Best way to cut inheritance tax without gifting?

Mojisola

tommydog40 said:

To be fair it surprises me that if we have inheritance tax, they even allow the loophole about gifting in a lifetime not being subject to inheritance tax.

Hypothetically a wealthy individual could gift everything in his lifetime and his estate would pay no inheritance tax - how exactly does that help HMRC?

If parliament really wanted they could subject any gift in a persons lifetime to a large tax penalty.

Secondly, it really surprises me how a party like the conservative party keep inheritance tax. Many people in the conservative party hold considerable wealth, and I can't imagine inheritance tax is popular with them.

It isn't which is why there are loopholes that allow rich people to get round paying it.

Thrugelmir

Murphy_The_Cat said:

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.

History is littered with stories of passed down wealth that simply gets wasted by one generation.

I noticed with both my late grandparents and parents who all lived to ripe old ages. What you accumulate in your working life has to last you until the day you leave this earth. As a consequence there's a natural reticence to spend.  

Even with the IHT there's still a substantial inheritance potentially on it's way. A life changing amount. 

Jeremy535897

tommydog40 said:

Jeremy535897 said:

Basically what you are trying to do is to make it look as if a joint account in the names of you and your mother originated from your funds, not your mother's, to take advantage of HMRC's assumption that the joint account belongs to one of the holders (you) if that person provided the funds to it. The trouble is that, no matter how many transactions you go through, if HMRC are made aware of their existence, the idea fails, because the origin of the funds is mother, and if they are not made aware, you would be concealing the source of the funds. .

From an hypothetical point of view, I guess it would be easier if a person did this with their own savings. If they had their own savings in bank account A, they could then transfer 100k of savings from bank account A into a joint account with their mother. A few months later, mother could decide to "gift the person 100k from mothers personal account to the persons bank account B. This would ensure complete separation of any of the funds making it into the joint bank account.

To be fair it surprises me that if we have inheritance tax, they even allow the loophole about gifting in a lifetime not being subject to inheritance tax. Hypothetically a wealthy individual could gift everything in his lifetime and his estate would pay no inheritance tax - how exactly does that help HMRC? If parliament really wanted they could subject any gift in a persons lifetime to a large tax penalty. Secondly, it really surprises me how a party like the conservative party keep inheritance tax. Many people in the conservative party hold considerable wealth, and I can't imagine inheritance tax is popular with them. Not all countries have inheritance tax.

If you ignore the complication you face, that mother does not want to make gifts in her lifetime, all mother has to do is make a gift of £100,000, and rely on the hope that if she needed the money back at some time, the donee would help her out. That is a PET by mother, but your proposal is also a PET by mother, with an attempt to reserve a benefit, but as the other signatory could empty the account at any time, I'm not sure how much more it gives her than just giving away £100,000 in the first place.

Estate duty, which was similar to inheritance tax, was replaced by Labour with capital transfer tax in 1974, and that did tax most lifetime transfers. It was changed in 1986 by the Conservatives, when it basically became estate duty again, but with some differences. CTT avoided the complexity of gifts with reservation, and as a result the well advised could pay modest amounts of tax in lifetime, and then avoid larger liabilities on death, while still being able to benefit from the assets given away (which made them much more comfortable about giving assets away). CTT was a silly tax that cost more to collect than it raised, and hit only those with small or illiquid estates. IHT at least does not hurt those with modest estates (under £1 million for a married couple), and makes it a little harder for the very wealthy to avoid it (assuming they are UK domiciled).

Worldwide, there are a lot of socialists with very large amounts of wealth, who are just as adept at avoiding these taxes as conservatives.

getmore4less

Plenty of people do give away much of their wealth during their lifetimes.

They just hang onto what they need.

Looks like you mum is not going to be one of those.

The traditional way to retain wealth was move assets to the younger generations and pass income up the chain.

Emmia

How do you know that you're definitely the beneficiary of this largess in due course? Wills are easily rewritten (as long as your Mum remains of sound mind).

Your Mum thinks people shouldn't rely on inheritance or gifts, and this seems to be a blocker on the obvious IHT avoidance/mitigation strategies that could be employed..  On that basis is there a possibility it may go to Battersea dogs home (or another charity) rather than you? 

Sea_Shell

Emmia said:

How do you know that you're definitely the beneficiary of this largess in due course? Wills are easily rewritten (as long as your Mum remains of sound mind).

Your Mum thinks people shouldn't rely on inheritance or gifts, and this seems to be a blocker on the obvious IHT avoidance/mitigation strategies that could be employed..  On that basis is there a possibility it may go to Battersea dogs home (or another charity) rather than you? 

There does appear to be quite a few chickens being counted!

About 950,000

It could be more, but the fox will take their share!

tommydog40

Jeremy535897 said:

CTT was a silly tax that cost more to collect than it raised, and hit only those with small or illiquid estates. IHT at least does not hurt those with modest estates (under £1 million for a married couple), and makes it a little harder for the very wealthy to avoid it (assuming they are UK domiciled).

I really can't believe it would be that difficult to bring in a tax that was profitable for HMRC that clamps down on gifts.  If they simply said that any gift over X amount in a year (can be culminative) is subject to 40% tax, then I think HMRC would do rather better than the current situation.  The fact that people can give millions away in gifts per year in a persons lifetime can't be great for HMRC.

Secondly, how does the 1 million married couples allowance work?  I have a long term partner of 20 years (Dutch national), but we have never lived together and don't mix finances.  To benefit from this would there be a requirement to marry before my mother died, or can marriage take place up to the date probate is finalised?  As a married couple what would happen if we have separate bank accounts and live at different address (or even different country), could 100% of the inheritance be paid just into my bank account and I still benefit from the married couples allowance of 1 million?

Keep_pedalling

tommydog40 said:

Jeremy535897 said:

CTT was a silly tax that cost more to collect than it raised, and hit only those with small or illiquid estates. IHT at least does not hurt those with modest estates (under £1 million for a married couple), and makes it a little harder for the very wealthy to avoid it (assuming they are UK domiciled).

I really can't believe it would be that difficult to bring in a tax that was profitable for HMRC that clamps down on gifts.  If they simply said that any gift over X amount in a year (can be culminative) is subject to 40% tax, then I think HMRC would do rather better than the current situation.  The fact that people can give millions away in gifts per year in a persons lifetime can't be great for HMRC.

Secondly, how does the 1 million married couples allowance work?  I have a long term partner of 20 years (Dutch national), but we have never lived together and don't mix finances.  To benefit from this would there be a requirement to marry before my mother died, or can marriage take place up to the date probate is finalised?  As a married couple what would happen if we have separate bank accounts and live at different address (or even different country), could 100% of the inheritance be paid just into my bank account and I still benefit from the married couples allowance of 1 million?

To be able to pass on £1M tax free, a couple need to be married or in a civil partnership and own a home worth £350k or more. Your marital status make no difference to the tax your mother’s estate will pay, but will make a big difference to yours. 

If your plan is to leave your estate to your partner, it would not qualify as an exempt estate so anything over £325k would be subject to IHT. If you have children you can take advantage of the residential NRB and pass £500k to them tax free.

Jeremy535897

Anyone who can afford to give millions away each year would avoid a punitive gift tax simply by not living here. This has always been the argument for allowing the ultra wealthy to live in London virtually tax free. At least they spend some money here, rather than living somewhere else. I'm not saying I agree with it, but as with most taxes, the more you increase them, the more you hurt those with modest amounts of assets who have worked hard to save for them.

elouise01582

Have you considered a Whole of Life policy placed in trust?