IFA trying to sell me on inheritance tax avoidance strategy for my mother (who has dementia)

eskbanker

Cobbler_tone said:

How did I know (before reading this thread) that it was going to turn into a debate of tax avoidance vs tax evasion!

Tax avoidance is like the K2 scheme (IMO) legally OK but morally wrong. I wouldn't put it in the same world as upping your pension contribution to mitigate the amount of tax you pay, that's being tax efficient....but you can guarantee a heated debate out of it. Avoidance/evasion are pretty binary descriptors. 

That does come across as running to a fire with a can of petrol rather than the bucket of water needed to get this thread back on track!

Cobbler_tone

eskbanker said:

Cobbler_tone said:

How did I know (before reading this thread) that it was going to turn into a debate of tax avoidance vs tax evasion!

Tax avoidance is like the K2 scheme (IMO) legally OK but morally wrong. I wouldn't put it in the same world as upping your pension contribution to mitigate the amount of tax you pay, that's being tax efficient....but you can guarantee a heated debate out of it. Avoidance/evasion are pretty binary descriptors. 

That does come across as running to a fire with a can of petrol rather than the bucket of water needed to get this thread back on track!

  I don’t know what you mean…

german_keeper

This could all be academic; I can't find confirmation that OP's mum won't be covered by the usual half million or million pound exemptions. One would hope that the IFA would have confirmed that before making the offer but you never know.

Hope we don't now go off on another tangent about what absolute rotters IFAs are.

[Deleted User]

Thanks for all the answers everyone, I've emailed the IFA for more details, but they usually don't say much in emails and want to have a video call. My mother's house is worth about 800k, and she has 400k in savings.

Moonwolf

I posted about a question this a little while ago.  I had family telling me as POA I should be doing inheritence tax planning.

Generally the advice I got and my firmed up thinking is that I don't think it is a good idea.

Your first duty is the interests of the person who's affairs you are managing and if anyone ever suggests in the future you didn't do that properly it will be your neck on the line not the IFA. 

Simple tax planning/avoidance measures for the most part involve making the money unavailable and hoping the person involves lives for seven years.  This is bad for three reasons,
 1) Elderly people who need POA might not live that long and then it won't fully work anyway.
 2) They might need the money for their care and you have made it unavailable to their detriment.
 3) They might need local authority support and the LA can be even stricter then HMRC on making assets unavailable.

More complex vehicles tend to be higher risk or just complex.  Would your mother do that?  Would you want to risk her not having the money for her own needs. Would you want to risk doing something the IFA understood but you didn't.

Linton

I think a bigger issue is that as mother has dementia and so presumably unable to agree what would be done in her name it would be inappropriate to be too clever with the financial management especially as it is unclear how she would benefit.  AIUI an attorney has no authority to act in anyone's interest apart from the donor without the permission of the Court of Protection.

Grumpy_chap

[Deleted User] said:

I've been talking to an IFA about an immediate-needs annuity to cover care costs for my mother (I have power of attorney), but the IFA is suggesting another meeting to go over my mothers savings and property value and is saying they can 'protect it' from inheritance tax without my mother needing to give anything away.

I don't like the idea of tax avoidance and I'm always sickened to read about these tricks the superwealthy use to dodge tax.

Before I have another meeting with this IFA, any ideas what scheme they likely have in mind?

[Deleted User] said:

Thanks for all the answers everyone, I've emailed the IFA for more details, but they usually don't say much in emails and want to have a video call. My mother's house is worth about 800k, and she has 400k in savings.

Firstly, everything you do while acting as PoA for your Mother has to be in your Mother's interests.
Reducing potential liability to IHT is probably not in your Mother's interests.  It might be in the interests of your Mother's Estate after the inevitable happens, but those can be different interests from your Mother's interests.

You have asked the IFA what they might have in mind, so await their simple "headline" suggestions.  I assume they are providing this comment without further fee.

If your Mother has a house £800k plus £400k savings, that makes a total of £1.2M.  How much will the annuity cost?  How much will the Estate value be after the annuity has been purchased?
Depending upon marital status / widow, she may have an IHT allowance of around £1M thus meaning that any IHT planning is likely to be moot.

[Deleted User]

Turns out the scheme is a diverse investment portfolio in unquoted companies that have BR relief: https://www.ftadviser.com/investments/2024/01/04/what-advisers-need-to-understand-about-the-business-relief-system/, and 'which should' keep pace with inflation.

LHW99

Would your mum have invested like that if she was able to make the decision? If not, as POA, it's probably not a good idea.

poseidon1

[Deleted User] said:

Turns out the scheme is a diverse investment portfolio in unquoted companies that have BR relief: https://www.ftadviser.com/investments/2024/01/04/what-advisers-need-to-understand-about-the-business-relief-system/, and 'which should' keep pace with inflation.

This is a wholly inappropriate 'product' to offer to anyone unless high net worth , higher rate tax payer and can comfortably fit the definition of a 'sophisticated investor". 

  From what you say, your mother in my view does not fall within any of that criteria, and since via the POA you are the decision maker, I suspect you would admit to having insufficient understanding of the very high risk of investment losses inherent in these types of scheme . Frankly, I cannot understand the IFAs thinking in believing these types of  scheme could ever be suitable for some in your mother's circumstances. 

Also distinctly odd he seems  to have  sent you internal CPD training notes, rather than marketing information from the actual scheme provider - most unprofessional!

If you are happy with the IFA's advice on the annuity requirement, by all means pursue that, but on the showing of this nonsensical suggestion, I would give him a 'hard pass' on anything else.  

Finally have a read of the link I sent you from the Personal Finance Society on POA estate planning options. I suspect there maybe severe restrictions on the extent of any IHT planning the Court of Protection would allow you to undertake on your mother's behalf.  Other than utilisation of her annual £3000 gifts exemption, anything more far reaching likely requires a sign off from the COP. Cannot see what the IFA has suggested ever passing muster with the COP.