Opinion on IOU Clause

getmore4less

SeniorSam wrote: »

I would never use the house in the Trust as the complications and responsibilities are greater. Also the possibility of a move to other property just complicates matters for trustees.

Sam

If anything simplifies clearly capital growth and untill the chosen property is less than the trust value it stays as equity.

SevenOfNine

g6jns wrote: »

What worries me is that AFAIK HMR&C can arbitarily change their minds at any time so that the scheme is nullified. The reason I say this is that the scheme is well known way of reducing liabilities. In fact I am amazed they have not closed the loophole already. Given what both major parties have sId about reducing loopholes it would be an obvious target after the election.

I believe the 'loophole' was the use of a DoV by that plonker Miliband & his brother to avoid IHT on the death of their father. That is the 'loophole' which was been mentioned to be 'looked at' with a view to closing it!

I can't imagine any successive Government would be able to dictate who, when & how a person with a NRB Discretionary Trust chooses to have their assets distributed on their death.

getmore4less

One other advantage of a house with a life interst in the trust is it also benifits from PPR so no CGT.

BY using the IOU you effectively take the assets out of the trust at a fixed* value so any growth based taxes will fall on the survivor(CGT and IHT).


I understand it tis this you are trying to uplift with a lower tax than IHT.

Crabapple

Another reason people still make NRB Trusts in their Wills is the fear of the entire value of a house being eaten up paying care fees. If there's half a house in a Trust (whether the IOU scheme is in place or not) it is preserved and not part of the assets for care assessment.

It's rare that people are in care so long as to cost vast sums but obviously does happen.

Going back to the original question, I'm not really seeing how you can use an increased NRB. It's going to be fixed at the time of death.

SeniorSam

I also think that the NRB will be fixed at the time of death, I was just wondering if a change of wording may possibly allow for increases, but am proobably too hopeful.

The fixed value of Promissory note on the house certainly ensures that no gain would be attributed and therefore no additional tax - good point to make. In our own case we would not be placing the house within the Trust as it is more than likely that a move would be made and that may only complicate matters for the survivor and Trustees.

Sam

getmore4less

SeniorSam wrote: »

I also think that the NRB will be fixed at the time of death, I was just wondering if a change of wording may possibly allow for increases, but am proobably too hopeful.

The fixed value of Promissory note on the house certainly ensures that no gain would be attributed and therefore no additional tax - good point to make. In our own case we would not be placing the house within the Trust as it is more than likely that a move would be made and that may only complicate matters for the survivor and Trustees.

Sam

Might be worth it to have an asset IHT and CGT free.

there is the other side of what the survivor is doing with their assets and if they are over their nil rate band.

If the plan is to live long, down size then gift/spend to avoid IHT that may make everything a lot easier, still £650k to leave to the kids and that is probably enough to live on even easier if there is other income(pensions)

(just realized having a debt of £325k sitting there opens up a new avenue but lets not go there.)

getmore4less

SevenOfNine wrote: »

I believe the 'loophole' was the use of a DoV by that plonker Miliband & his brother to avoid IHT on the death of their father. That is the 'loophole' which was been mentioned to be 'looked at' with a view to closing it!

I can't imagine any successive Government would be able to dictate who, when & how a person with a NRB Discretionary Trust chooses to have their assets distributed on their death.

was not really bothered by this but had a quick look to see what the fuss was about......

Not familiar enough with the legislation place in 1994 when they did their DOV to be sure but I think they could have avoided the CGT as well if they had done the change differently.

Not sure about the IHT issue as David bought the house off their mum but she still lives there, preowed assets probably kicks in some where and there is the cash from the sale, you don't get rid of IHT by converting property to cash.