Inheritance Tax

LLM

Hi all,

Apologies if I am posting in the wrong place etc but I have a few questions about inheritance tax and how to protect my families money.

A family member died some time ago and left everything to her husband on the condition that when he passes away, the remainder of the money and assets are left to me and my family. At the time of his wife's death, he offered us a large amount of money which we declined.

Since then, he has developed alzheimers and is deteriorating rapidly I have power of attorney over his money etc but want to know if there is any way that we can benefit from the money while he is still alive and if there is any way to avoid the tax when he does leave us.

I realise that this may sound really harsh but they both worked so hard for that money and have always scrimped and saved to enable a better life for their family and I don't think it's right that the government can just come along and take it when you die.

If he was of sound mind, I am sure there would be some way he could pass on money as a gift etc but because of his illness I am not too sure how this would work?

Many thanks in advance

EdInvestor

How much money is involved? If under 300k, no inheritance tax is payable.

Will he need to go into care?

Paying for this may be more relevant. You cannot deliberately deprive him of assets in order to avoid paying for care.

LLM

Thanks for the reply.

We are aware that we need to save for if he requires care in later life and this is already accounted for. We are worried that if we withdraw some money now, will questions be asked later?

LLM

Also is there anyway that we could invest the capital?

dzug

There's very little you can do. Most of the things that could have been done would have needed to have been done within 2 years of his wife's death to be valid.
Apart from the small gifts exemption, your scope is limited. For larger gifts he would have to survive 7 years to avoid tax (assuming his estate is large enough to be taxed in the first place).

And having POA means you have to do things for HIS benefit, not yours I'm afraid.

EdInvestor

LLM wrote: »

We are worried that if we withdraw some money now, will questions be asked later?

Yes they will, as he has already got Alzheimers.Unfortunately this disease often strikes healthy people at quite a young age, so they can end up spending quite a long time in care (15 years is not unusual) compared with the overall average of 3 years.Thus the cost can be very high.

Look at an "immediate needs annuity" to pay for care: it may look expensive but it should mean that you can retain some of the estate for an inheritance rather than risk having it all gobbled up by care fees.

localhero

Hi LLM,

You don't state what his estate consists of, but since you were offered a large sum of money in the past, I assume that it is property as well as investments.

Since you have Power of Attorney you can do as you wish, and that power allows you to make gifts including to yourself if that's something he has done in the past.

And even if he hasn't, if you weren't depriving the care home from their fees (which you say you've got covered), you could use your powers to make gifts to the family. The danger though, is for any amounts greater than £3000 (or £6000 if no gifts were made last year), he would need to survive for 7 years to escape IHT.

You might therefore like to consider the type of assets that are held. For example certain assets, such as businesses or certain types of shares that are not on the main FTSE market qualify for attractive exemptions from IHT.

For example, there's certain businesses quoted on the Alternative Investment Market (AIM) that once owned for 2 years would be completely exempt from IHT. Since you have Power of Attorney you are able if you wish to invest there on his behalf. This type of relief is called Business Property Relief.

You will need to take advice however, since these are smaller companies that are less regulated, there is a risk of the capital falling in value (or being lost altogether) - or in fact the rules being changed (I suspect they will be soon) or your family member not surviving 2 years. Certain shares also don't qualify.

That said, there's some fairly solid companies on this market, and if you take advice (probably from an IFA conversant with the various stock markets) and are aware of the risks, your family could save rather a substantial amount of money.

localhero

Hi quill,

I didn't state all the allowances, but yes you are quite right. In addition to gifts from income and the £3000 annual allowance, gifts of £250 each to different people as long as they're not the same person receiving the £3000. There's also an allowance for wedding gifts.

localhero

Yes, that's right.

Tiggs_2

you will struggle (i hope!) to find an IFA that will place money under a POA in AIM shares in this situation!

localhero

Well I remember reading somewhere about special funds that contain a mix of AIM shares to spread the risk designed precisely for this purpose.

A good IFA must be aware of such funds for this purpose surely? The client once armed with the info can take the necessary action using the POA perhaps.