Passing savings to children to minimise Inheritance Tax

bostonerimus

bigadaj wrote: »

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

I am bound to make mistakes, so please point them out so the OP and all of us can learn.

newatc

newatc wrote: »

Assuming you are married, the best way would be to give £6k annually away to your children/grandchildren which has no impact. You can give more of course but that may become victim of the 7 year limit.
I keep away from trusts which are always subject to having laws changed or possibility of poor financial advice. I'd rather the government get it than the Finance Industry.

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.

Coming back on this thread to say that I'm lucky enough to be in similar position to Harry and Keep Pedalling and apart from the giving element I referred to my original post, I keep a significant amount of my savings in liquid assets to aid either the payment of IHT and/or nursing costs. Ensuring both my OH and I can afford significant nursing care (while hoping we won't need it) is actually my main priority which I'm sure the children would agree with that.
If we avoid lengthy nursing care and/or provide £1m tax free to our children , we would regard that as a good result irrespective of any IHT issues.

Given my circumstances, I've found this thread really interesting (thanks Harry and everyone) and will keep other opinions in mind. Hopefully plenty of time to change my mind

GeorgeDoors

harrypeters wrote: »

I appreciate the risks involved (eg divorce, bankruptcy, family fallouts etc etc) but taking those into account I'm still concerned at my children/grandchildren losing 40% of my asssets over and above the exemption limits after I've popped my clogs.



Seems such a waste, when just handing some of the assets over now (leaving the house out of it because it's likely to be covered by the Residence Nil Rate Band) would reduce the IHT to nil.


How best to do it though? Cash/bank savings are easy, but some is held in Savings Certificates, some in Premium Bonds and some in Stocks and Share ISAs. I'd aim to leave as much as possible in the ISAs for their tax efficiency, transferring other assets first.


Premium Bonds are simple enough - cash in. Savings Certificates less straightforward because they're index-linked and can't be repurchased.


Any thoughts as to how a declaration of trust might work re the Savings Certificates (or other assets for that matter) - simply stating that they're now held on trust for Child A? That way they stay invested as they are, but don't form part of my estate because the beneficial interest belongs to Child A.


Too simplistic? All solutions and recommendations gratefully received!

Hi, Im new to the forum (seeking advice on another matter elsewhere) but thought I would look to contribute and give something back in an area I am knowledgeable.

The comment you make about ISAs I hear regularly. Unfortunatley, whilst ISAs can serve you well during your lifetime they are tax inefficient on death. Terminology used by the industry doesnt help, I ofetn hear 'tax free' and we know S&S ISA are only tax efficient, they certainly are NOT exempt from 40% Inheritance Tax (AIM ISAs excluded for a moment)

There are a number of options you could consider, taking advice from a suitably qualified IFA would be a good start, and one who is active in this area as it is very specialist subject area.

Trusts are a good tool and can be effective as part of an overall solutuion.

GeorgeDoors

newatc wrote: »

Assuming you are married, the best way would be to give £6k annually away to your children/grandchildren which has no impact. You can give more of course but that may become victim of the 7 year limit.
I keep away from trusts which are always subject to having laws changed or possibility of poor financial advice. I'd rather the government get it than the Finance Industry.

If you have surplus income you could also make use of the 'Gifts from Normal Expenditure Rules' in addition to the standar reliefs. It was introduced in 1984 and its greatly under utilised. It also works with trusts.

Providing the gifts meet the rules 1. Intention to be regular 2. from net income, 3 doesnt affect your standard of living then it will be immediately exempt from IHT. The 7 yr rule does not apply. It is an exepmt transfer, so neither a PET or CLT and as such does not muddy the order of gifting.

bostonerimus

GeorgeDoors wrote: »

Trusts are a good tool and can be effective as part of an overall solutuion.

Are trusts still a good IHT mitigation tool?....other than maybe in conjunction with life insurance.

GeorgeDoors

harrypeters wrote: »

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

As long as you have owned, and lived in a home since 8th July 2015 you can still benefit from the RNRB rules even if you no longer own the house. Its a very complicated piece of legislation and you should take advice from suitably qualified persons.

GeorgeDoors

bostonerimus wrote: »

Are trusts still a good IHT mitigation tool?....other than maybe in conjunction with life insurance.

