Best way to cut inheritance tax without gifting?

Sea_Shell

Just as a side issue...with so much money at stake...

OP, do you have a will, and if so who are your beneficiaries?

What if you happen to predecease Mum? Who then inherits her estate?

If you don't have a will, who would inherit under intestacy if your parents have passed?    Aunts, Uncles, Cousins?


ETA - is your dad still alive?

Jeremy535897

Two issues have been raised:

Can OP be given cash money and then use this money to pay mother's expenses without there being a reservation of benefit? Probably, unless there was some legally binding agreement, and the pre owned asset rules would need consideration, depending on what was paid for.

Can OP become a joint owner of a bank account with mother? Yes, and so long as it was not just a bare trust arrangement, it should transfer half the account to OP. Other advantages include that it is much easier for son to deal with mother's expenses, but (if it is relevant) OP's and mother's credit status become linked.

Both the above would involve mother making a PET.

theoretica

The other issue is that of course no-one likes paying tax, but concentrating on how much you will get - a sizeable 6 figure sum - may be better for your contentment than thinking mostly about the portion you won't get.

Murphy_The_Cat

theoretica said:

The other issue is that of course no-one likes paying tax, but concentrating on how much you will get - a sizeable 6 figure sum - may be better for your contentment than thinking mostly about the portion you won't get.

Which is one way of looking at a bonfire of £20 notes that could have come in your direction, pre-ignited, if the current owner of the £20 note could have seen the wood for the trees.

Murphy_The_Cat

theoretica said:

The other issue is that of course no-one likes paying tax,

aka, needlessly wasting many, many thousands of pounds tax, rather than keeping it within the family.

tommydog40

Jeremy535897 said:

Two issues have been raised:

Can OP be given cash money and then use this money to pay mother's expenses without there being a reservation of benefit? Probably, unless there was some legally binding agreement, and the pre owned asset rules would need consideration, depending on what was paid for.

Can OP become a joint owner of a bank account with mother? Yes, and so long as it was not just a bare trust arrangement, it should transfer half the account to OP. Other advantages include that it is much easier for son to deal with mother's expenses, but (if it is relevant) OP's and mother's credit status become linked.

Both the above would involve mother making a PET.

I can't see what benefit a joint account would have in terms of inheritance tax.  This is taken from a solicitors website and applies to joint accounts that are not between married couples:

'HMRC will normally regard each account holder as beneficially entitled to the proportion of the account attributable to their contributions. So, if the deceased provided all the money, the whole amount will be subject to inheritance tax on his death'

I wonder if any of these schemes would work:

a) mother "gifts" me money and I use that money to buy a % of equity in her house at the market rate. I can't see this being a reserved benefit if one purchases equity at the market rate, as hypothetically speaking an individual could use that "gift" any way he wanted and if he choses to buy equity in his mothers house then he is free to do so.

b) mother "gifts" me money and I decide to loan her money to the same value.  Interest could be charged to reflect market rates for current accounts.  Once she pays me interest I could then "gift" her that same value in interest that she has paid me, but I would "gift" this from another pot of money in another account.  If an arrangement is setup like this, I can't see the reserved benefit rules coming into play particularly if she is paying interest equivalent to market rates. 

Would any of these schemes have legs?

Jeremy535897

That's why I said it cannot just be a bare trust arrangement. You should be able to override HMRC's assumption by evidencing an intention to gift half at the time the account is made joint. But mother would have to do that.

a) is caught by the pre owned asset arrangements, as presumably mother would not be paying you rent in respect of the share you own, so she would either have to pay income tax on the value of the benefit, or accept the whole house remains in her estate
b) would not work as the debt would not be deductible for inheritance tax purposes, at least in my opinion

Keep_pedalling

Brie said:

tommydog40 said:

Just one idea, if I could miraculously persuade her to "gift" me some funds in my name, on provision that I don't deplete any of these funds in her lifetime (I would setup a different bank account for this).  Would I then be free to "gift" her funds from this account in my name to pay all her bills, house repairs etc?  Or would this be a gift with reserved benefit?  An alternative may be to leave these funds in tact in this account and use my other bank account where my wages are paid into to pay her bills, house repairs etc.  That way it would not be her money that I am gifting to her, so can't see it would fall under the reserved benefit rules. 

Why not get her to set up joint accounts with you to contain the full £130k and any other cash you say she has.  She would, while she remained capable, have full control but it would mean that if you need to enact the POA then you would have fund easily available to pay for her care etc.  And care cost are inevitable unless she is amazingly lucky and lives another 20 years without any health issues whatsoever and then dies suddenly in a blaze of glory.  This would (so I've been told) mean that half the balance would be considered yours and so upon her death her half for tax purposes would be only £65k.  This may be subject to the 7 year rule again.

Likewise - I didn't see anything about whether you live with her or your age.  But again, if she needs care, the house will need to be sold to pay for it - unless you are also living there and are at least 60 (not impossible but unlikely if she's a mere 75 currently).  Again there may be some understanding that your share in the house increases each year.  

AND - do you just have a financial POA or do you also have one to deal with the medical side of it as well?
I

Brie said:

tommydog40 said:

Just one idea, if I could miraculously persuade her to "gift" me some funds in my name, on provision that I don't deplete any of these funds in her lifetime (I would setup a different bank account for this).  Would I then be free to "gift" her funds from this account in my name to pay all her bills, house repairs etc?  Or would this be a gift with reserved benefit?  An alternative may be to leave these funds in tact in this account and use my other bank account where my wages are paid into to pay her bills, house repairs etc.  That way it would not be her money that I am gifting to her, so can't see it would fall under the reserved benefit rules. 

Why not get her to set up joint accounts with you to contain the full £130k and any other cash you say she has.  She would, while she remained capable, have full control but it would mean that if you need to enact the POA then you would have fund easily available to pay for her care etc.  And care cost are inevitable unless she is amazingly lucky and lives another 20 years without any health issues whatsoever and then dies suddenly in a blaze of glory.  This would (so I've been told) mean that half the balance would be considered yours and so upon her death her half for tax purposes would be only £65k.  This may be subject to the 7 year rule again.

Likewise - I didn't see anything about whether you live with her or your age.  But again, if she needs care, the house will need to be sold to pay for it - unless you are also living there and are at least 60 (not impossible but unlikely if she's a mere 75 currently).  Again there may be some understanding that your share in the house increases each year.  

AND - do you just have a financial POA or do you also have one to deal with the medical side of it as well?

Actually most people do not end up in care, and the OPs mother has sufficient funds to pay for a live in career if required, not that she would see it as money well spent.

tommydog40

Jeremy535897 said:

That's why I said it cannot just be a bare trust arrangement. You should be able to override HMRC's assumption by evidencing an intention to gift half at the time the account is made joint. But mother would have to do that.

So presumably something like this would work:

a) Mum makes a written declaration saying I am gifting you X amount of funds and transfers the funds to my personal account
b) Once the "gift" has been transferred to my personal account, it would then legally become mine to do as I wish with.
c) I would then setup a joint account with mum and deposit this gift into the joint account from my personal account.
D) In the event that mum dies before me, the money in the joint account would not be subject to inheritance tax, as it would have been me who  provided all the contributions to the joint account, as I held this money in my own name before it entered a joint account.  

"HMRC will normally regard each account holder as beneficially entitled to the proportion of the account attributable to their contributions. So, if the deceased provided all the money, the whole amount will be subject to inheritance tax on his death"

Jeremy535897

The concern I would have is that, in reality, your mother is the real provider of the money, but it might be better than doing nothing. You would need to take advice on it.