Inheritance tax & Gifts

xylophone

https://www.gov.uk/inheritance-tax/passing-on-home

https://www.clarkewillmott.com/blog/read/the-family-home-what-can-you-do-to-save-iht/445

http://www.friendslife.co.uk/doclib/ctst50.pdf

http://www.rixandkay.co.uk/2014/08/22/safe-iht-arrangements-keeping-the-family-home-in-the-family-part-1/

mania112

kidmugsy wrote: »

Once you start advocating lawbreaking, where do you stop? Wouldn't it be easier to defraud your employer than do all this fannying around about IHT? Or do some insurance frauds? Or stick up a jewellers? Or trade drugs?

Most sane people can differentiate between the list of things you mentioned and what I've suggested.

Gifting money to your parents is a perfectly normal thing to do. Avoiding IHT is also a perfectly normal thing to do. Both legal.

Sure, you're right, doing both and talking about both at the same time would be a mistake. I'm not sure we would call it illegal though, there might just be some tax to pay -- But I guess you had to make a point. Well done.

mania112

zagfles wrote: »

Really? Plus POAT? Plus GCT?

Typical rental yields are around 5-7% of property value, charging the parents less than 1% would not be seen as anywhere near "market rent". It would be a gift with reservation or subject to POAT. And GCT would still be payable on top. And the value of the house would be regarded as capital if either of the kids lost their job and needed benefits.

If a true market rent of 5-7% is charged, after 20 years they've paid tax on the entire value of the house. Whereas IHT would give them 650k tax free. So assuming the house is worth a million, 40% tax on 350k is better than 20% on a million.

Plus they'd pay GCT on any increase in value of the house since they took ownership, probably mostly at 28%.

And the parents would risk losing their home if either of the kids lost their job.

Plus "gifting" the rent back would likely be seen as tax evasion.

Sounds pretty stupid to me still.

You lost me at GCT.

But anyway, as I said, and as you've quoted me saying -- i'm assuming the property is only part of the estate. Clearly you're example of a £1m property would change the overall recommended strategy. I've also said that if there are cash/investments to play with, there are better things that can be done.

My primary issue is that someone has come on this forum to air an issue. They've been called stupid by someone who should know better than to assume everyone knows as much as him.

Diluting assets is a recognised strategy to reduce an IHT bill. Property is an option, Mr Xylophone has shown us a link directly from the Government that says this.

Please don't clamour onto my most dodgy points otherwise i'll have to break out the 'no CGT (or GCT) on primary residence' card. Look at my post a whole.

Have a nice day!

loopa1

Lets keep the insults to a minimum - I'm here to have a discussion about a potential scenario in my life. I'm merely here to ask a few questions and check my understanding for learning's sake.


I am glad of the discussion which has aroused however!


Their assets amount to a value considerably below the threshold (for the purpose of our discussion, lets say between £120k and £180k), so as pointed out, we wouldn't actually need to progress down this route.


But with the introduction of the Care Act 2014 which comes in to play in April 2016, this caused me to think about how some individuals may try and reduce the value of their assets (by gifting or by some other means) to avoid paying up to the £72k cap, hence my "could you do this" question to those with a bit more knowledge in these areas.


So let's keep the discussion going...and move to a discussion on the Care Act - what legitimate process will people go through to avoid paying for their own care?


Ps. Should my parents ever need care, I'd hope with their, mine and my sister's own assets we'd be able to ensure the best care is available to them irrespective of LA contribution or not...so please don't doubt my intentions.

zagfles

mania112 wrote: »

You lost me at GCT.

Ooh spelling flame! Makes a good start

But anyway, as I said, and as you've quoted me saying -- i'm assuming the property is only part of the estate. Clearly you're example of a £1m property would change the overall recommended strategy.

If it's worth less than a million there'll be even less IHT to pay so even more likely income tax on rental would exceed IHT.

I've also said that if there are cash/investments to play with, there are better things that can be done.

My primary issue is that someone has come on this forum to air an issue. They've been called stupid by someone who should know better than to assume everyone knows as much as him.

No, I've called the plan stupid. And you've not addressed most of the reasons I've mentioned for calling it stupid. So rather that a silly whinge about the word stupid, why not prove me stupid by addressing my reasons.

