Best way to cut inheritance tax without gifting?

tommydog40

TrikerJohn said:

My late father-in-law was reluctant to entertain any estate planning measures, as he was convinced that the government would 'change the rules' and negate any arrangements. When he passed away, it looked like we would become liable for inheritance tax upon the death of my mother-in-law, but our (excellent) solicitor was able to put arrangements in place to avoid this by setting up a trust and changing my father-in-law's will - something I certainly didn't know was possible.

I had no idea anything could be done after the death.  If that is the case, maybe I should not be so worried?  Who is the excellent solicitor you refer to?

I was thinking of going to a specialist tax accountant who is also experienced with offshore accounts.  I was speaking to a tax specialist at Grant Thornton and they wanted 8k for a written opinion.  It's not the sort of money I have kicking around at the moment, so it will have to wait a while until I can afford it.

Jeremy535897

That is correct. The only way an estate can be reduced for inheritance tax is by lifetime gifts more than seven years before death. Anything else is very much second best, but that is the constraint.

Keep_pedalling

tommydog40 said:

TrikerJohn said:

My late father-in-law was reluctant to entertain any estate planning measures, as he was convinced that the government would 'change the rules' and negate any arrangements. When he passed away, it looked like we would become liable for inheritance tax upon the death of my mother-in-law, but our (excellent) solicitor was able to put arrangements in place to avoid this by setting up a trust and changing my father-in-law's will - something I certainly didn't know was possible.

I had no idea anything could be done after the death.  If that is the case, maybe I should not be so worried?  Who is the excellent solicitor you refer to?

In most cases there is BA you can do after death. If someone died and left a sum exceeding their NRB to a child but there was a surviving spouse, then the child could make a deed of variation diverting the taxable part of their inheritance to the spouse, or to a charity or political party. 

In your case there the only way of avoiding IHT would be the charity or political party route, but that would mean you end up getting a lot less your self. 

tommydog40

Keep_pedalling said:

In your case there the only way of avoiding IHT would be the charity or political party route, but that would mean you end up getting a lot less your self. 

That's why I enquired about the marriage route earlier.  If my mother were to die and it made financial sense then I could marry my long term partner.  Although she is a Dutch national (non uk domiciled for tax) and we would continue to live in separate countries, so not sure if this is a problem?

theoretica

tommydog40 said:

Keep_pedalling said:

In your case there the only way of avoiding IHT would be the charity or political party route, but that would mean you end up getting a lot less your self. 

That's why I enquired about the marriage route earlier.  If my mother were to die and it made financial sense then I could marry my long term partner.  Although she is a Dutch national (non uk domiciled for tax) and we would continue to live in separate countries, so not sure if this is a problem?

It is your mother's spouse who could inherit from her without inheritance tax. 

Your marriage (or not) will only affect inheritance tax when you die - which you may want to think about and plan for, but is not what I think you are asking about.

tommydog40

Jeremy535897 said:

She is subject to inheritance tax on her worldwide estate, so the location of the offshore bonds is irrelevant.

I have been looking into this further and it seems that Isle of Man offshore bonds may have some advantage in the event that I become non UK domiciled.  I think this would mean I could inherit the Canada Life Isle of Man Bond (400k) tax free.  The below provides some useful information on this:

https://library.aviva.com/tridion/documents/view/ximnondom.pdf

She may be willing to move more assets offshore, which would help even further.  There is nothing that can be done about her 500k house, but the offshore assets may be useful if I become non UK domiciled.  This would help to cut any tax bill greatly.  I currently have a flexible work opportunity that I could take advantage of, and I could purchase property cheaply in some of these countries from the limited savings that I currently have.  I believe I would have to have the intention to settle in a country permanently and would have to be there for at least 3 years before I could claim non UK domiciled status. 

Doing some research, I believe these European countries are particularly favourable for being domiciled 

Luxembourg
Estonia

Portugal

Serbia

Slovakia

My father was Italian, so I am eligible to apply for Italian citizenship, which should make living in the EU straightforward.  Not sure what people think?

macman

If your mother is not prepared to gift you capital sums, would she be willing to gift you regular sums out of her income? If she is really living on her state pension, then she can easily gift you £2k per month from her £30K private pension. 
If so, that is £24K a year less that will be added to the value of the estate for IHT purposes, or £9.6k pa, and the 7 year rule does not apply as long as the gift is made from surplus income.
It will also give you a reasonable income.

Jeremy535897

Remember that your domicile is only relevant for inheritance tax liabilities on assets you own (when you die). Your mother's worldwide estate is liable to inheritance tax on her death unless she loses her UK domicile.

westy22

macman said:

If your mother is not prepared to gift you capital sums, would she be willing to gift you regular sums out of her income? If she is really living on her state pension, then she can easily gift you £2k per month from her £30K private pension. 
If so, that is £24K a year less that will be added to the value of the estate for IHT purposes, or £4.8k pa, and the 7 year rule does not apply as long as the gift is made from surplus income.
It will also give you a reasonable income.

Should that not be £9.6k pa as IHT is 40%?

Keep_pedalling

macman said:

If your mother is not prepared to gift you capital sums, would she be willing to gift you regular sums out of her income? If she is really living on her state pension, then she can easily gift you £2k per month from her £30K private pension. 
If so, that is £24K a year less that will be added to the value of the estate for IHT purposes, or £4.8k pa, and the 7 year rule does not apply as long as the gift is made from surplus income.
It will also give you a reasonable income.

If you go back through this long thread, you will see that the OP’s mother is the very definition of a miser. She wants to give nothing away and wants to spend as little as possible.

I think the OP just has to except that HMRC are going to take a good chunk of his inheritance rather then come up with more madcap schemes that won’t work. He will still be inheriting a very large sum of money so we don’t really have to be sorry for him.