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

Mary_Hartnell

CatMcc wrote: »

Ok quick update,
Instead of speaking to the solicitors involved I spoke to my mum. She has told me that when my dad died, nothing was done with his estate as such.

My great aunt arranged a funeral, mum went with death certificate and bill from funeral home to the bank and used the contents of my dads bank account to pay for it (there was a shortfall she made up)

My mum approached his merchant navy pension providers to set up the accounts for us three (we got his pension until we were 18/left full time education)

My great aunt plagued her about the house/our inheritance and had her solicitors send my mum the letter about not realising our claim to the house.

Apparently there is a bank account in Ireland of my dads, contentst unknown. My mum was not in a position to pay a solicitor to sort it officially probate etc as she was broke (raising us 3 kids on benefits and no support from dad) and my great aunt as far as we know didn't do anything else.

I've searched on Gov website for probate and there is nothing in the year of his death (2002) to present so assume no other party ever followed it up.

I know this isn't just about inheritance tax anymore and I am getting the feeling we should get advice from a solicitor, but I have a few quick questions now i have the above additional info....

1. As the house is still in my dads name and my aunts name would any change on the land registry i.e. the removal of dads name and addition of me and my sisters names kickstart inheritance tax issues etc.
2. As the house is in London and therefore even half a share is over the IHT allowance for 2002; would there be legal rammifications? No IHT was ever paid, and therefore i assume interest is accruing all the time. Do you get fined for non-payment (even if it was unknown)
3. If the above is a yes would it be better to let sleeping dogs lie until my great aunt dies? She doesn't want to leave her home, and we don't want to cause that to happen by having a tax bill we can't pay unless we sell the house, or cause her any stress and worry about the house.
4.Is it worth going to CAB about this, or should we head directly to a solicitor?

Thanks for all of your help so far!
Cat

I don't want to really stir things up BUT

I assume you have checked the Land Registry entry for this family home and that is how you know half of it is registered in the name of you late father ?

Fortunately the rules for claiming adverse possession ["sqiatters rights"] to registered land were changed some years ago and the squatter now has to give the registered owner 2 years notification of his/her intention to make a claim. However the registered owner is now dead and the registered address of the owner is the same as that of the (squatting) great aunt. So beware of the possibility that great aunt has been claiming the house is all hers.

I think we need to know exactly the wording of the document your mother signed as your trustee - you just might be able to argue that great aunt is the beneficiary of an interest in possessing trust for her life time.
If she is then her estate will be paying IHT tax on the whole house value rather than just on her half (with the three of you facing some CGT on your (plural) half if the house is sold.).

Do you know the contents of great aunt's will (if any) ?
Is she likely to die intestate?
Can we assume that great aunt is unmarried and childless ?
How many nieces and nephews did she have ?

Personally I would try to find out what the situation is and then make peace with the first-in-line beneficiary (HMRC) when the death occurs.

Am I and Jeremy Corbin the only people to notice that the tax and benefits system is socially cleansing London of its residents, who cannot get ahead in the financial rat race ?

retep53

My wife and I have joint assets which are probably about 100K over the joint IHT threshold, mainly due to our house (on the outskirts of London) and a lump sum from my superannuated pension scheme when I took early retirement. The mortgage on the house was paid-off about 15 years ago and the house is (or should be) in joint names of my wife and myself. As I am still a tax payer on my monthly pension, all savings apart from my ISAs and some interest paying current accounts are in my wife's name as she does not have enough earnings to pay tax, so the interest payments are gross (numerous R85 forms placed with banks and building societies). We have wills which leave everything to the surviving partner, so no inheritance tax liability on the first death.

As we suspect we would be over the limit of inheritance tax liability we would like to gift our two sons a sum of money to help them clear their joint mortgage on a part-rent/part-purchase property they live in. The eldest son then intends to sell-up and buy a new place with his girlfriend. We will possibly gift the other son more cash when that happens to help keep him on the property ladder but as we would not be able to afford to gift the older son similarly, we would re-write our wills so that he could have an equivalent proportion from our joint estate when we die, before the remainder is then divided equally between them.

My query relates to the nuts and bolts of gifting our sons roughly 70k between them to avoid or minimise as far as possible, any inheritance tax liability in relation to the seven-year rule.

My wife and I have one joint bank account which was originally (when I worked) in my name only, which I use to administer most household bills. For me to actually be able to personally gift any substantial amount will require my wife to move money presently in her sole name to this joint account. Once that has happened can I personally then do money transfers from this account to both of our sons (35K each) and would that money then be treated as gifted from both my wife and myself equally? Or would it be better if my wife and I each wrote a cheque to both of our sons (four cheques in total)?

Effectively my wife and I would then be gifting 35k each. My understanding is that if we both live a further 7 years then these amounts would be exempt from IHT but would there be any tax due on the death of the first of us (if within 7 years) or would it only be due when the surviving partner died? Or is there any way of claiming that the gifts were from the longest surviving partner (thus hopefully having more chance of being beyond 7 years after the gifts) as that partner would inherit the remainder of the estate?


Thanks for taking the time and trouble to read this (and hopefully reply with knowledgeable advice).

Keep_pedalling

Why are you thinking about giving it all in your name? We have done a similar thing with out 2 children. Like you we paid from a joint account, but have recorded each transaction as a joint gift so we both have an equal amount of potential exempt gifts against our names. Having it all in one name gives a greater chance of the whole lot failing the exemption if that person dies before the 7 years are up.

Don't forget your annual gift allowance, if neither of you has gifted your children (or anyone else) anything in this or the last tax year, then between you £12,000 can become immediately IHT exempt.

What ever you do make sure you keep this well documented to make life easier for your executors when the time comes.

retep53

Thanks for the reply Keep pedalling, however you have missed the point of my question. The account is now in joint names but if I do an on-line transaction from the account to each son for 35K, would IR view as a personal gift to both sons from me only, or (as it is a joint account) from both my wife and myself equally (therefore each responsible for half of each amount). And what would the implication be if either my wife or I died before the end of 7 years?

retep53

Also how do I document what has taken place?

Mojisola

retep53 wrote: »

Also how do I document what has taken place?

Write them a letter saying that you are giving them £X.

Get your wife to do the same, saying that she is giving them £X.

Keep copies.

retep53

Thanks Mojisola. Are e-mails valid or does it have to be a signed paper version.

Mojisola

retep53 wrote: »

Thanks Mojisola. Are e-mails valid or does it have to be a signed paper version.

Much easier for your executors if there are paper versions with signatures.

Keep_pedalling

We just produce a spreadsheet, showing each gift, the date it was given and who from. That gets updated each year, we keep a copy and we send a copy to the solicitor holding our original wills. I don't think the fact that it has all come from a joint account matters.

No need for anything else really as everything can be cross checked against our bank statements if required. Once a gift is goes over the 7 year period it can be deleted.

If either of you die before the 7 years is up then unless the gift was within your annual allowance then it falls back into your estate for IHT purposes, which is why it is more vulnerable if it is all in your name. We have taken out a second life policy which will be paid out to the children, which provides an insurance policy if we both die early and compensate them for the IHT to be paid on the gifts that are only potentially exempt.

SeniorSam

Keep pedalling I hope that the life policies you have taken out have been written in Trust to the children.

Sam