Longest term mortgage and reduce IHT - ideas?

[Deleted User]

Im single so just one IHT allowance. My properties equity are already way over the IHT allowance ( leave to children - so I think thats £500k ? ) So any money I pay off my mortgage will just increase the equity even more and my two children ( estate heirs) will pay 40% IHT tax on those sums - so it seems like a bad idea to pay anymore off my main residential mortgage. 

Im 55 with guaranteed pensions ( already in payment and well cover affordability ) until I die. 

So with that in mind, what is the longest term possible to stretch to ? I only want a high street interest rate. Current LTV on home about 40%  if that. 

Also anyone else have any ideas how I can reduce the IHT that will be due? 

Billy_B_North

The best way is to spend your money.

Not paying off your mortgage achieves nothing, as unless you spend it the cash will still form part of your estate, and so still be taxed.

You can gift money to your children, and if you survive more than seven years after the gift then it isn’t part of your estate.

[Deleted User]

Billy_B_North said:

The best way is to spend your money.

Not paying off your mortgage achieves nothing, as unless you spend it the cash will still form part of your estate, and so still be taxed.

You can gift money to your children, and if you survive more than seven years after the gift then it isn’t part of your estate.

Hiya - yeah I already gift them both £600 each a month so they can reduce their own mortgages - Id rather be paying off their mortgages and benefitting from the 7 year taper rather than paying off mine. Id rather mine remains as high as it is, and I divert even more money to theirs. 

So I don’t want an interest only mortgage but one whose term is stretched so far, the capital repayments are less so I can given even more to sons 

MWT

Densol said:

 ... Id rather mine remains as high as it is, and I divert even more money to theirs. 

...So I don’t want an interest only mortgage but one whose term is stretched so far, the capital repayments are less so I can given even more to sons 

Why not an interest only mortgage?

That would seem to meet your needs rather well, as a RIO doesn't increase your equity, has no term limit, and takes the payments as low as possible?

In fact, subject to affordability you could even contemplate taking a RIO product and increasing the borrowing to provide the option of freeing up a larger amount of cash to help your sons now..

Well worth taking some professional advice though.

getmore4less

Be careful there is no 7 year taper on small gifts they just use up your nil rate band oldest first.
£600*2*12*7= £100,800  no taper relief and £100,800 of nil rate band used up, anything older than 7 years will drop off.

one option(probably not the best)rather than helping them pay their mortgage drip feeding them small gifts  get £100k+ more debt on your properties gift them £50k+ each to have a chance of it getting past 7 years, if over £325k get some taper relief.

You need some full multi generation IHT planning.

You could try to go for gifts from income if you keep decent records and have enough spare for any drip feed down

don't know if a letting business can be structured for Buisness asset relief



often the best strategy is assets down the chain income up the chain

That's how it worked in the old days with business assets, pass the business to the kids but have them pay for you to live.

there is the other issues when dealing with multi generation IHT is order of death you cannot assume the oldest will die first
if a lot involved sometimes skipping a generation can work better

[Deleted User]

getmore4less said:

Be careful there is no 7 year taper on small gifts they just use up your nil rate band oldest first.
£600*2*12*7= £100,800  no taper relief and £100,800 of nil rate band used up, anything older than 7 years will drop off.

one option(probably not the best)rather than helping them pay their mortgage drip feeding them small gifts  get £100k+ more debt on your properties gift them £50k+ each to have a chance of it getting past 7 years, if over £325k get some taper relief.

You need some full multi generation IHT planning.

You could try to go for gifts from income if you keep decent records and have enough spare for any drip feed down

don't know if a letting business can be structured for Buisness asset relief



often the best strategy is assets down the chain income up the chain

That's how it worked in the old days with business assets, pass the business to the kids but have them pay for you to live.

there is the other issues when dealing with multi generation IHT is order of death you cannot assume the oldest will die first
if a lot involved sometimes skipping a generation can work better

Many thanks for this 
yes my money I pay them every month is from my income. Im thinking of increasing to £1000 each a month. So what I was worried about was each £1000 would fall into my estate, but it sounds like these monthly gifts are just that free of tax and not counted. 

Im 55 and my sons are 21 and 24 so hopefully I can pay them a lot over years if I hang on ! Lol 

[Deleted User]

MWT said:

Densol said:

 ... Id rather mine remains as high as it is, and I divert even more money to theirs. 

...So I don’t want an interest only mortgage but one whose term is stretched so far, the capital repayments are less so I can given even more to sons 

Why not an interest only mortgage?

