Inheritance Tax

Deramore12

Morning I have investments in an ISA which are climbing steadily.   By 2026 I expect the value in my ISA will be £1m 

As a family of 3 with wife and disabled daughter who lives with us i want to make sure I buy a house with the money or ideally take out a mortgage securing it against the ISA which I still expect to keep increasing.     We currently have a life style choice of renting. 

Are there any inheritance tax issues here.  Tia

Keep_pedalling

For a married couple owning a house raises you IHT exemptions from £650k to £1M so in your situation it is the easiest way for you to reduce you IHT liability. Why do you say I plan to buy a house rather than we plan to buy a house? 

Considering the amount involved and the fact that you have a disabled child you should take professional advice about inheritance planning and trusts for your daughter. The starting point should be your wills. If you don’t already have them in place or you just have basic ones then you should as a matter of urgency consult a STEP solicitor to draft wills that on your deaths create a vulnerable persons trust to provide for your daughter after you have gone.

You should also look at starting a trust for her in your life time so she has financial security in the event that you both lose the ability to care for her. This also has the potential to lower your IHT liability. 

If you don’t already have them putting lasting powers of attorney in place for yourself and your wife (especially for finance) should be another priority. 

Albermarle

r ideally take out a mortgage securing it against the ISA which I still expect to keep increasing.     

I am not sure it would be possible to secure a mortgage in that way. Even if it was, it would have to be a non standard one and probably not very good rates.

Albermarle

Keep_pedalling said:

For a married couple owning a house raises you IHT exemptions from £650k to £1M so in your situation it is the easiest way for you to reduce you IHT liability. Why do you say I plan to buy a house rather than we plan to buy a house? 

Considering the amount involved and the fact that you have a disabled child you should take professional advice about inheritance planning and trusts for your daughter. The starting point should be your wills. If you don’t already have them in place or you just have basic ones then you should as a matter of urgency consult a STEP solicitor to draft wills that on your deaths create a vulnerable persons trust to provide for your daughter after you have gone.
I fully agree with this.

You should also look at starting a trust for her in your life time so she has financial security in the event that you both lose the ability to care for her. This also has the potential to lower your IHT liability. 
Not so sure about this. I looked into this and there will be annual costs/admin, which might last for decades before you die. Also it is pretty unlikely that both parents would be become incapacitated at the same time.

If you don’t already have them putting lasting powers of attorney in place for yourself and your wife (especially for finance) should be another priority. Another good idea.

I am in a similar position ( family wise) and my thoughts are in bold.

Keep_pedalling

Albermarle said:

Keep_pedalling said:

You should also look at starting a trust for her in your life time so she has financial security in the event that you both lose the ability to care for her. This also has the potential to lower your IHT liability. 
Not so sure about this. I looked into this and there will be annual costs/admin, which might last for decades before you die. Also it is pretty unlikely that both parents would be become incapacitated at the same time.

If you don’t already have them putting lasting powers of attorney in place for yourself and your wife (especially for finance) should be another priority. Another good idea.

I am in a similar position ( family wise) and my thoughts are in bold.

As far as I understand vulnerable persons trusts are treated favourable for tax purposes ( unlike other discretionary trusts) so costs should not be that high. I think it would be worth taking professional advice on whether this is a viable option or not.

poseidon1

Deramore12 said:

Morning I have investments in an ISA which are climbing steadily.   By 2026 I expect the value in my ISA will be £1m 

As a family of 3 with wife and disabled daughter who lives with us i want to make sure I buy a house with the money or ideally take out a mortgage securing it against the ISA which I still expect to keep increasing.     We currently have a life style choice of renting. 

Are there any inheritance tax issues here.  Tia

Just responding to your ISA backed mortgage query. The ISA rules specifically forbids an ISA being secured against a mortgage - see below

https://www.gov.uk/guidance/how-to-manage-an-isa-investment-fund#using-an-isa-as-security-for-a-loan

However, Barclay seem to suggest their cash ISA could be used as part of an offset mortgage arrangement see below -

https://www.barclays.co.uk/help/savings-and-investments/isas/offset-savings/#:~:text=You can offset instant-access,linked current and savings accounts.

The disadvantage here  is no interest is earned on the isa used for that purpose, but similarly no interest charged on the  equivalent borrowings. Maybe worth having an exploratory chat with Barclays, would be a shame to have remove some or all your ISA to fund the house purchase.

Albermarle

poseidon1 said:

Deramore12 said:

Morning I have investments in an ISA which are climbing steadily.   By 2026 I expect the value in my ISA will be £1m 

As a family of 3 with wife and disabled daughter who lives with us i want to make sure I buy a house with the money or ideally take out a mortgage securing it against the ISA which I still expect to keep increasing.     We currently have a life style choice of renting. 

Are there any inheritance tax issues here.  Tia

Just responding to your ISA backed mortgage query. The ISA rules specifically forbids an ISA being secured against a mortgage - see below

https://www.gov.uk/guidance/how-to-manage-an-isa-investment-fund#using-an-isa-as-security-for-a-loan

However, Barclay seem to suggest their cash ISA could be used as part of an offset mortgage arrangement see below -

https://www.barclays.co.uk/help/savings-and-investments/isas/offset-savings/#:~:text=You can offset instant-access,linked current and savings accounts.

The disadvantage here  is no interest is earned on the isa used for that purpose, but similarly no interest charged on the  equivalent borrowings. Maybe worth having an exploratory chat with Barclays, would be a shame to have remove some or all your ISA to fund the house purchase.

The OP appears to have investments in the ISA, so presumably is not a cash ISA.

poseidon1

Albermarle said:

poseidon1 said:

Deramore12 said:

Morning I have investments in an ISA which are climbing steadily.   By 2026 I expect the value in my ISA will be £1m 

As a family of 3 with wife and disabled daughter who lives with us i want to make sure I buy a house with the money or ideally take out a mortgage securing it against the ISA which I still expect to keep increasing.     We currently have a life style choice of renting. 

Are there any inheritance tax issues here.  Tia

Just responding to your ISA backed mortgage query. The ISA rules specifically forbids an ISA being secured against a mortgage - see below

https://www.gov.uk/guidance/how-to-manage-an-isa-investment-fund#using-an-isa-as-security-for-a-loan

However, Barclay seem to suggest their cash ISA could be used as part of an offset mortgage arrangement see below -

https://www.barclays.co.uk/help/savings-and-investments/isas/offset-savings/#:~:text=You can offset instant-access,linked current and savings accounts.

The disadvantage here  is no interest is earned on the isa used for that purpose, but similarly no interest charged on the  equivalent borrowings. Maybe worth having an exploratory chat with Barclays, would be a shame to have remove some or all your ISA to fund the house purchase.

The OP appears to have investments in the ISA, so presumably is not a cash ISA.

Not a problem by itself, some or all of the S & S investment ISA can be transferred to Barclays cash ISA if the OP can see any benefit in doing so.

For example 50% could be transferred to cash ISA with Barclays ( foregoing investment returns thereon) whilst the remaining half stays put to either accrue capital growth and/or generate tax free investment income stream to assist with mortgage payments.

Key point is Barclays offers possibility to keep the £1 million in ISAs whilst assisting in mortgage funding.

Amassing £1million in ISAs is rare and very valuable, in OP's postion I would certainly explore how I can keep it intact when it comes to house purchase.