I.H.T. 4 September 2022 at 4:58PM edited 5 September 2022 at 2:10PM in Deaths, funerals & probate 7 replies 411 views

Chris_Tibs

We would appreciate confirmation of our understanding described below, please, and would welcome any input to correct any misunderstanding:

 

1         We have left reciprocal wills, leaving our entire estate to each other on the first death.  Thereafter, we have left our family home to our daughter/step-daughter, which will increase our joint tax-free allowance to £1million

2         We understand that:

·         Cash or other gifts would not be included in the estate if we both lived for another 7 years.

·         as we do not plan to gift a total of £1million (the tax-free allowance) before our deaths, there would be no tax benefit (taper relief) in early gifts to anyone (unless we both live a further 7 years).

Is there a special form (evidence/signatures) to be used to certify cash (or other) gifts to anyone?

3         10% of our estate is left to charity, as we understand this is tax free.  Is the 10% to charity calculated on the total estate value, or after deduction of allowances?

4         Because we’ve left 10% of our estate to charity, this reduces our IHT to 36% instead of 40%

5         As well as a number of rental properties, we have a relatively small value of shares/unit trusts, but a large amount of cash in low-rate bank accounts.

6         We’ve never really trusted our ability to deal in shares. If we were aware of investment (shares? / unit trusts?) in properties (preferably domestic), we’d be happy to sink some cash into that, to make better use of the money.  Can anyone point us in the right direction please?

 

We’d be most interested to read your feedback, and thank you in advance.

Brie

I think lots of people would caution about leaving a percentage to charities particularly if the estate is fairly large.  It will be in the charities' interest to ensure there is a maximum return which may cause issues about selling properties.  Unless of course you have ring fenced this to simply what is in cash at the time of the second death.  

Choirgrl

Chris_Tibs said:

2         We understand that:

·         Cash or other gifts would not be included in the estate if we both lived for another 7 years.

·         as we do not plan to gift a total of £1million (the tax-free allowance) before our deaths, there would be no tax benefit (taper relief) in early gifts to anyone (unless we both live a further 7 years).

Is there a special form (evidence/signatures) to be used to certify cash (or other) gifts to anyone?

I’m a bit confused by what you mean here, so apologies if I’ve misunderstood something.

As you say, the first £1m of your Estate will not be subject to IHT. The potential tax benefit of gifts before your death would apply if your Estate totals more than this, but you don’t have to give away £1m+ to benefit from it.

 To illustrate ( in the interest of simplicity I’m ignoring the 10% of the estate to charity):

Let’s say that right now your Estate is likely to total £1.5m. Before death, you give each of your daughters £200k, and as a result your Estate  totals £1.1m at second death, which is split between your daughters. The first £1m of that will not be subject to IHT. The remaining £100k will be. The tax due on the £400k you gave them before death will depend on how long ago it was - more than 7 years and there’ll be none, less than 7 years and there’ll be taper relief so it is only due on a portion. 

There’s no specified form of evidence needed re gifts - bank records show what was given when - but you could keep a simple record and store it along with your Wills.

Albermarle

 As well as a number of rental properties, we have a relatively small value of shares/unit trusts, but a large amount of cash in low-rate bank accounts.6         We’ve never really trusted our ability to deal in shares. If we were aware of investment (shares? / unit trusts?) in properties (preferably domestic), we’d be happy to sink some cash into that, to make better use of the money.  Can anyone point us in the right direction please?

As you have major investments in properties already, it would not make sense to then make put money into other investments based on property. You need to diversify the risk .

Not many investors actually deal in shares as such. Most are invested in funds that hold large numbers of shares and other financial things . You put your money in and then do nothing but sit tight for a few years.

A large amount in cash is not usually a great strategy going forward as it gets ravaged by inflation.

Ciprico

Choirgrl said:

Chris_Tibs said:

2         We understand that:

·         Cash or other gifts would not be included in the estate if we both lived for another 7 years.

·         as we do not plan to gift a total of £1million (the tax-free allowance) before our deaths, there would be no tax benefit (taper relief) in early gifts to anyone (unless we both live a further 7 years).

Is there a special form (evidence/signatures) to be used to certify cash (or other) gifts to anyone?

I’m a bit confused by what you mean here, so apologies if I’ve misunderstood something.

As you say, the first £1m of your Estate will not be subject to IHT. The potential tax benefit of gifts before your death would apply if your Estate totals more than this, but you don’t have to give away £1m+ to benefit from it.

 To illustrate ( in the interest of simplicity I’m ignoring the 10% of the estate to charity):

Let’s say that right now your Estate is likely to total £1.5m. Before death, you give each of your daughters £200k, and as a result your Estate  totals £1.1m at second death, which is split between your daughters. The first £1m of that will not be subject to IHT. The remaining £100k will be. The tax due on the £400k you gave them before death will depend on howo it was - more than 7 years and there’ll be none, less than 7 years and there’ll be taper relief so it is only due on a portion. 

There’s no specified form of evidence needed re gifts - bank records show what was given when - but you could keep a simple record and store it along with your Wills.

The taper does not work like this.  You have to have gifted your full iht allowance before it comes into effect.

Chris_Tibs

Brie said:

I think lots of people would caution about leaving a percentage to charities particularly if the estate is fairly large.  It will be in the charities' interest to ensure there is a maximum return which may cause issues about selling properties.  Unless of course you have ring fenced this to simply what is in cash at the time of the second death.  

Apologies to everyone for my late acknowledgement.

Thank you for drawing our attention to this - Maybe we should look into it more closely, I don't think we haven't adequately balanced the benefits against such disadvantages.

Chris_Tibs

Albermarle said:

 As well as a number of rental properties, we have a relatively small value of shares/unit trusts, but a large amount of cash in low-rate bank accounts.6         We’ve never really trusted our ability to deal in shares. If we were aware of investment (shares? / unit trusts?) in properties (preferably domestic), we’d be happy to sink some cash into that, to make better use of the money.  Can anyone point us in the right direction please?

As you have major investments in properties already, it would not make sense to then make put money into other investments based on property. You need to diversify the risk .

Not many investors actually deal in shares as such. Most are invested in funds that hold large numbers of shares and other financial things . You put your money in and then do nothing but sit tight for a few years.

A large amount in cash is not usually a great strategy going forward as it gets ravaged by inflation.

Thanks for your nudge - I guess properties is what we feel most confident about.  We don't understand what "European Equity" means nor "Hi Dividend Cap".  Could we be looking for Renewable Energy, Food, Banking?  Where would you suggest we start educating ourselves, on funds of possible interest.  The next question is, how do we find suitable "providers"?  You see, we really are naive.....and would appreciate any guidance you could give us.

Keep_pedalling

Some advice from an independent financial advisor might be a good start.