IHT Issues

weatherlobe

I am not sure whether this is the right board for this subject but here goes anyway:-


My mother is over 100 years old and as I have Power of Attorney I reckon her estate including property is worth between £650000 - £700000. I am her only son and there are no other direct relations.


My father died in 1996 and the advice at the time was to instigate a Deed of Variation up to the IHT limit ruling at the time no later than two years after death, an a discretionary Will Trust was drawn up with me and my mother as Trustees. That was supposedly best practice at the time.


I understand that since that time rules have changed allowing transferability of spouses allowance so normally two lots of IHT allowance would be available at second death. I assume however with the existence of the Trust that option is not now available and I will be hit with a whacking IHT bill?


Is this correct? And if so are there any other methods of mitigating this?

Savvy_Sue

I think you need to get specialist advice on this. My understanding (and it may be wrong) is that your power of attorney means that you can - have to - act in your mother's best interests, not your own. Even supposing that she was to live for another 7 years, giving you large sums of money to reduce her estate would not, it might be argued, be in her best interests.

Does she have a will, and what does that say? Leaving gifts to charity can reduce the bill, and you still the option of a Deed of Variation.

xylophone

The trust was actually set up and assets to the value of the nil rate band placed in it?

See http://www.raeburns.co.uk/downloads/trustmerevisited.pdf

weatherlobe

Yes the Trust was set up within the two year window allowed after my fathers death and assets to the value of the nil rate band ruling at that time (£140000 or £150000 I cannot quite remember) were placed in it. This was all drawn up by a large Firm of Solicitors who charged well.

xylophone

The nil rate band for 1995-96 was £154,000 and for 1996-97 £200,000.

https://www.gov.uk/government/publications/rates-and-allowances-inheritance-tax-thresholds/rates-and-allowances-inheritance-tax-thresholds

If the full nil rate amount was put into the trust at the time, then your father's full nil rate band has been used and only your mother's remains?

See link in previous post and http://www.clickdocs.co.uk/inheritance-tax.htm

"The amount of the Nil Rate Band that can be transferred does not depend on the value of the first spouse or civil partner's estate.Whatever proportion of the Nil Rate Band is unused on the first death is available for transfer to the survivor."

xylophone

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/373532/IHT402.pdf

may be of interest.

macca1974

If you Father's nil rate band has already been used (which it seems it has), then there will be an IHT bill payable for anything (that isn't given to charity) that you receive over the current nil rate band.

BTW, the nil rate band trust at the time was really good advice and if the law hadn't changed a few years back would have saved you loads in IHT.

As has been said, if you hold POA for your Mother, then my understanding is that you can't instigate any gifts using those powers. Even if you could, then your Mother would need to live for 7 years (assuming the gifts were less than the NRB) in order for there to be an IHT saving.

There are investments that you can invest into which if held for 2 years prior to death are exempt from IHT, however they are generally at the top of the risk spectrum and might be a challenge to justify for a 100 year old.

xylophone

As has been said, if you hold POA for your Mother, then my understanding is that you can't instigate any gifts using those powers

.

http://www.thesolicitorsgroup.co.uk/Downloads/Articles/01Dec2011/Doesalastingpowerofattorneygivetheattorneyauthority.pdf

"Mental Capacity Act 2005, s12 sets out the powers of an attorney acting under a lasting power in relation to gifts. The attorney can only make gifts:

 “on customary occasions” to persons (including himself) who are related to or connected with the donor, or

 to any charity to whom the donor made or might have been expected to make gifts, and only if the value of each such gift is not unreasonable having regard to all the circumstances and,
in particular, the size of the donor’s estate.

Sub-section 3 defines “customary occasion” as:
(a) the occasion or anniversary of a birth, a marriage or the formation of a civil partnership, or
(b) any other occasion on which presents are customarily given within families or among friends
or associates."

Savvy_Sue

While there may not be much you can do to reduce the IHT bill before Mum's death with the Power of Attorney, it may still be possible to reduce it after death by using a Deed of Variation to make gifts to charity. I'm not sure this would increase your inheritance, but you'd be mitigating the amount going to HMRC.

But as I said before, specialist advice is the way to go. Especially as you might want to consider the impact of this inheritance on your own estate and its liability IHT, again with a Deed of Variation being potentially useful, depending on your own situation, age and state of health.

weatherlobe

Thanks Savvy Sue I may consider this Charitable Route. Having taken further advice the options are limited. She is not mentally incapacitated although has come to the stage where she cant be bothered with paperwork. Hence a large bowl full of it for me to deal with on my 5 - 6 weekly visits. I have already have had murders dealing with a Liquidated HSBC fund, where, because no action was taken to deal with Price Waterhouses' requests to state where the funds should go, was forgotten, leading me deal with the Lord Lieutenant of Jersey who demanded all sorts of proofs (apparently UK Powers of Attorney have no legal standing there) plus he helped himself to 5% of the funds value for doing very little!


A Whopping IHT Bill looms unless Osborne gets his act together and doubles the Nil Rate Band ( a former election promise reneged upon) which would cost the country very little. The only other options I think are to provide gifts from regular income as she could prove her standard of living is unaffected.
Having lived through the War she is the epitome of frugality and probably does not spend more than £600 out of her £3000 monthly income.

Savvy_Sue

If she's still got capacity, ask if she cares about the IHT situation enough to do anything about it. If she does, see if you can get someone to see her in her own home to discuss the options.