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

SeniorSam

Rather Confused,
This is not advice and only intended as a guide for professional advice which should be taken.
The costs you have mentioned are very high indeed and I wonder if this is a genuine IFA. The report you have paid for should give a great amount of detail as to how the scheme he is recommending is to work. Can you expand on this? I can no see any advantage in transferring into a Company as that would involve additional costs for Accountancy charges as welll as various taxes.

One thing you need to be aware of is that if the owners are considering gifting their property into a Trust, then, as mentioned before, a full market rent would need to be paid to the Trust if the owners are to stay in residence, thereby retaining a beneficial interest if no rent is paid. The rent needs to be assessed each year by a professional, so that it can be proved that the rent IS a full market value rent. All income of the Trust will be taxed as Trust income and the Trustees are responsible for annual tax returns, so careful records are needed and legal transfer is necessary.

I take it that the family detail below are correct, but how is the home presently owned?
Family - M+F married age 85 -Sister age 50 -All UK domiciled - Brother age 49, Non UK domiciled

With property value of £1.2M at present, what would a full market rent be on that? Rental would need to be paid whilst they reside at the property. Do they have any other income, such as pensions etc?
The purchase price of the residence is not relevant, as if your parents decide to gift that property into Trust, it is a disposal, but as a private residence, no tax on disposal. The gift would need to exceed 7 yeras before being removed from the value of the estate.

This action would not retain the property, but the Trustees then have discretion as to who the owners would eventually be and the Trust would be liable for CGT on disposal. Trustees could be family members, or professionals, but their costs are likely to be high.

Retaining the rental properties, presently valued at £1.2M would still see a substantial IHT liability later on and if the income is to be paid to your parents, then it is taxable income. Presumably these properties are in your Parents names?
Should your Parents need to go into Care at some future date, they will be liable for all costs as the State would not support them.
Previous mention of Insurance is unlikely in view of the age of your parents.

I hope this helps

Sam

RatherConfused

Can someone please comment on fees being charged for inheritance tax.

Is it based on the value of the estate ?

In our case the fee being quoted is 30,000 pounds for an estate value of 2m.

SeniorSam

That fee sound rather silly, as I have already saiud, if it is just for dealing with Probate and any inheritance tax unless there are a great deal of assets that may be around the world to sort out. Or unless you are wanting to construct complex strategies. Who is quoting that sort of figure? Are the asets you have previously mentioned in the UK or abroad?

Also, if you choose not to answer questions, then it is difficult to try and give answers.
Sam

RatherConfused

it is just for dealing with Probate and any inheritance tax ?
yes
Who is quoting that sort of figure?
An FA specialist in wealth management employed by a legal firm
Are the assets you have previously mentioned in the UK or abroad?
All in the UK.

Question is are the fees typically charged on time or do they like to use value of estate to push it up to silly levels ?

SeniorSam

They seem to be charging on the 'what can I get away with' basis if thats just for dealing with Probate and IHT. Particularly when this can be done yourself.

However, is there some other IHT mitigation strategy that they are proposing? If not, find another STEP sloicitor to get a quote from. Never accept the first one

RatherConfused

thats what i thought.

To answer your question this is the second FA/ tax specialist they have spoken to and not the one i recommended ! Hes not a STEP qualified lawyer, but a tax accountant. Could you explain what STEP is please and why its important, and would that be a better advisor than a tax specialist ?

I dont know what strategy they plan to deploy as that will be set out at next meeting which i believe involves either setting up a trust or moving the properties into some corporate structure if that could be done without attracting huge CGT . Either way we cant do this ourselves without professional help!
He though apparently did mention 3pc of the value of the properties as the fee.

SeniorSam

There are many details of STEP solicitors, who are more highly qualified than the normal practicing, family solicitor. However, practical experience over time means a great deal. https://en.wikipedia.org/wiki/Society_of_Trust_and_Estate_Practitioners

In my past experience, Tax Accountants are rerely qualified where Trusts are concerned and ask a soilictor to deal with that aspect , but STEP solicitors are better at this. Independant Financial Advisers often know the basics of IHT planning, but there are few who specialise in IHT mitigation. When they do, then they have often practiced for many years in that area to fully understand what is needed.

The 3% fee that has been suggested to you I believe is just a figure plucked out of mid-air and not realistic based on what is needed to achieve a good strategy. I also believe that you have already been caught out by paying £1,500 for an outline report that is not sufficiently detaiiled for you to understand fully what they intend doing for you.

I expect that the solicitors and accountants would wish to be the Trustees of any Trust set up, so that they could keep riding on the 'gravy train' for the years ahead.

Setting up a Discretonary Trust is not difficult and property could be transferred into that with family members acting as the Trustees to control what happens with the Trust. Provided the rules are followed, the only real difference is that the family have not lost a small fortune to the professionals in the process. A STEP solicitor could arrange that for you.

Unfortunately similar details of high charges and poor service come up on this forum from time to time and some guidance from members has helped in the past. Including action being taken against some professionals who have not acted in the best interest of clients and made to compensate the clients, but that is after many years of stress.

It is not easy, but you need help and sem to have found a very high charging firm that has not helped you understand what they can do for you.

Sam

SeniorSam

Rather Confused'
There are many details of STEP solicitors, who are more highly qualified than the normal practicing, family solicitor. However, practical experience over time means a great deal. This link may helphttps://en.wikipedia.org/wiki/Society_of_Trust_and_Estate_Practitioners

In my past experiance, Tax Accountants are rarely qualified where Trusts are concerned and ask a soilictor to deal with that aspect , but STEP solicitors are better at this. Independant Financial Advisers often know the basics of IHT planning, but there are few who specialise in IHT mitigation. When they do, then they have often practiced for many years in that area to fully understand what is needed and can easily explain what is needed in a way that you can understand.

The 3% fee that has been suggested to you I believe is just a figure plucked out of mid-air and not realistic based on what is needed to achieve a good strategy. I also believe that you may have already been caught out by paying £1,500 for an outline report that is not sufficiently detaiiled for you to understand fully what they intend doing for you.

I expect that the solicitors and accountants would wish to be the Trustees of any Trust set up, so that they could keep riding on the 'gravy train' for the years ahead, but did they explain that the family could be Trustees?.

Setting up a Discretonary Trust is not difficult and property could be transferred into that with family members acting as the Trustees to control what happens with the Trust. Provided the rules are followed, the only real difference is that the family have not lost a small fortune to the professionals in the process. A STEP solicitor could arrange that for you.

Unfortunately details of high charges and poor service come up on this forum from time to time and some guidance from members has helped in the past. Including action being taken against some professionals who have not acted in the best interest of clients and solicitors made to compensate the clients, but that is after many years of stress and you certainly don't want that.

It is not easy, but you need help and seem to have found a very high charging firm that has not helped you understand what they can do for you. Charging £1,500 and not explaining how their strategy will work for you so that you can assess it fully before moving ahead is not good business practice.

Perhaps one of the solicitors of IFA's on this forum can help?

Sam

xylophone

Have your parents consulted an independent financial adviser?

Did they ring round several to compare costs?

https://www.unbiased.co.uk/

Are your parents, the properties and the sister in Scotland?

Are you in Scotland or are you the non resident brother?

RatherConfused

thank u sam . all solid advise. much appreciated