Inheritance

Beanzmeansheinz

Hi all,

I am looking for advice for my parents. They are in their late 70s.

They are very fortunate to own their own home and have a couple rental properties. They are about the draw their state pensions but on advice, are not drawing private pensions as they 1. Don’t need the money and 2. They have been told this ‘pot’ can be handed down without IHT.

They are worried the majority of their estate is going to go in tax after they pass away. 

One parent would like to gift some money to myself and my sister so we can enjoy it whilst they are with us, tax free as long as they survive 7 years.

One parent would like to buy another property and put it 50% in their names and 25% each for me and my sibling. 

Both are trying to second guess their future health, interest rates and house prices. 

Is there anything obvious they are ‘missing’ in terms of ways they can make their money work for them and their future beneficiaries. 

eskbanker

Beanzmeansheinz said:

They are about the draw their state pensions but on advice, are not drawing private pensions as they 1. Don’t need the money and 2. They have been told this ‘pot’ can be handed down without IHT.

They are worried the majority of their estate is going to go in tax after they pass away. 

Have they formally engaged a financial adviser?  If so, then that's the obvious place to get answers to their questions, but if not, then doing so may be worthwhile, as there's a limit to what can usefully be offered by unqualified randoms without visibility of all salient facts....

Keep_pedalling

Excluding their pension pots (which are exempt from IHT) they can leave up to £1M IHT so they are way off track in thinking the majority of their estate will go to the tax man. Although the pensions are exempt from IHT they are not tax free to the beneficiaries who will pay income tax on their nominal rate any of it they draw down.

Buying another house does not make sense, they don’t need any mor income and joint ownership could create issues down the line when one wants to sell and the other doesn’t. A bigger cash gift would be a better idea, you can then invest / spend as you wish rather than being locked in with a jointly owned property.

If their net worth exceeds £1M they should spend a little bit of that on professional advice. If they don’t have up to date wills and lasting powers of attorney in place that should also be a priority.

Sg28

Im not sure why they would want to buy another property seems an expensive way to gift money imo.

Dont forget IHT is tapered.

3 to 4 years 32%

4 to 5 years 24%

5 to 6 years 16%

6 to 7 years 8%

7 or more 0%

Keep_pedalling

Sg28 said:

Im not sure why they would want to buy another property seems an expensive way to gift money imo.

Dont forget IHT is tapered.

3 to 4 years 32%

4 to 5 years 24%

5 to 6 years 16%

6 to 7 years 8%

7 or more 0%

Taper relief only applies if gifts exceed the NRB £325k and then only to the portion above £325k.

Albermarle

Sg28 said:

Im not sure why they would want to buy another property seems an expensive way to gift money imo.

Dont forget IHT is tapered.

3 to 4 years 32%

4 to 5 years 24%

5 to 6 years 16%

6 to 7 years 8%

7 or more 0%

Taper relief is widely misunderstood and only applies in a tiny % of cases. See this thread from the tax board.
Taper relief IHT — MoneySavingExpert Forum

Albermarle

Beanzmeansheinz said:

Hi all,

I am looking for advice for my parents. They are in their late 70s.

They are very fortunate to own their own home and have a couple rental properties. They are about the draw their state pensions but on advice, are not drawing private pensions as they 1. Don’t need the money and 2. They have been told this ‘pot’ can be handed down without IHT.

They are worried the majority of their estate is going to go in tax after they pass away. 

One parent would like to gift some money to myself and my sister so we can enjoy it whilst they are with us, tax free as long as they survive 7 years.

One parent would like to buy another property and put it 50% in their names and 25% each for me and my sibling. 

Both are trying to second guess their future health, interest rates and house prices. 

Is there anything obvious they are ‘missing’ in terms of ways they can make their money work for them and their future beneficiaries. 

As a secondary point just be aware that methods of potentially reducing IHT ( like gifts etc ) do not necessarily apply when it comes to the local authority financial assessment for care costs.
Of course if they are likely to go privately anyway then it is not relevant and hopefully they never need a high level of care either.

Sg28

Albermarle said:

Sg28 said:

Im not sure why they would want to buy another property seems an expensive way to gift money imo.

Dont forget IHT is tapered.

3 to 4 years 32%

4 to 5 years 24%

5 to 6 years 16%

6 to 7 years 8%

7 or more 0%

Taper relief is widely misunderstood and only applies in a tiny % of cases. See this thread from the tax board.
Taper relief IHT — MoneySavingExpert Forum

Its easy to jump to conclusions of 1m+ when you personally live in an expensive part of the south east and read 3 properties owned. 

Sg28

Keep_pedalling said:

Excluding their pension pots (which are exempt from IHT) they can leave up to £1M IHT so they are way off track in thinking the majority of their estate will go to the tax man. Although the pensions are exempt from IHT they are not tax free to the beneficiaries who will pay income tax on their nominal rate any of it they draw down.

Buying another house does not make sense, they don’t need any mor income and joint ownership could create issues down the line when one wants to sell and the other doesn’t. A bigger cash gift would be a better idea, you can then invest / spend as you wish rather than being locked in with a jointly owned property.

If their net worth exceeds £1M they should spend a little bit of that on professional advice. If they don’t have up to date wills and lasting powers of attorney in place that should also be a priority.

Would this £1m not depend on the value of their home being over £350k? For example if the home is only worth £100k then the residential nil rate band (combined) would only be £100k rather than £350k 

jaceyboy

Also depends what their estate is worth, we have this problem with my parents, read this......

If your estate is worth over £2 million, the residence nil-rate band will be tapered. For every £2 your estate is over £2 million (after deducting liabilities but before reliefs and exemptions), the residence nil-rate band will decrease by £1.

Aretnap

Also remember that the rate of inheritance tax is 40%, so even if their net worth is many millions of pounds (which would certainly be a nice problem to have), the "majority" of it is not going to go to the taxman.

If their estate is likely to be worth significantly more than a million then it is probably worth paying for professional advice.

Agree that incurring the costs of buying a house (which presumably you and your sister would then have to incur more costs to sell at some point) sounds like a very expensive way of giving away money - what's the thinking behind that rather than just giving you and your sister cash?