Diluting assets is a recognised strategy to reduce an IHT bill. Property is an option, Mr Xylophone has shown us a link directly from the Government that says this.

Please don't clamour onto my most dodgy points otherwise i'll have to break out the 'no CGT (or GCT) on primary residence' card.

Err, the point is the kids would be owning a property that isn't their primary residence, a property they are renting out. Therefore CGT would apply.

Look at my post a whole.

It doesn't really say a lot.

Have a nice day!

You too.

zagfles

loopa1 wrote: »

Lets keep the insults to a minimum - I'm here to have a discussion about a potential scenario in my life. I'm merely here to ask a few questions and check my understanding for learning's sake.


I am glad of the discussion which has aroused however!


Their assets amount to a value considerably below the threshold (for the purpose of our discussion, lets say between £120k and £180k), so as pointed out, we wouldn't actually need to progress down this route.


But with the introduction of the Care Act 2014 which comes in to play in April 2016, this caused me to think about how some individuals may try and reduce the value of their assets (by gifting or by some other means) to avoid paying up to the £72k cap, hence my "could you do this" question to those with a bit more knowledge in these areas.


So let's keep the discussion going...and move to a discussion on the Care Act - what legitimate process will people go through to avoid paying for their own care?


Ps. Should my parents ever need care, I'd hope with their, mine and my sister's own assets we'd be able to ensure the best care is available to them irrespective of LA contribution or not...so please don't doubt my intentions.

Trying to avoid care home fees is a completely different issue to trying to avoid IHT. This is worth a read: http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true

Linton

loopa1 wrote: »

Their assets amount to a value considerably below the threshold (for the purpose of our discussion, lets say between £120k and £180k), so as pointed out, we wouldn't actually need to progress down this route.


But with the introduction of the Care Act 2014 which comes in to play in April 2016, this caused me to think about how some individuals may try and reduce the value of their assets (by gifting or by some other means) to avoid paying up to the £72k cap, hence my "could you do this" question to those with a bit more knowledge in these areas.


So let's keep the discussion going...and move to a discussion on the Care Act - what legitimate process will people go through to avoid paying for their own care?
.......

Most old people dont go into care homes. For your parents to throw away the security they have in owning their own home for an eventuality that on current statistics probably wont happen seems very foolish. Add to that if they have assets they have much more control over the degree of support they can get in their own home should they need it - a more likely scenario. For example in later years it may be very helpful to employ a part time carer or home help. With assets your parents can do this if they want to, define the carers duties, and sack the carer if they arent happy.

As to your question - is it very different to me asking how can I get rid of all my assets so I can get housing benefit and not have to pay for my own home? What answer would that deserve?

And finally your PS - I am sure you would do right by your parents. But what happens if you arent around, perhaps because of death or illness, or cant help for some other reason? Why should your parents take that risk with no benefit to themselves? Why should you want them to?

Daniel54

loopa1 wrote: »

So let's keep the discussion going...and move to a discussion on the Care Act - what legitimate process will people go through to avoid paying for their own care?


Ps. Should my parents ever need care, I'd hope with their, mine and my sister's own assets we'd be able to ensure the best care is available to them irrespective of LA contribution or not...so please don't doubt my intentions.

There is no time limit for deprivation of assets ,as per the link provided by zagfles

You won't find much support on these boards for strategies to preserve your inheritance at taxpayers' expense .

If you are confident you would be able to provide /pay for fully adequate care for your parents without relying on the state,then there is no point in finding ways to reduce your parents wealth

My mother has been able to spend her final days in her own home only because she has been able to afford qualified private carers that the state would simply not have been able to provide.

If your parents reduce their wealth,they reduce their choices in older age.This is over and above the pitfalls of giving their home away which were covered in the tax part of this thread

jamesd

For the care case the initial consideration is whether they could simply fund it themselves. there's not a lot of point in a person with £60,000 of income trying to dodge care fees because they can pay them out of income and pick a good place rather than the council's low bidder.

Similar considerations apply if asset values are high and liquid, capital can fund the care without significant capital depletion for the usual two or three years sort of time period for which care is needed. Or some capital can use used to purchase an immediate needs annuity that is designed for this situation and could top of the income at possibly modest cost.

A property can be given away but it can also be sold or partly gifted and partly sold. The sale portion can increase assets to make potential care affordable out of income and/or provide capital to get best care rather than low bidder care.