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How to avoid IHT if Labour scraps the residence nil-rate band?
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BR5500 said:
In a nutshell though, is there any possible downside to gifting £3k a year?
I've also been reading about regular gifts purely from income but I don't think this is worth considering in my case as my mother's total pension and savings interest is way below the minimum wage
The donor, of course, is down by £3k each year.
An entirely different way of thinking about this is that your Mother could spend her money living her life to the fullest - fine dining, fine wine, luxury holidays by using excess and available capital to supplement her below minimum wage modest income.2 -
BR5500 said:Many thanks for confirming Albermarle, much appreciated.
Hopefully, my mother will live more than 7 years but purely for IHT purposes, I am assuming that she won't. It probably makes sense to take advantage of the annual £3k a year tax free gift which does not affect any future potential IHT.
As mentioned previously though, my parents' estate is worth substantially under the current £1m threshold (not significantly more than half of this amount) so unless the rules change in the new budget I currently have no concerns of being subject to any IHT.
I know I shouldn't speculate, but if there were any massive changes to IHT that affected my case (unlikely I know), I guess then it would be a good idea to receive a substantial cash gift - that way, if mum lives another 7 years it would be IHT free and should she pass within 7 years, I would be no worse off.
I can see how some people have a "head in the sand" policy towards this as it is not the most pleasant of subjects but since my father passed unexpectedly, this is a subject that keeps rearing its head.
The need and cost of potential care in future is indeed another potential thorny issue.
If you pay for it yourself, they have no interest in your financial affairs, how much you have given away etc.
Of course if care was expensive and long term, you might become unable to pay for it yourself for ever.0 -
BR5500 said:That's an excellent point about the public sector and union members also getting hit! In some parts of the public sector, I'd have thought it would be almost impossible to accumulate less than £1m in assets in a lifetime, some heads of councils are earning well in excess of a quarter of that in 12 months! Let's hope we don't see a two tier approach to IHT with exemptions for the public sector! Reminds me of a certain person with a pension that is "tax unregistered!"
Fortunately or unfortunately, depending on how you look at it, my parents bizarrely didn't really address pensions so their work pensions are peanuts and have no value whatsoever to the surviving spouse or children.
I know it's a relatively small amount but the more I think about it, I guess it does make sense to possibly start the £3k gift each year. I hate the thought of approaching this subject with my mother but should the IHT £1m allowance ever change, at least £3k a year is protected in the meantime. I also understand £6k can be gifted the 1st year, backdating it for one year. I assume my father would not be able to use his share of £3k in this tax year, given he passed in March this year.
In a nutshell though, is there any possible downside to gifting £3k a year? i.e. Does it have to be declared on self-assessment or ignored (a bit like ISA interest) because it is not taxable. Also, should I outlive my mother, when the question is asked have I received any lifetime gifts - do I answer no, as none of the gifts would affect IHT if only £3k a year. If I answer yes, because of the £3k a year, will this lead to further HMRC investigations - not that this would matter if they did as all our bank statements have been kept for decades!
I've also been reading about regular gifts purely from income but I don't think this is worth considering in my case as my mother's total pension and savings interest is way below the minimum wage so I could understand HMRC questioning how on earth she could afford gifting from her limited income - even being very frugal, mum would be lucky to have more than £100 a month excess from her income so it's not worth going down this route.
The public sector DB pensions can't be left to adult children, and only a fractional pension to a spouse or dependent children (So if they've had a lifetime they're unlikely to have children young enough to benefit). so probably not that different, in terms of inheritance value, to a DC scheme0 -
BR5500 said:Many thanks for confirming Albermarle, much appreciated.
Hopefully, my mother will live more than 7 years but purely for IHT purposes, I am assuming that she won't. It probably makes sense to take advantage of the annual £3k a year tax free gift which does not affect any future potential IHT.
As mentioned previously though, my parents' estate is worth substantially under the current £1m threshold (not significantly more than half of this amount) so unless the rules change in the new budget I currently have no concerns of being subject to any IHT.
I know I shouldn't speculate, but if there were any massive changes to IHT that affected my case (unlikely I know), I guess then it would be a good idea to receive a substantial cash gift - that way, if mum lives another 7 years it would be IHT free and should she pass within 7 years, I would be no worse off.
I can see how some people have a "head in the sand" policy towards this as it is not the most pleasant of subjects but since my father passed unexpectedly, this is a subject that keeps rearing its head.
The need and cost of potential care in future is indeed another potential thorny issue.
Say you agreed with your mother to give away a substantial amount of money to you. Then your mother requires funded care. Either your mother would be treated as still having the money, or the council would not go down that route but your mother might be left with insufficient funds to pay for care - thus meaning she is in the lowest tier of quality care.
Yes, that's just one scenario. But allowing the IHT tail to wag the care and quality of life dog, is something you need to be aware of.0
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