Working Out Investment ISA's and Interest for IHT

JamieKendal

I am working on my late mother's estate and have hit bit of a stumbling block - I am looking over her investment ISA's with Aegon and Fidelity but find it near impossible to clearly see what profits/gains/income she made per tax year. Aegon are particularly terrible when it comes to the paperwork they send out. I understand that some shares are reinvested on these platforms but even then they don't clearly summarise how much this was done for.

Is the answer as simple as finding the value of the investment ISA as close to the beginning and end of a tax year and subtracting the earlier one from the later one? And then I can use the difference as 'income'? Or is it more complicated than that?

Thank you for any help. 

HappyHarry

What is it you are trying to calculate and for what purpose?

ISAs are tax free so income or gains from them do not need to be added to a tax return.

JamieKendal

HappyHarry said:

What is it you are trying to calculate and for what purpose?

ISAs are tax free so income or gains from them do not need to be added to a tax return.

It's possible that I am hugely overthinking things. I'm doing IHT400 and the other forms to go with it - I'm stuck on gifts!

I started on a form (I can't even remember where I got it) a few weeks ago to work out 'gifts out of normal expenditure', for my nephew (Mum was his special guardian) and got carried away trawling through Mum's paperwork and have been using the form to demonstrate income/expenditure for each month/year. I'm sure the form is part of the Gifts paperwork that goes with another form.  

There is a line: Tax Year In Which Gifts Were Made and asks for 'Interest including ISA's'.

Quite useful for gathering in one place all financial history - everything was straight forward until I got to the investment ISA's. 

Keep_pedalling

JamieKendal said:

I am working on my late mother's estate and have hit bit of a stumbling block - I am looking over her investment ISA's with Aegon and Fidelity but find it near impossible to clearly see what profits/gains/income she made per tax year. Aegon are particularly terrible when it comes to the paperwork they send out. I understand that some shares are reinvested on these platforms but even then they don't clearly summarise how much this was done for.

Is the answer as simple as finding the value of the investment ISA as close to the beginning and end of a tax year and subtracting the earlier one from the later one? And then I can use the difference as 'income'? Or is it more complicated than that?

Thank you for any help. 

No, it is not as simple as that because the difference will include capital gains (or losses some years) which are not classed as income. You would also need to add the associated fees on the expenditure side. It is the difficulty of trying to retrospectively claim gifts from excess income when the testator never actively used this as part of their estate planning so no records were kept. The only way to keep track of this within an ISA would be to use income (INC) funds rather than accumulative ones (ACC).

When we used to have to do tax returns I used to be able to run a taxable income report on on our Transact general investment accounts which provided a breakdown of all the interest and dividends for our ACC funds to include on the SA forms. 

Obviously a taxable income report is pointless on an ISA as there is none. I can see how much income we get each year from our ISAs because we now only have INC funds, but I don’t think you are going to be able retrospectively get all the info you need from your mother’s ACC funds. 

Keep_pedalling

Just checking, do you actually need to claim the gifts from excess income to reduce IHT? If not then it would be simplest not to bother claiming it.

JamieKendal

Keep_pedalling said:

Just checking, do you actually need to claim the gifts from excess income to reduce IHT? If not then it would be simplest not to bother claiming it.

No, there shouldn't be any IHT to pay. We are some £115,000 away from the threshold after using RNRB. 

Some great points in your other post. I was thinking the same about counting fees and charges - then it could get very messy, indeed. It does appear that the S&S ISA's were majority ACC funds. Yes, also what you say about capital gains v income is very important to remember. 

I think I may have become a bit obsessive with the accounting, as I can't bare it when the information picture is incomplete - as in, I have the data to fill in some areas and an absence of data for others, which is now the 'interest from ISA's. Once I've done this or ruled this out then I am virtually finished. Maybe now I am convinced that I've gone as far as I need to. 

Perhaps what I will do is include income - such as small sums from INC funds - that I can clearly demonstrate and then leave it at that before making it even more complicated. 

The main issue I am actually facing, which I am trying to cover by including income from three investment ISA's, is whether to class regular lump sum payments over 9 years to a grandchild (£1000 or £2000 a year) as gifts out of income or use my mother's annual exemption allowance. It looks like I could use either. The addition of investment ISA income would possibly help me to confidently present one or the other. 

Another question I have, and this is hypothetical, if a gift can't be account for, does HMRC lower the the IHT threshold from £325k to match the gift? Example, a £5000 gift lowers the threshold to £320k? I don't know if that's true or not. Or just apply tax on the £5000?

Sorry for the really long post. I'm on my own here trying to deal with two estates (Dad's is a lot easier!) and it is a bit overwhelming at times. Thanks for your help!

Keep_pedalling

If not claiming gifts from excess income does not impact IHT then just declare the gifts and forget claiming the exemption, it’s just a lot of work for no gain. 

Apart from the standard NRB which is automatic it is down to the executor if the exemptions are claimed or not it is not compulsory for you to do so if it not necessary. 

Keep_pedalling

JamieKendal said:

Keep_pedalling said:

Just checking, do you actually need to claim the gifts from excess income to reduce IHT? If not then it would be simplest not to bother claiming

Another question I have, and this is hypothetical, if a gift can't be account for, does HMRC lower the the IHT threshold from £325k to match the gift? Example, a £5000 gift lowers the threshold to £320k? I don't know if that's true or not. Or just apply tax on the £5000?

Sorry for the really long post. I'm on my own here trying to deal with two estates (Dad's is a lot easier!) and it is a bit overwhelming at times. Thanks for your help!

Any gifts are added to the value of the estate, they don’t lower the exemption. So for example a single person with no children has £500k in their estate on their death and gifted £50k 3 years previously so their net estate for IHT purposes is £550 and they have a NRB of £325k so £225k will be subject to IHT. 

JamieKendal

I've been massively over analysing all this. Pouring over bank statements, setting up spreadsheets, going the full distance when I was too confused and shy just to post these questions weeks and weeks ago. At least if HMRC come calling for evidence and information to back up my IHT application then I have it all ready to go. Also it gave me a purpose and something to do after my dear father passed away - I was his carer for 5.5 years, you know. 

I can't thank you enough Keep_pedalling for setting me straight on this. I've just done the IHT Calculator and added in a sum for gifts and you are 100% right, it just gets added to the estate and we are well below the threshold using RNRB. 

Keep_pedalling

JamieKendal said:

I've been massively over analysing all this. Pouring over bank statements, setting up spreadsheets, going the full distance when I was too confused and shy just to post these questions weeks and weeks ago. At least if HMRC come calling for evidence and information to back up my IHT application then I have it all ready to go. Also it gave me a purpose and something to do after my dear father passed away - I was his carer for 5.5 years, you know. 

I can't thank you enough Keep_pedalling for setting me straight on this. I've just done the IHT Calculator and added in a sum for gifts and you are 100% right, it just gets added to the estate and we are well below the threshold using RNRB. 

No problem Jamie, I am a bit like you and would throw myself sorting this out. This is the last task you have to do for a beloved parent and you want to get it right. I am sure it helps with the grieving process as well. 

Good luck.