Passing savings to children to minimise Inheritance Tax

bostonerimus

As the OP is married they can pass on £1M befor IHT is an issue. The estate is £1.5 with the house being £700k. So gift the house to the kids and take out the 7 year decreasing term insurance to cover an early death and then monitor the £800 left to keep it below £1M by spending and making more gifts.

dmelife

!!!! advice. Can’t gift the house and live in it without paying rent due to gift with reservation rules. Plus would miss out on the main residence nil rate band worth a combined £350k. As I said before......seek some proper advice.

steampowered

Personally I would be inclined to make a gift to the children, keeping enough back to fund your own care costs.

Your children could probably use the money more now (e.g. families with young children) than in 20-30 years time.

Either way I would suggest having a grown up discussion about it with the kids.

bigadaj

bostonerimus wrote: »

As the OP is married they can pass on £1M befor IHT is an issue. The estate is £1.5 with the house being £700k. So gift the house to the kids and take out the 7 year decreasing term insurance to cover an early death and then monitor the £800 left to keep it below £1M by spending and making more gifts.

You've been out of the U.K. For far too long to be commenting on issues such as this.

harrypeters

Tom99 wrote: »

Putting the house into a discretionary trust will not work for IHT purposes if you still live in the house. In order for the assets put into the trust to start the 7yr ball rolling the settlor cannot receive any benefit, income or capital, from the trust.

I appreciate that - and having to pay out the market value rental to avoid that (to be taxed in the hands of the recipient) wouldn't make much sense.


I was referring, though, to the use of a discretionary trust to avoid any future risk of seeing the value of the house swallowed up in care home fees. Not effective for IHT, but it might be (as things stand now) for protecting the house from claims by local authorities. There would have to be another valid reason for transferring the ownership though - and that's the tricky part. It's a risky area, and things can easily backfire!

harrypeters

steampowered wrote: »

Personally I would be inclined to make a gift to the children, keeping enough back to fund your own care costs.

Your children could probably use the money more now (e.g. families with young children) than in 20-30 years time.

Either way I would suggest having a grown up discussion about it with the kids.

Exactly what we're planning - and it's under active discussion with the children (in their thirties) as to the best way to do it.

harrypeters

bostonerimus wrote: »

As the OP is married they can pass on £1M befor IHT is an issue. The estate is £1.5 with the house being £700k. So gift the house to the kids and take out the 7 year decreasing term insurance to cover an early death and then monitor the £800 left to keep it below £1M by spending and making more gifts.

Wouldn't that mean losing out on the RNRB though? Surely it's the house that should be retained?

redux

steampowered wrote: »

Your children could probably use the money more now (e.g. families with young children) than in 20-30 years time.

Either way I would suggest having a grown up discussion about it with the kids.

Well, one way to minimise future inheritance tax is skip a generation, pass stuff straight to grandchildren.

Helping student years and first property purchase might be choices in some families.

When someone dies, if the will says to next generation rather than down two, it can be altered using a deed of variation, but transfers now might need a bit more consideration to keep options flexible.

bostonerimus

dmelife wrote: »

!!!! advice. Can’t gift the house and live in it without paying rent due to gift with reservation rules. Plus would miss out on the main residence nil rate band worth a combined £350k. As I said before......seek some proper advice.

Sure, you will pay your kids rent if they don't live with you, but that is a nice way to further reduce the value of the estate, of course they will pay income tax on the rent. Yes you lose the residential nil-rate allowance and that will be 2 x 175k in 2020/21 which should obviously be considered, but the house is a big store of capital and if you keep it and gift liquid assets you could leave yourself short.

I'm giving some ideas for the OP to consider and work through which might well help them coming up with their own plan or assessing "proper advice".

bostonerimus

harrypeters wrote: »

Wouldn't that mean losing out on the RNRB though? Surely it's the house that should be retained?

Yes, the RNRB would be lost, but that's about half the value of the OP's home and they would have more liquid capital to live off if they got the house out of the estate and if they kept the house it could also gain in value and eat up even more of the IHT allowance. So you could keep the house and the 350k RNRB or gift the house and remove 700k from the value of the estate. If they keep the house and gift liquid capital to the kids to reduce the value of the estate below the IHT allowance that would only give the OP around 300k to live on. Giving the house to the kids also means that the OP would not need to cash in as much of their investments/savings certificates which seems to be important to them. Of course they would have to pay rent to the kids.