Best way to cut inheritance tax without gifting?

tommydog40

My 75 year old mother wants to cut inheritance tax to myself. I am her only child, single, and the sole recipient of her will. My mother is not willing to gift anything while she is still alive, so I guess we would be looking at some sort of trust?

Her estate is broadly as follows with no debts or liabilities:

1) Mortgage free property which is her sole residence – 500k

2) Canada Life offshore bond (premiere account Alpha isle of Man)- 400k

3) UK Share portfolio – 150k

4) Cash – 130k

5) Premium bonds – 50k

6) Private Pension – 30k

7) Car – 20k

I expect many of these assets to grow as the years go on, as my mother leads a very modest life, mainly living off her state pension. As an example, she has only just purchased a new car after having the last one for nearly 27 years.

I also worry that upon her death, I will be forced to take out large loans (if I can even get loans, as I have no credit history, coupled with a low income and no savings or property of my own). From my understanding HMRC don’t normally release assets until an inheritance bill is paid? Aside from the estate tax planning, is there anything I can do to help my situation upon her death, like an insurance policy?

[Deleted User]

It's possible to pay IHT after assets have been released, as many people find themselves in this position. 

Tell her to enjoy her life and you can take care of the estate at the time.

Jeremy535897

The first question to ask is whether she will have available to her the nil rate bands of her husband, presumably your father? Did he leave everything to her? If so, her nil rate band could be £1 million.

Her assets are mostly realised easily, so I don't see an issue with paying inheritance tax.

tommydog40

Jeremy535897 said:

The first question to ask is whether she will have available to her the nil rate bands of her husband, presumably your father? Did he leave everything to her? If so, her nil rate band could be £1 million.

Her assets are mostly realised easily, so I don't see an issue with paying inheritance tax.

She divorced her husband (not my father) about 10 years ago.  The Canada Life offshore Bond was a life assured with her ex husband.  She received 50% of this bond as settlement.   For some reason she could not take his name off her 50% share even after divorce.  Her ex husband has now just died, so not sure if this will have any implications?

Do you think it is worth looking at some sort of trust for the estate to minimise inheritance tax for myself?  Of course we would seek professional advice before doing this, but it's something I would have to pay for and funds are very tight for myself at the moment. Therefore, I don't want to stump up the cash for advice (which is not cheap) if the idea is a futile one.  Or maybe there are better ways to minimise inheritance tax other than a trust or gifting?

lincroft1710

As your mother has £130K cash, then if she wants to minimise your IHT bill, would she not lend/gift you the relatively small amount to pay for professional advice?

tommydog40

lincroft1710 said:

As your mother has £130K cash, then if she wants to minimise your IHT bill, would she not lend/gift you the relatively small amount to pay for professional advice?

She would be very reluctant to use any money to pay for advice.  She pretty much just lives off her state pension and is paranoid about spending any money.  She tends to shop in charity shops for clothes and refuses to even buy a slice of cake in a cafe because she thinks it's too expensive. 

csgohan4

tommydog40 said:

lincroft1710 said:

As your mother has £130K cash, then if she wants to minimise your IHT bill, would she not lend/gift you the relatively small amount to pay for professional advice?

She would be very reluctant to use any money to pay for advice.  She pretty much just lives off her state pension and is paranoid about spending any money.  She tends to shop in charity shops for clothes and refuses to even buy a slice of cake in a cafe because she thinks it's too expensive. 

there is only so much you can get from internet strangers. But fair play to being careful with her money. But her money her choice

Sea_Shell

I realise that it is all "her money, her choice", but it seems quite sad that she seems happy to cut off her (your) nose to spite her face, when a large IHT bill is almost certain in the future, and you sound like you're struggling financially, and she has more than enough for her needs it would seem.**

Do you have an otherwise close/good relationship?   

Does she realise that every extra £1 she clings onto*, she will end up passing only 60p on to you.    Would she rather the government get the tax, than see you have some benefit from her wealth whilst she is alive?   Even if it was only the £3000 pa gift allowance?

* even if she did have an IHT nil rate band/allowance of £1,000,000, that could still leave £250,000 subject to IHT at 40%.  A bill of £100,000.    And like you say, that figure has the potential to grow substantially over the next 10+ years.

** I suppose she may be thinking that she may one day need care, at £1500 per week (£78,000pa) so her £1.25M won't last that long in that scenario. (16 years?)


At the end of the day, only you know your Mum.   

lincroft1710

Without professional advice, there is a probability that you could pay more IHT than necessary. So your mum's reluctance to invest a modest amount to obtain proper advice could cost far far more in IHT. 

Jeremy535897

It looks likely that she will have a nil rate band of £500,000 including the RNRB on the home. That means an inheritance tax bill of over £300,000. Is she aware of this? The only way to reduce this bill is for her to make lifetime gifts, or remarry (which sounds most unlikely). Any other planning can only mitigate future inheritance tax bills or help fund the inheritance tax bill.

tommydog40

Jeremy535897 said:

The only way to reduce this bill is for her to make lifetime gifts, or remarry (which sounds most unlikely). Any other planning can only mitigate future inheritance tax bills or help fund the inheritance tax bill.

Could she not put assets into a trust, where she is the sole beneficiary and upon her death I become the sole beneficiary of the trust? 

Secondly, am I right in thinking that moving assets into a pension is a no go, as from age 75 you no longer qualify for tax relief on contributions?  But does this apply to inheritance tax relief as well?

Thirdly does anyone know what the score is with Canada Life offshore bonds (Isle of Man) for inheritance tax purposes?  Does it only become taxable at the point at which money is transferred to this county?  At the moment she does not pay any tax from the bond as she never surrenders anything. Could one just leave the bond there after a death and not incur any immediate tax bill?  From my research, I think the bonds can even incur capital gains tax, but there must be some tax advantages otherwise nobody would invest in such products.