That would seem to meet your needs rather well, as a RIO doesn't increase your equity, has no term limit, and takes the payments as low as possible?

In fact, subject to affordability you could even contemplate taking a RIO product and increasing the borrowing to provide the option of freeing up a larger amount of cash to help your sons now..

Well worth taking some professional advice though.

Many thanks for this. Well I read you need to earn more than £100k to get an interest only and also interest rates may be higher hence me thinking a longest stretch possible at the lowest rate. 

This is my conundrum. The majority of my income - around 90% of it per month is tax free, so with my rental tax credit and my personal tax allowance my “net” is high (£8k per month ) but not that much less than my gross. Its complicated lol - so I don't quite go past the £100k needed if that makes sense and some of my income is rental. 

getmore4less

Densol said:

getmore4less said:

Be careful there is no 7 year taper on small gifts they just use up your nil rate band oldest first.
£600*2*12*7= £100,800  no taper relief and £100,800 of nil rate band used up, anything older than 7 years will drop off.

one option(probably not the best)rather than helping them pay their mortgage drip feeding them small gifts  get £100k+ more debt on your properties gift them £50k+ each to have a chance of it getting past 7 years, if over £325k get some taper relief.

You need some full multi generation IHT planning.

You could try to go for gifts from income if you keep decent records and have enough spare for any drip feed down

don't know if a letting business can be structured for Buisness asset relief



often the best strategy is assets down the chain income up the chain

That's how it worked in the old days with business assets, pass the business to the kids but have them pay for you to live.

there is the other issues when dealing with multi generation IHT is order of death you cannot assume the oldest will die first
if a lot involved sometimes skipping a generation can work better

Many thanks for this 
yes my money I pay them every month is from my income. Im thinking of increasing to £1000 each a month. So what I was worried about was each £1000 would fall into my estate, but it sounds like these monthly gifts are just that free of tax and not counted. 

Im 55 and my sons are 21 and 24 so hopefully I can pay them a lot over years if I hang on ! Lol 

Without proper records they don't fall out of your estate for 7 years.

Gifts from income have rules you need to follow.

clueless_but_curious

As above says, gifts out of regular income can result in a charge if you are gifting more than your living expenditure. 
You should find a tax adviser that is experienced with IHT, Trusts and Estates planning.  They will understand how to maximise the post-tax and post-interest cash in the family and estate.  Remember that IHT is 100% avoidable for everybody if planned with an open mind.  It sounds like you already have the open mind which is usually 95% of the battle

[Deleted User]

clueless_but_curious said:

As above says, gifts out of regular income can result in a charge if you are gifting more than your living expenditure. 
You should find a tax adviser that is experienced with IHT, Trusts and Estates planning.  They will understand how to maximise the post-tax and post-interest cash in the family and estate.  Remember that IHT is 100% avoidable for everybody if planned with an open mind.  It sounds like you already have the open mind which is usually 95% of the battle

Cheers fir this. Ive just googled it. 

I have £4,488 left after all bills paid. Id have more if i can get my mortgage payments reduced to almost interest only. 

I think we’d be able to justify £2,000 a month as Id still have £2.5k left - so clearly surplus. I always keep a spreadsheet 
I note I’ll need to keep records, it needs to be regular and needs to always be surplus. 

Excellent advice from you and Getmore4less - thank you 

MWT

Densol said:

MWT said:

Densol said:

 ... Id rather mine remains as high as it is, and I divert even more money to theirs. 

...So I don’t want an interest only mortgage but one whose term is stretched so far, the capital repayments are less so I can given even more to sons 

Why not an interest only mortgage?

That would seem to meet your needs rather well, as a RIO doesn't increase your equity, has no term limit, and takes the payments as low as possible?

In fact, subject to affordability you could even contemplate taking a RIO product and increasing the borrowing to provide the option of freeing up a larger amount of cash to help your sons now..

Well worth taking some professional advice though.

Many thanks for this. Well I read you need to earn more than £100k to get an interest only and also interest rates may be higher hence me thinking a longest stretch possible at the lowest rate.

A Retirement Interest Only (RIO) product is different...

As the product is based on the fact that you will not be obliged to repay the loan until you die or move into long term care, it is not subject to the same restrictions as someone younger would face when trying to obtain an interest only mortgage for a fixed term.

This still doesn't mean it is the right product for you, and you certainly need to take advice, but keep it in mind when you do talk about this matter with an advisor and ask if it might be part of your solution...