IHT Options for a £1,000,000+ estate

tacpot12

CityOwl wrote: »

One of FIL's concerns is that this child will believe that they have been treated less favourably than the other siblings. He believes that this child will be very angry and resentful if their share was to be put in a trust while the other siblings would have complete control over their's.

Your FIL needs to decide whether he wants to create upset in the family in order to try to protect the child with mental health issues, or risk the child frittering away their inheritance. Both seem to be near certainties from what you have said.

I think the best option is to split the inheritance between the four siblings equally.

CityOwl

kidmugsy wrote: »

Another point is that if the excess over a million is small enough he may be worrying about nothing: the cost of "care" could consume it in no time at all.

Anyway, you should at least be able to persuade him that the fees for an IFA/lawyer/tax adviser would get a 40% discount, in that they will avoid IHT.

I began this thread in the hope that someone will be able to give me some examples of what an IFA/Tax Adviser may suggest so that I can persuade him to meet with someone. If there aren't really any options, I am tempted to bow out for the time being as I believe this is something that they should decide for themselves with minimal interference from me and my husband.

In the worst case scenario they will pay inheritance tax with the first million being tax free. Its not the most terrible problem to have.

Owain_Moneysaver

CityOwl wrote: »

FIL wants to be as fair as possible to his own children and skipping a generation means that they get different amounts as not all his children have the same number of offspring.

That depends on whether the distribution is per capita or per stirpes (according to the stock / bloodline).

If child A has 2 children A1, A2 and child B has three grandchildren B1, B2, B3, then if X is left to be divided amongst the grandchildren the grandchildren will get:

per capita
A1 20%, A2 20%, B1 20%, B2 20%, B3 20%

per stirpes
A1 25%, A2 25% (i.e. 50% to be shared among the children of A)
B1 16.6%, B2 16.6%, B3 16.6% (i.e. 50% to be shared among the children of

So yes, either the grandchildren get different amounts or the parents get different amounts, but it can be worked either way.

Another caveat is that inheritance tax rules can change with a change in government. Although you're currently assuming that the first million will be free of IHT, that might not be the case in future.

xylophone

MIL's inability to read and write would be an issue.

Can she read and write her native language?

kidmugsy

CityOwl wrote: »

If there aren't really any options.

Oh there are options. They could each give away £3k per tax year exempt from IHT, with an extra £3k carry forward for the first year they do it. Assuming that that money goes to the children they could also gift £250 each to each grandchild. They can make regular gifts of any income they have that is surplus to their normal expenditure.

They can invest in shares that will, after two years of ownership, be subject to Business Property Relief. They can buy farmland in hopes of getting Agricultural Property Relief. For these two they'll want expert advice.

Contrary to the chatter in the papers and down the pub, there is no magic way of avoiding IHT by using trusts; trusts may well be sensible, but gifting money to trusts will get them no more IHT advantage than gifting the same sum to their children.

xylophone

The advantage of any discretionary trust is the discretionary element.

There is also special treatment as regards tax where the beneficiary is vulnerable.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/trust-for-disabled-persons/

polymaff

CityOwl wrote: »

Gulp, what is probate and how much does it cost? I must remember Google is my friend :huh:

https://www.moneysavingexpert.com/family/guide-to-probate/

Until 1st April 2019, up to £215. 1st April 2019 onward, on an estate of £1 to £1.6 million it rises to £4,000. Up 1,760%. No kidding. Break it gently to the FIL that this "hidden" tax will be required spending.

This raises the importance of asking "Has your FIL correctly identified what is his and what is his spouse's?" This leads on to all sorts of issues - particularly how the house is owned. Ownership hasn't been so important while Probate fees have been a fixed amount - but it will be in future.

CityOwl

xylophone wrote: »

Can she read and write her native language?

Unfortunately not.

polymaff wrote: »

https://www.moneysavingexpert.com/family/guide-to-probate/

Until 1st April 2019, up to £215. 1st April 2019 onward, on an estate of £1 to £1.6 million it rises to £4,000. Up 1,760%. No kidding. Break it gently to the FIL that this "hidden" tax will be required spending.

This raises the importance of asking "Has your FIL correctly identified what is his and what is his spouse's?" This leads on to all sorts of issues - particularly how the house is owned. Ownership hasn't been so important while Probate fees have been a fixed amount - but it will be in future.

I'm not sure that I want to go there with the probate. What he doesn't know won't hurt him

Home was purchased in the eighties so I assume that they are joint tenants and I believe the remaining assets are mainly in joint names, excluding ISAs and Premium Bonds. However, I am not absolutely certain as we have never enquired.

polymaff

CityOwl wrote: »

. . .I believe the remaining assets are mainly in joint names, excluding ISAs and Premium Bonds. However, I am not absolutely certain as we have never enquired.

Some deposit takers will accept Death Certificate and Will - let's hope that more will follow and we can squeeze probate - and the monstrous taxation the government is planning - out of the system.

CityOwl

kidmugsy wrote: »

Oh there are options. They could each give away £3k per tax year exempt from IHT, with an extra £3k carry forward for the first year they do it. Assuming that that money goes to the children they could also gift £250 each to each grandchild. They can make regular gifts of any income they have that is surplus to their normal expenditure.

They can invest in shares that will, after two years of ownership, be subject to Business Property Relief. They can buy farmland in hopes of getting Agricultural Property Relief. For these two they'll want expert advice.

Contrary to the chatter in the papers and down the pub, there is no magic way of avoiding IHT by using trusts; trusts may well be sensible, but gifting money to trusts will get them no more IHT advantage than gifting the same sum to their children.

I think that gifting seems to be a good way to go so I am going to print off all the allowances and get my husband to go through them will his dad. Luckily there are plenty of children and grandchildren for this to go around.

As you say there is no "magic way" and he is going to have to pick what he believes is the lesser of all the evils available.

xylophone wrote: »

The advantage of any discretionary trust is the discretionary element.

There is also special treatment as regards tax where the beneficiary is vulnerable.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/trust-for-disabled-persons/

I'll ask my husband to raise this with his dad and maybe they can get some expert advice on the pros and cons.

This is much more sensitive as the sibling in question could, and probably will, kick off big time. There are already complaints about where they are in life in comparison to their siblings, so any hint of being treated differently or perceiving that their status is inferior will result in a big blowout for the siblings. Their relationship has survived a few minor, but painful, incidents. The mental health issues are complex and the ups and downs spectacular. This could be the straw that breaks the camel's back and I am staying well clear.