Minimising IHT

Pipz

Afternoon all,

For a married couple with property assets that takes them over the combined £1M IHT threshold, what is the best way to minimise IHT liability?

Thus far, my thoughts:

Liquidate amounts above £1M (appreciate not that straight forward) and either contribute to personal pension (within allowances) since LTA abolition.

Liquidate and gift amounts over the threshold (noted 7 year taper rule applies).

Place property in offspring's name and pay market rate to remain within or don't and move out (assumed 7 year rule applies as well).

TIA!

Brie

Do the offspring want the house and to be "landlords"?  What if they get divorced and have to sell as it's their property and therefore part of the marital assets?  If you continue to live there who's responsible for maintenance and repairs?  Can they afford it?

Any gifts of cash or property will be taken into account should you need assistance with care in your advancing years.  Sounds like this may not be an issue but the local authority could still take the price of care out of the value of the gifted property and invoice whomever you gift cash to as it would be considered deprivation of assets.  Not an IHT thing of course but something to keep in mind.  

Albermarle

Pipz said:

Afternoon all,

For a married couple with property assets that takes them over the combined £1M IHT threshold, what is the best way to minimise IHT liability?

Thus far, my thoughts:

Liquidate amounts above £1M (appreciate not that straight forward) and either contribute to personal pension (within allowances) since LTA abolition. To contribute to a pension and get tax relief, you need relevant earnings. In English means if you earn £30K you can not add more than £30K gross to a pension. If you have no earnings then the max is £3600 ( per tax year) 

Liquidate and gift amounts over the threshold (noted 7 year taper rule applies).The taper rule is widely misunderstood.  See this thread .
Taper relief IHT — MoneySavingExpert Forum


Place property in offspring's name and pay market rate to remain within or don't and move out (assumed 7 year rule applies as well).

TIA!

The simplest way of all, is to spend enough so there is no IHT.
 DC pension pots lie outside your estate so are not counted for IHT. There is no guarantee this will last for ever.

Pipz

Brie said:

Do the offspring want the house and to be "landlords"?  What if they get divorced and have to sell as it's their property and therefore part of the marital assets?  If you continue to live there who's responsible for maintenance and repairs?  Can they afford it?  

Good points, ideally a generational living arrangement to provide care (if required and possible) over time. The divorce question is a good one - I assume it's better overall not to put the property in the offspring's name so it wouldn't be viewed as a marital asset in such an event.

Brie said:

Any gifts of cash or property will be taken into account should you need assistance with care in your advancing years.  Sounds like this may not be an issue but the local authority could still take the price of care out of the value of the gifted property and invoice whomever you gift cash to as it would be considered deprivation of assets.  Not an IHT thing of course but something to keep in mind.  

Does the LA have a scope / range for consideration of such? E.g. if 7 years have passed since, would they still have claim?

Pipz

Albermarle said:

The simplest way of all, is to spend enough so there is no IHT.

But in cases where property value takes one over that threshold, perhaps retain some funds to meet the IHT charge and the spend / gift all amounts over that and if gift then the 7 year would apply as amounts are over IHT threshold.

Keep_pedalling

Taper relief only applies to gifts over your NRB so you would have to give away over £325k each for that to apply and even then it only applies to the potion of the gift over that amount. Depending on what assets you liquidate CGT may be an issue. To give your home away is madness. 

Albermarle

Pipz said:

Brie said:

Do the offspring want the house and to be "landlords"?  What if they get divorced and have to sell as it's their property and therefore part of the marital assets?  If you continue to live there who's responsible for maintenance and repairs?  Can they afford it?  

Good points, ideally a generational living arrangement to provide care (if required and possible) over time. The divorce question is a good one - I assume it's better overall not to put the property in the offspring's name so it wouldn't be viewed as a marital asset in such an event.

Brie said:

Any gifts of cash or property will be taken into account should you need assistance with care in your advancing years.  Sounds like this may not be an issue but the local authority could still take the price of care out of the value of the gifted property and invoice whomever you gift cash to as it would be considered deprivation of assets.  Not an IHT thing of course but something to keep in mind.  

Does the LA have a scope / range for consideration of such? E.g. if 7 years have passed since, would they still have claim?

The local authority rules about deliberate deprivation of assets and the HMRC rules about IHT are separate, despite them being often linked in peoples minds. So 7 years is not relevant.
There are guidelines for LA's to follow, but not sure that they are applied quite the same from LA to LA. Also staff shortages and inexperience may sometimes play a part.
One main point is that the LA can take into account any asset you have given away, put in trust etc .
However they have to show that it was done deliberately because the issue of care costs was looming on your horizon. If you gave the money away when you were fit and well/not very old then it should be OK.

However you need to think about two points before worrying about this:
1) The % of people going into a care home is less than most people realise, and most are only there a couple of years on average. The number of people losing their homes/life savings is a lot smaller than you would think from listening to the media, although it does happen unfortunately.
2) If you had considerable assets would you really want to try and give them away, and then be at the mercy of which home the council could squeeze you in ?

MarzipanCrumble

What about life assurance to be payable on your death to mitigate against IHT?  Obviously depends on your age and health as to premiums.

Prob best is to spend or gift to below threshold though I find it incredibly difficult to let go.  Other option (maybe) is to give regular monthly amounts to offspring which you can prove is not impinging on your life style i.e. out of excess income without stinging yourself.  So - if you take reular long haul holidays then suddenly only take UK holidays while doing this that may be seen as depriving yourself - just a thought.

eskbanker

Albermarle said:
1) The % of people going into a care home is less than most people realise, and most are only there a couple of years on average. The number of people losing their homes/life savings is a lot smaller than you would think from listening to the media, although it does happen unfortunately.

Media coverage can be quite distorting, but I'd contend that people funding their later life care with some or even all of their assets are using the value of homes/life savings rather than losing them as such, and wouldn't see this as unfortunate, except from the perspective of prospective legatees of course!  However, I'm conscious that other opinions are available....

Sea_Shell

How much over, ex property?


Obviously it's much easier to "dispose" of a couple of grand, harder with 10s of thousands.

Pipz

Sea_Shell said:

How much over, ex property?


Obviously it's much easier to "dispose" of a couple of grand, harder with 10s of thousands.

About £100K roughly.

I assume it's sensible to keep an liquid amount handy to cover the IHT implication of any property value that exceeds the threshold (if property is to be retained) and thereafter spend or gift as suggested.