Minimising IHT

Albermarle

Pipz said:

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.

You may be aware that there is always a lot of negative comment in the media about IHT ( especially at the moment) and it seems a very unpopular tax, even though the large majority of people are unaffected by it.
I suspect it will not be abolished but I would not be surprised to see some changes before the next election, as it could be seen as a vote winner, especially in the Blue Wall. 
Personally I would not be worrying about being over the IHT threshold by a £100K, as its almost certain that between now and when you die, the IHT will rules will change and more than once.

Grumpy_chap

When an individual, or a couple, reach the comfortable position through whatever combination of skill, effort, prudence and good fortune that IHT becomes a potential factor to consider, I always find the question "what can I do to minimise IHT?" an odd one.

In my mind, the question should be "what can I do to enjoy the best life possible and reap the rewards of my skills, effort, prudence and good fortune?" 

Reaping the rewards may well resolve the exposure to IHT:
 - Live life to the fullest.  Remember, everything you spend from funds that would otherwise incur IHT, you are effectively getting a 40% discount.
 - Provide for best available rather than "over-my-dead-body-ville" care
 - Gift as appropriate to see the next generation on a secure footing, house deposit, education fees, etc.

Anyway, the OP has asked about how to minimise IHT, so let's look at the options they suggested:

Pipz said:

contribute to personal pension (within allowances) since LTA abolition.

This works well for IHT perspective as the funds remaining in a pension at death are held in trust and outside the estate so pass on without being assessed for IHT.
Contributions are restricted to Annual Allowance, earned income, recycling rules (MPAA), non-earner pension contribution limit.

Pipz said:

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

There are some quite generous allowances that can be gifted without being subject to the 7-year rule.
Also, regular gifts from income are permitted.
As always, these options have some specific rules that need to be investigated in detail to avoid falling foul.

Gifts at essential stages in life can make a real difference to the future generations.  I also consider that gifting (other than for the sake of gifting to avoid IHT) is one mechanism to reap the rewards.  There can be a lot of satisfaction to see your children or grandchildren succeed in their studies, get their first car / house, start their first business, etc.

Pipz said:

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).

This one is quite likely to fail in terms of not incurring IHT.  It is quite likely to be GWR (gift with reservation) and therefore still considered part of the Estate at death.

It is quite likely that gifting the house would be considered DoA (deprivation of assets) if nursing home is required and the gifter would be assessed as still having the value.  DoA can apply to any gift but, the earlier the gift and the more it is linked to other factors, the less likely that is to be assessed - for example overly generous wedding gifts are less likely to be seen as DoA than simply gifting a massive sum for no obvious reason once the individual reaches, say 76 years age. 

Being owners / part owners of the property would mean the OP's children are not eligible for first time buyer incentives and / or may incur higher rate stamp duty if they are subsequently buying property.

Being owners / part owners of the property would be considered an asset and affect benefits entitlement should the OP's children ever be in a position to require that support.

In the event of the OP's children separating from a partner, the part value of the house could be considered in any settlement.

The OP's children then become Landlord to the OP.  That creates complex relationships.  Income received as rent by the OP's children (after deducting permitted expenses) will be subject to income tax at the appropriate marginal rate.



For people to provide more specific indications, some information about the OP's age, children and grandchildren age plus housing / income status may be helpful.  This is not to pry and can be general terms.  Take, for example, the issue with the house and possible impact to benefits - quite different if the OP's children is a medical consultant or hand-to-mouth casual jobber.

For me, though, the priority would be the bucket list.

Albermarle

  Remember, everything you spend from funds that would otherwise incur IHT, you are effectively getting a 40% discount.

This is a good way to think about it, and by the way I pretty much agree with everything else you said.

This works well for IHT perspective as the funds remaining in a pension at death are held in trust and outside the estate so pass on without being assessed for IHT.

My only comment is that you can not rely on this state of affairs remaining for ever. 

The respected think tank the IFS has commented in detail about the overly generous tax treatment of DC pensions on death, including the IHT exemption. Although it would be complicated to remove it.

Recent proposals from the government appear to include a plan to remove the tax free status of beneficiary pensions from someone who dies before 75 ( never made much sense anyway ).

The recent abolition of LTA, means that some wealthier people can exploit the IHT exemption even more, so putting more pressure on some kind of limit on how much of a pension can be shielded from IHT.

Of course nothing may happen for years, if at all, but worth being aware of potential changes.

Grumpy_chap

Albermarle said:.

This works well for IHT perspective as the funds remaining in a pension at death are held in trust and outside the estate so pass on without being assessed for IHT.

My only comment is that you can not rely on this state of affairs remaining for ever. 

The respected think tank the IFS has commented in detail about the overly generous tax treatment of DC pensions on death, including the IHT exemption. Although it would be complicated to remove it.

Thanks.
The only thing is, trying to manage finance and tax liability within the confines of the current rules is tricky enough as it is.
Assessing some guess as to what might happen at the next budget is trickier still.
Trying to contemplate speculation over future tax changes that may never happen, or may never happen for a number of years and, in any event, have never been announced is absolutely impossible.
I always simply plan on the basis of current rules.

Sometimes, it means catching a cold. 
As an example, we sold our non-ULEZ car for a little over £1k at Easter a we were not eligible for scrappage.  Had we known that there would be a period when scrappage would be made available regardless, we'd have held onto it and got £2k now.
Still, we got a generous discount on the new car, 40% it seems

EDIT:  No sooner had I posted this comment than an e-mail landed with the following article linked.  It is as probably as complete a comment on minimising IHT as can be made (though I note the article is with reference to IHT in isolation and makes no mention of linked considerations such as DoA):
https://globeifa.co.uk/5-ways-to-pay-less-inheritance-tax-and-leave-more-to-your-loved-ones/

Albermarle

Trying to contemplate speculation over future tax changes that may never happen, or may never happen for a number of years and, in any event, have never been announced is absolutely impossible.
I always simply plan on the basis of current rules.

Yes that is all you can do, but can be useful to keep in mind that things might change at some point.

Pipz

Grumpy_chap said:

I always find the question "what can I do to minimise IHT?" an odd one.

In my mind, the question should be "what can I do to enjoy the best life possible and reap the rewards of my skills, effort, prudence and good fortune?" 

A fair point, my thought process is anchored in yours below whilst still retaining sufficient (the IHT threshold in this example) to cover anything unforeseen. Effectively gift everything above the threshold once reached, but I posed the question to ascertain if there is a more efficient way to pass the same on.
 

Grumpy_chap said:

Gifts at essential stages in life can make a real difference to the future generations.  I also consider that gifting (other than for the sake of gifting to avoid IHT) is one mechanism to reap the rewards.  There can be a lot of satisfaction to see your children or grandchildren succeed in their studies, get their first car / house, start their first business, etc.

This is the objective, to annually give amounts over the threshold. If holdings drop below the same, then revert to accumulation to restore and then resume gifting (and make allowances for personal enjoyment as well).