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

xylophone

When you and your spouse sell your rental properties, you will need to allow for any CGT that you owe.

You mention a "gift" of cash to your children, but in fact this is not what you are proposing?

You seem to be indicating that you will be lending each child an amount which permits him/her to buy a property outright but that they will repay the loans (interest free) in monthly instalments over a certain period of time?

If so, the amount of the loans outstanding at your death (s) will form part of your estate and could be subject to IHT (depending on the value of your estate(s).

You could consider an outright gift of the purchase monies to each child which would be PETS.

https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax

Your solicitor will advise.

Violet_barrow

Thank you - but I don't want to gift to the children as we dont have a private pension and need the income from the rentals. I basically want to be the kids mortgage company instead of them paying a building society back the money and them paying interest to them. I wanted to sell my properties (understand I will have to pay CGT) and use that money for them to buy their own houses - that way we are not landlords with all that headache, the kids pay us the money we need to live on and we are reducing the inheritance tax liability to them on our death. I wondered if I could write into contract that payment of loan or mortgage could become nil on both of our deaths. I think you are suggesting that the remainder of mortgage will be classed as part of our estate and cannot be written off. Any advice on how to keep an income but reduce the kids liability appreciated - estate will be about 2million inc private home of £700,000. Thanks Violet

Savvy_Sue

Violet_barrow wrote: »

Any advice on how to keep an income but reduce the kids liability appreciated - estate will be about 2million inc private home of £700,000.

With an estate of that size you really MUST get 'proper' advice - the sort you pay for. You need to see a STEP qualified solicitor, they will ask all the 'right' questions to make sure they understand what you want to achieve, and then they will be in a position to make the 'right' recommendations to you.

One question I feel I have to ask: if you still need the income from the properties which your children will be buying, what will happen if they default? For example, if they lose their jobs, if they split from their partners ... And do they NEED you to do this in order to get on the property ladder? Because potentially for you a better option would be selling properties and buying a pension! For that, you might need advice from an IFA.

Violet_barrow

Appreciate your advice and words of wisdom re children defaulting etc. Hopefully all aspects would be covered by mortgage contract and pre nup. They are both in good jobs and can get mortgages (one currently has but wants to move to larger) with regard to should they not be able to pay mortgage in future due to catastrophe - if they had a ordinary mortgage they still have to pay that and I'm sure we would be more forgiving than a building society. My thoughts are the kids will have a large inheritance tax to pay - we don't want to pay to protect their inheritance, we have rental properties that are our pension but dont come without their own problems. If we sell those and invest the money - very little return and still inheritance problem for kids so thought if we become kids mortgage company - they provide us with monthly pension, the inheritance burden on them reduces every year and they dont have to pay interest on loan so sounds like a winner - so long as the contract is properly drawn up, but wondered similar to an older couple selling the equity in their home for a monthly lifetime return - i.e. On death company takes the house irrespective of how much they have paid out in monthly return - can we legally write off the debt for the kids on our death or not.

Keep_pedalling

Violet_barrow wrote: »

Appreciate your advice and words of wisdom re children defaulting etc. Hopefully all aspects would be covered by mortgage contract and pre nup. They are both in good jobs and can get mortgages (one currently has but wants to move to larger) with regard to should they not be able to pay mortgage in future due to catastrophe - if they had a ordinary mortgage they still have to pay that and I'm sure we would be more forgiving than a building society. My thoughts are the kids will have a large inheritance tax to pay - we don't want to pay to protect their inheritance, we have rental properties that are our pension but dont come without their own problems. If we sell those and invest the money - very little return and still inheritance problem for kids so thought if we become kids mortgage company - they provide us with monthly pension, the inheritance burden on them reduces every year and they dont have to pay interest on loan so sounds like a winner - so long as the contract is properly drawn up, but wondered similar to an older couple selling the equity in their home for a monthly lifetime return - i.e. On death company takes the house irrespective of how much they have paid out in monthly return - can we legally write off the debt for the kids on our death or not.

You cannot write of dept on death. Any amount outstanding on the loan would be classed as a debt owed to the estate and counts as part of the IHT calculations. You could could cover that somewhat by taking out a second death insurance policy for the term of the loan, which is what we have done to cover the 7 years before large gifts to our children fall out of our estate.

It seems to me your main concern should be about providing yourselves with a good income in your retirement years, IHT should be a secondary consideration. You really need to take paid for professional advice fron a IFA about the best way of securing a comfortable future.

xylophone

You could state in your will that any part of the loan still outstanding was to be "forgiven" but this would still equate to a gift/bequest and there could still be IHT implications.

http://www.thisismoney.co.uk/money/mortgageshome/article-3720130/What-know-inheritance-tax-family-home-allowance.html

You should take expert advice from a solicitor experienced and qualified in estate planning - it may be that he would also recommend that you consult an IFA.

http://www.step.org/member-directory

http://societyoflaterlifeadvisers.co.uk/

balf

"On properties worth £2 million or more, homeowners will lose £1 of the 'main residence' allowance for every £2 of value above £2m. So for a couple, properties worth £2,350,000 or more will get no additional allowance".

Above from MSE guide to IHT.

the value of the PROPERTY is not the value of the ESTATE. All the "official" UK Gov. info states that it's the value of the estate that determines the cut off. So if I have a property worth 250k and my estate is worth 3 million I lose the additional allowance.

A small point maybe but accuracy is vital in matters of money.

DAVID

Pollymeme

the only thing I have to leave my children is my house that I live in value about 600k

is there anyway to minimise the inheritance tax they will have to pay

Keep_pedalling

Pollymeme wrote: »

the only thing I have to leave my children is my house that I live in value about 600k

is there anyway to minimise the inheritance tax they will have to pay

That depends on your marital status. If you were married but widowed and your spouse left the bulk of their estate to you, then your estate is well below your joint nil rate band so there will be no IHT to pay.

Even if that is not the case, the fact that you are currently asset rich but cash poor is more of a problem than IHT. Getting old and living in a house that you can't really afford to maintain is no fun.

Downsize and release some of that equity in the house. From there the best way to reduce any IHT burden is to spend at least some of the money on enjoying yourself.

Mojo71

Elderly relative (Person A) has not, and will not, make a Will, through stubbornness and unwillingness to enter into discussing the subject. Explaining the rules of inheritance tax results in disinterest and lack of understanding.

Sibling (Person will automatically be the sole beneficiary of the estate, probably around £300k. However, Person B isn't interested in being the beneficiary, due to already having their own assets valued well over the £325k inheritance tax threshold, and knows that Person C is next in line for everything as per their own Will.

When the time comes, can Person B instruct the solicitor that Person A's estate go straight to Person C, thereby saving an unnecessary 40% tax hit by not adding it to their own sizeable assets?