible to point you in the right direction, but professiuonal advice from someone who specialises in tis are of financial planning could be well worth their fees.

SAm

RatherConfused

Hi Folks , been reading this forum and its great !

Wonder if anyone here can offer their insights on my large problem !

Parents have had "initial consultation" with FA from Scotland Cost 1,500 FOR "INITIAL REPORT"

To do the ACTUAL WORK is another 30k plus vat = 36k ! Thats when he brings in a solicitor from England !

The current advisor suggests transferring into company , but i cant see how that would be possible without incurring huge Capital Gains Tax.

I even talked to a solicitor tax expert explaining the circumstances and goals as below, and requesting a fee quote, and all i got was another suggestion - another 1,500 for opening another file .


Family
M+F married age 85
Sister age 50
All UK domiciled
Brother age 49
Non UK domiciled
Assets
Parents House value 1.2m, various rented flats valued at 1.2m
Parents House cost 100k, various rented flats cost 100k. ie all acquired more than 40 yrs ago
Total Estate Value 2.2m
No Mortgage
Goal
Keep parents in house and mitigate IHT as much as possible. Rental from properties need to go to parents as living expenses.

Anyone please help as im getting very frustrated.

Help !