Absolutely. Since 22/03/2006 the rules around trusts have changed, maybe a little more complicated under the Relevant Property Regime though that is no reason not to consider them as a potential solution to preserving wealth.

Sadly, the industry tends to talk trusts when someone asks to mitigate IHT, but trusts were around hundreds of years before taxes and are all about the effective transfer of wealth. In my opinion, the industry is looking at it the wrong way. We should lead on preserving wealth first, with the added benefit of maybe saving 40% in IHT.

People are generally far more concerend about social impacts than tax. In very simple terms if you were to leave £1m to a child via a Will, and that child then divorces, £500k is going to walk out of the family. Had you put that money into a trust, and the trustees then loaned the £1m to the child, who then gets divorced, the money is protected for that child, and subsequent generations of the famly.

Also, if you continue to pass that wealth down the generations via the loan agreement, the famlly will never pay any more IHT. What a wonderful legacy to leave. Yet a lot in the industry just focus on putting a tick in the IHT box at 7 years.

A number of posters have commented about wanting to deal with IHT yet have sufficient money left for themselves if they need care etc. The old issue of needing to gift it to mitigate IHT but cant / reluctant to incase you need it yourself later on in life. There is a specialist trust called a 'Flexible Reversionary Trust' that allows a gift into a trust to be made, and start the 7tyr clock off, but importantly the Settlor retains the right to annual reversions should they need money in the future. Its not quite as good as having your cake and eating it but its as close as you can get within the legislation. Look them up or ask an IFA who is active in this area about them.

GeorgeDoors

redux wrote: »

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.

I dont follow the logic of your statement. What dictates any IHT is the value of the estate on death, above available allowances, not who you may have directed it to via your Will. There is absolutely no need to skip any generations if proper planning is made. Everyone could potentailly benefit based on need. Flexibility and choice is important as no one knows what the future holds.

A Deed of Variation is a useful tool, but as you may know it will require all beneficiaries to agree. One thing families are good at is not agreeing when money is involved. .

bostonerimus

GeorgeDoors wrote: »

Absolutely. Since 22/03/2006 the rules around trusts have changed, maybe a little more complicated under the Relevant Property Regime though that is no reason not to consdier them as a potential solution to preserving wealth.

Sadly, the industry tends to talk trusts when someone asks to mitigate IHT, but trusts were around hundreds of years before taxes and are all about the effective transfer of wealth. In my opinion, the industry is looking at it the wrong way. We should lead on preserving wealth first, with the added benefit of maybe saving 40% in IHT.

People are generally far more concerend about social impacts than tax. In very simple terms if you were to leave £1m to a child via a Will, and that child then divorces, £500k is going to walk out of the family. Had you put that money into a trust, and the trustees then loaned the £1m to the child, who then gets divorced, the money is protected for that child, and subsequent generations of the famly.

Also, if you continue to pass that wealth down the generations via the loan agreement, the famlly will never pay any more IHT. What a wonderful legacy to leave. Yet a lot in the industry just focus on putting a tick in the IHT box at 7 years.

A number of posters have commented about wanting to deal with IHT yet have sufficient money left for themselves if they need care etc. The old issue of needing to gift it to mitigate IHT but cant / reluctant to incase you need it yourself later on in life. There is a specialist trust called a 'Flexible Reversionary Trust' that allows a gift into a trust to be made, and start the 7tyr clock off, but importantly the Settlor retains the right to annual reversions should they need money in the future. Its not quite as good as having your cake and eating it but its as close as you can get within the legislation. Look them up or ask an IFA who is active in this area about them.

So the gist seems to be that you don't need trusts to save on IHT, but they are useful for controlling capital and the income it generates.

bostonerimus

GeorgeDoors wrote: »

As long as you have owned, and lived in a home since 8th July 2015 you can still benefit from the RNRB rules even if you no longer own the house. Its a very complicated piece of legislation and you should take advice from suitably qualified persons.

I suppose you could put the house in trust and start the 7 year clock which would get the house out of the estate and then maybe the trust would pass the house onto the kids when you die and claim the RNRB, just thinking aloud here without any actual knowledge.

But what is becoming apparent is that the home is a big illiquid part of the estate and if it is worth considerably more than the RNRB it should be high on the list of things to deal with in estate planning. I'd be tempted to downsize to a house that is closer to the value of the RNRB and use gifting to the kids.