Best way to cut inheritance tax without gifting?

Jeremy535897

tommydog40 said:

Jeremy535897 said:

I don't think a child has an insurable interest in a parent's life under English law. Mother would have to take out the policy herself and then assign the benefit (and the obligation to pay premia) to OP as soon as possible.

 As long as I give her the money to pay the premiums, I don't think she would have a problem with that.  But at the age of 75, don't you think the premiums would be prohibitive if I wanted enough money to offset any inheritance tax on her death?  It's statistically unlikely that she will live for another 10 years and on that basis, the insurance company have to safeguard against making a loss.  But maybe this is the best idea mooted so far.

I mentioned it a lot earlier in the thread, but only as a means for you to save up to pay at least part of the inheritance tax liability on your mother's death, as I assumed she would not want to pay the premia herself. It is purely an investment decision.

tommydog40

theoretica said:

But if you give her the money to pay the premiums it won't work - because it won't reduce the amount that is in her estate and subject to inheritance tax - it will just be you putting your money into a saving scheme and that is money that would never have been subject to inheritance tax.

So I would have to persuade her to put her own money into such a scheme, but I can't see that happening as her current investments are doing very well and she would expect a similar return from any other investments. 

elouise01582

Theoretica - you're correct that part of the strategy with a Whole of Life policy is that the premiums paid reduce the value of the Estate but that's far from the whole benefit.  The policy will have a sum assured and there is a choice as to whether there is an investment element. I have known of situations where the life assured does not want to pay the premiums any longer as they were elderly and on a fixed income - so the beneficiaries took over the paying of the premiums.  It's not ideal but can still work.

tommydog40

elouise01582 said:

Theoretica - you're correct that part of the strategy with a Whole of Life policy is that the premiums paid reduce the value of the Estate but that's far from the whole benefit.  The policy will have a sum assured and there is a choice as to whether there is an investment element. I have known of situations where the life assured does not want to pay the premiums any longer as they were elderly and on a fixed income - so the beneficiaries took over the paying of the premiums.  It's not ideal but can still work.

If there is an investment element, mother may be prepared to do this if it is comparable in performance to her existing investments.  Can she dump a few 100k into this from the start of the policy?  Also how does it work if she wants cash out of the policy that has been placed in trust before she dies?  

PennyForThem_2

tommydog40 said:

elouise01582 said:

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

I suppose a whole of life policy placed into trust would only have to be large enough to offset any likely inheritance tax bill.  But would the premiums not be exorbitant for a 75 year old?

I got 2 of these - and yes I can afford and yes they 'take' from money available for inheritance but the calculation needs to be made as to how long you pay WoL policies before the balance changes.  For me, one balances when I am 100+, the other probably not but I could cancel at any time.  As it has only been taken out to fund IHT if I gift enough and/or take other measures to mitigate IHT then could cancel.  

Its premiums depend on health though so how healthy is your mother?

TrikerJohn

I would strongly suggest that you try to convince your mother to seek the advice of a solicitor who specialises in estate planning. It will be expensive, but you'll save so much more in the long run. Most good solicitors will give you a 1-hr free consultation, so you should get a cost vs benefit comparison before committing. I'd suggest making an appointment and sending them an email beforehand, laying out all the basic information. The added complication of your mother's former husband's interest in some of her assets is another argument in favour of seeking professional guidance.

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.

elouise01582

Jeremy535897 said:

tommydog40 said:

Jeremy535897 said:

I don't think a child has an insurable interest in a parent's life under English law. Mother would have to take out the policy herself and then assign the benefit (and the obligation to pay premia) to OP as soon as possible.

 As long as I give her the money to pay the premiums, I don't think she would have a problem with that.  But at the age of 75, don't you think the premiums would be prohibitive if I wanted enough money to offset any inheritance tax on her death?  It's statistically unlikely that she will live for another 10 years and on that basis, the insurance company have to safeguard against making a loss.  But maybe this is the best idea mooted so far.

I mentioned it a lot earlier in the thread, but only as a means for you to save up to pay at least part of the inheritance tax liability on your mother's death, as I assumed she would not want to pay the premia herself. It is purely an investment decision.

I'm a bit upset about this Jeremy - Even if you did mention it a lot earlier in the thread it wasn't picked up on.  I am fed up of usually men taking credit for others ideas.  As my ADHD son would say - You've triggered me. Thanks for that.  Try and be humble sometimes - you might even learn to like it.

Jeremy535897

elouise01582 said:

Jeremy535897 said:

tommydog40 said:

Jeremy535897 said:

I don't think a child has an insurable interest in a parent's life under English law. Mother would have to take out the policy herself and then assign the benefit (and the obligation to pay premia) to OP as soon as possible.

 As long as I give her the money to pay the premiums, I don't think she would have a problem with that.  But at the age of 75, don't you think the premiums would be prohibitive if I wanted enough money to offset any inheritance tax on her death?  It's statistically unlikely that she will live for another 10 years and on that basis, the insurance company have to safeguard against making a loss.  But maybe this is the best idea mooted so far.

I mentioned it a lot earlier in the thread, but only as a means for you to save up to pay at least part of the inheritance tax liability on your mother's death, as I assumed she would not want to pay the premia herself. It is purely an investment decision.

I'm a bit upset about this Jeremy - Even if you did mention it a lot earlier in the thread it wasn't picked up on.  I am fed up of usually men taking credit for others ideas.  As my ADHD son would say - You've triggered me. Thanks for that.  Try and be humble sometimes - you might even learn to like it.

My apologies. I do not seek to take credit for others' ideas, and on looking back my reference was very general, merely referring to ways of funding inheritance tax liabilities.

Jeremy535897

I think elouise was suggesting using this idea:
https://www.ii.co.uk/analysis-commentary/whats-point-investment-bonds-beginners-guide-ii512585

I'm not sure if this still works (the loan trust section) as this dates back to 2018, but worth looking into.

A simple whole of life policy suffers from the problem that presumably mother would not wish to pay the premia, and they might be expensive. That is an investment decision for OP as to whether the payments are worth the lump sum payable on mother's death. Mother would have to take out the policy and assign it.

tommydog40

Jeremy535897 said:

I think elouise was suggesting using this idea:
https://www.ii.co.uk/analysis-commentary/whats-point-investment-bonds-beginners-guide-ii512585

I'm not sure if this still works (the loan trust section) as this dates back to 2018, but worth looking into.

Thank you for brining this to my attention, but does the mechanism simply remove bond growth from IHT and not capital?  This quote caught my eye:

"The bond is put in a trust that allows investors to access their original capital, retaining control, but growth in the bond is not included in their estate for IHT purposes."