IHT & Investment/Insurance bonds

FIL passed away recently.
MIL passed away later the same week.
Both Wills had 30 day survival clauses in them (Scotland).
MIL was in care home last 2 years.
FIL transferred most assets (except house) from MIL to himself (POA) when she went in to care home, leaving enough to pay fees.
Investment bonds, with both lives insured, payable upon death of 2nd name.

Question: As MIL passed away last (albeit by a short time), will the bond payout(s) form part of her estate, or will they be within the FIL's estate?
It'll be alright in the end. If it's not alright, it's not the end....
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  • edited 26 September 2020 at 10:42PM
    Keep_pedallingKeep_pedalling Forumite
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    edited 26 September 2020 at 10:42PM
    I’m not sure if the IB forms part of either estate, but for tax purposes there will be a chargeable event triggered on the death of your MIL. Hopefully the bond provider I advise you.

    Your big problem could be the survivorship clause. If your FILs estate exceeds his NRBs  then IHT may be payable. If home ownership passed automatically to the surviving spouse then his estate can’t claim the RNRB, that will be transferable to your MILs estate.

    Unfortunately many people make one will and never review it or make new ones when IHT rules change,  so contain things like survivorship clauses and trusts that are no longer appropriate.

    https://www.willwriters.com/blog/survivorship-clauses-in-wills-and-when-to-avoid-them/
  • LangtangLangtang Forumite
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    Thanks for your comment, it’s appreciated you taking the time. When you say a chargeable event, do you mean CGT? I read somewhere recently that CGT would be payable on the profit on each bond (5 in total) My question would be, would this be on top of IHT?

    I’m not sure I follow you when you say it may not form part of either estate. The bonds were set up with 5 lump sums from a retirement payout, and not added to or taken away from since. I assumed that because each bond had a lump sum invested in it in 1999, that it would be classed as an asset or at least part of an asset? Forgive the ignorance. 

    thanks again. 
    It'll be alright in the end. If it's not alright, it's not the end....
  • Keep_pedallingKeep_pedalling Forumite
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    Langtang said:
    Thanks for your comment, it’s appreciated you taking the time. When you say a chargeable event, do you mean CGT? I read somewhere recently that CGT would be payable on the profit on each bond (5 in total) My question would be, would this be on top of IHT?

    I’m not sure I follow you when you say it may not form part of either estate. The bonds were set up with 5 lump sums from a retirement payout, and not added to or taken away from since. I assumed that because each bond had a lump sum invested in it in 1999, that it would be classed as an asset or at least part of an asset? Forgive the ignorance. 

    thanks again. 
    Investment bonds are rather like a single premium insurance policy.should not form part of the estate after all this time, but they are subject to separate tax rules, 

    Some heavy reading on the following link.

    https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/taxation-uk-investment-bonds/
  • edited 5 October 2020 at 9:26AM
    MalthusianMalthusian Forumite
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    edited 5 October 2020 at 9:26AM
    Langtang said:
    FIL transferred most assets (except house) from MIL to himself (POA) when she went in to care home, leaving enough to pay fees.


    Not sure he had the right to do that as the attorney must act in the donor's interests only, but that's water under the bridge and has no effect on the tax position.

    Question: As MIL passed away last (albeit by a short time), will the bond payout(s) form part of her estate, or will they be within the FIL's estate?

    His, as you say both were lives assured, and the (potentially illegal) gift was a transfer between spouses so it's not going to have any IHT consequences. *edit 5.10.20* The new information that the bonds were always in both their names rather than assigned from FIL to MIL changes this, see below.

    Thanks for your comment, it’s appreciated you taking the time. When you say a chargeable event, do you mean CGT? I read somewhere recently that CGT would be payable on the profit on each bond (5 in total) My question would be, would this be on top of IHT?

    No, chargeable gains on insurance bonds are subject to income tax. A chargeable event arose on the second death. The assignment from her to him would not have been a chargeable event. The taxation of insurance bonds is very complicated and full of traps. If in any doubt see a solicitor, accountant or IFA.

    IHT will be levied on the value of the asset immediately before death, including any changes in the value caused by death. Which means you need to add on any increase to the death claim value (e.g. if the death claim value is 101% of the value of the units, you need to use 101%). My understanding is that you can't deduct the income tax due on the chargeable gain for IHT purposes (but not 100% certain on that one).

    Keep pedalling said: Investment bonds are rather like a single premium insurance policy.should not form part of the estate after all this time

    Not sure where you get that idea, insurance bonds owned by an individual or individuals are part of their estate like most other investments, regardless of how long you hold them.

  • LangtangLangtang Forumite
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    Langtang said:
    FIL transferred most assets (except house) from MIL to himself (POA) when she went in to care home, leaving enough to pay fees.


    Not sure he had the right to do that as the attorney must act in the donor's interests only, but that's water under the bridge and has no effect on the tax position.

    Question: As MIL passed away last (albeit by a short time), will the bond payout(s) form part of her estate, or will they be within the FIL's estate?

    His, as you say both were lives assured, and the (potentially illegal) gift was a transfer between spouses so it's not going to have any IHT consequences.

    Thanks for your comment, it’s appreciated you taking the time. When you say a chargeable event, do you mean CGT? I read somewhere recently that CGT would be payable on the profit on each bond (5 in total) My question would be, would this be on top of IHT?

    No, chargeable gains on insurance bonds are subject to income tax. A chargeable event arose on the second death. The assignment from her to him would not have been a chargeable event. The taxation of insurance bonds is very complicated and full of traps. If in any doubt see a solicitor, accountant or IFA.

    IHT will be levied on the value of the asset immediately before death, including any changes in the value caused by death. Which means you need to add on any increase to the death claim value (e.g. if the death claim value is 101% of the value of the units, you need to use 101%). My understanding is that you can't deduct the income tax due on the chargeable gain for IHT purposes (but not 100% certain on that one).

    Malthusian,
     Once again, thank you for your insight. I feel I may have mislead you. The 5 bonds have not changed in any way since their inception in 1999. They were always in both names, and have not been transferred from or to anyone, as I initially suggested. My apologies for that. What I meant by transferring assets was cash (minus 2 years care home fees, although only 20 months of fees were paid), and US shares from her to him. I should have been a lot clearer.

    Again apologies for the ignorance, but are you saying that the bonds will be subject to Income AND inheritance tax?

    I think my main point was to ascertain where all the bond's assets would lie with regards to IHT. MIL was basically left with 2 ISAs, c15k each) and 4 months of care home fees to her name (and part of the house) whilst my FIL had everything else in his name. With these bonds now paying out, I wondered if they would form part of my MIL's estate ( a good thing, seeing as she had little to use up her £325k allowance) as opposed to my FIL (a bad thing, as he will have used all of his allowance, and then some)

     
    It'll be alright in the end. If it's not alright, it's not the end....
  • xylophonexylophone Forumite
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    Have you had a look at the link  in my previous?
  • LangtangLangtang Forumite
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    Yes I have, thanks for posting it. I also looked at the link that keep_pedalling posted. Yours was (fairly) straightforward - for someone as naiive as me when it comes to this (a little knowledge and all that)

    Am I right in thinking, then, that the money from the bonds will form part of my MIL's estate, as she was the last to pass?
    It'll be alright in the end. If it's not alright, it's not the end....
  • Keep_pedallingKeep_pedalling Forumite
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    Have you spoken to the company holding the bonds?
  • LangtangLangtang Forumite
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    It is all in the hands of the solicitor at present, so no I haven’t. 
    It'll be alright in the end. If it's not alright, it's not the end....
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