inheritance issues

jabba42

We are three children. One lives in Bulgaria, one in Czech Republic and on in the UK. Our father died in 2015 and left everything to our mother (currently 72 years old and in good health). It's her wish to pass everything to the children with minimal taxes but obviously she wants to remain in control of the assets to secure her future. The estate is about 3m GBP.

We have spoken to advisors in and out of the UK and we have conflicting advice. The non UK advisor recommended setting up a family investment company where our mother invests and we children work for the company earning fees, depleting the value of the company over time. This would likely result in income taxes. The UK advisor said this would be over complicated and expensive to run (not sure why).

The UK advisor recommended giving money away to bring the estate down to 2m GBP so it falls into RNRB. He explained that if our mother lives beyond 2020 new allowances would bring the tax free allowance within RNRB up to 1m GBP (our mother’s amount is doubled because of our deceased father’s allowance)

So here are some questions:

1) Within RNRB with a 1m GBP allowance and a 2m GBP estate value there would still be 40% IHT on 1m GBP, correct? So the effective tax rate falls to 20% on the total?

2) One option to allow mum to gift the assets but keep control over them would be to buy precious metals, gift them to the children and then put them in a safety deposit box where we all have access and agree not to touch them until death. In this way if she has cash flow issues in the future she could still sell these assets in an emergency although technically she would not own them. After death the children can just take the assets as taxes would already have been paid at the moment the gift was received. Opinions on this (pragmatic vs legal)?

3) When a gift is given there is no IHT if the donor lives another 7 years. But what about income taxes for the recipient? For example in Czech Republic where one of us lives the gift tax is up to 40%. In Bulgaria 5% is paid on gifts received. This would probably be covered by double taxation treaties between the countries?

4) What if our mum were to set up a company to hold her assets and the company made gifts? Would the 7 year rule then apply? Would this just be seen by the tax office as tax avoidance and ignored for tax purposes? One reason to set up a company is it could exist in a low/no tax country so that any investments it owns would have income taxed at a lower rate.

Yorkshireman99

You need the advice of specialist in UK taxation as well Bulgarian and Czech. It is a very complex area and nobody on this forum is likely to be able to give much help. In any case who would take advice from an unknown source when such large sums are involved? The advice will cost but a really good expert should be able to save you much more than their fee.

Keep_pedalling

The desire to reduce tax and keep complete control of the assets are not really compatable, and I don't really understand her desire to keep control of money she does not need.

Gifting is certainly one thing she should do without any significant delay, but with an estate that size she needs independent advice from an IFA, and not dabble with barmy ideas about buying gold.

Savvy_Sue

Also note that one size may not fit all if each recipient has to pay different levels of 'gift tax' - from zero in the UK upwards!

getmore4less

2. Fails the gift without reservation tests.

Why the control is she worried here now wealthy kids won't help her out if she falls on hard times.

When gift taxes are involved alternative solutions are often needed.
With £3m to play with time for some paid research as your own research is failing you.