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IHT - GWRoB - Complications
OK, so this is a bit complicated (and sorry it sounds like a first world problem) but I will try to keep it simple.
FiL called a few weeks ago concerned that there will be a change to IHT rules in the Budget at the end of this month. (Please do not discuss what may or may not happen in the Budget as that would be political.) He did not want to lose all his money to the HMRC.
FiL is fortunate enough that his Estate is likely to fall within IHT territory.
He asked, if he gave my wife some of her inheritance now what we'd spend the money on and was disappointed that we did not have an immediate response in the call so he said there was no point giving her any money. We emphasised that his first priority must be to ensure he had sufficient liquid assets to fund any care needs that might arise and also tried to get him to understand that "care" was not binary (in / out of care home) but he might, for example, at some point need a cleaner to allow him to continue living independently at home.
A week or so passed.
FiL called with some confusing scheme whereby he would provide start-up funding for me to start a (new) business and he would be 50% shareholder with me being the other 50% shareholder. He was disappointed when I explained I did not have an immediate idea for a (new) business and I was quite happy running the business I already have but that is not requiring any cash injection in the current business plan. I also suggested that this scheme would do nothing by way of IHT liability and could even increase the eventual liability if I started a business that was successful, the shareholder funds (of which his Estate would have half) would be increased from the seed funding. We emphasised, again, the need that he must make sure he had enough liquid assets for any care needs.
A week or so passed.
FiL called saying he still wanted to avoid IHT but he noted our concern that he keeps money available in case he needs to fund care. His new idea is that he will give some money to my wife and she will use that money to buy Premium Bonds. We would "effectively be looking after FiL's money and would give it back to him if he asks for it but if he never asks for it before he dies then he guesses we can just keep it." We explained this would not make any change to the eventual IHT liability. He did not (or chose not to) take that on board.
It seems as though this is now pretty much going to happen. We've pushed back quite hard, tried to explain GWR, but he is being stubborn and my wife wishes to keep the peace.
My wife and I both accept that this is almost certainly GWR, so the value of the PBs will be assessed as in FiL's Estate for IHT when the eventual happens.
We noted the following potential complications:
- My wife is essentially allowing FiL to hold a greater amount of PBs. Is this against any rules?
- What happens if there are any wins from the PBs? Small wins are probably easy in that we'd tell FiL and he'd probably say to have a meal out, so that is a gift at that time. Big wins might be more contentious?
- While in the Estate for calculating IHT liability, is the value of the PBs in the Estate or out of the Estate for the purpose of distribution according to the Will?
- My wife might pre-decease FiL (though I really hope she doesn't).
- PBs won't accrue CGT liability so that is one factor avoided.
- We are fortunate enough that impact to means-tested benefits is unlikely to be an issue.
So, I guess the questions are is this GWR and queries 1, 2, & 3 in the list.
Does anyone have any thoughts?
Comments
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"He did not want to lose all his money to the HMRC."
Why not just tell him that unless the Chancellor decides to set Inheritance Tax at 100% and removes all allowances then he's talking complete tosh?
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"It seems as though this is now pretty much going to happen. We've pushed back quite hard, tried to explain GWR, but he is being stubborn and my wife wishes to keep the peace."
It will only happen if you or you wife let it. You clearly haven't 'pushed back' hard enough. Tell him you want no part of his attempted IHT avoidance that will fail and leave the Executors with a headache.
2 -
Does anyone have any thoughts?
Ask your FIL to go back to week 1, his plan to give her some cash. Say that she will use some of his lovely gift for holidays each year, so spending some now and investing some. Every time you guys go on holiday, use some of the money to buy a stamp and a postcard saying you are having a wonderful time and that you thank him for his love and kindness. Make no commitments to give the cash back to him at any stage.
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We have said very clearly that this won't work (in the context of his stated intent to avoid IHT) and that we'd rather not have the money.
He won't listen.
It would be much easier for us not to have the money. We also suggested that instead of giving us any money, or BiL any money, it would be far more useful to gift a third of the total to the grand-children (BiL's children) as it would make a difference to them starting out that it won't make the same difference to BiL or us.
Does a failed PET assessed as GWR create a headache for the Executors? Say the Estate at death is £700k and IHT threshold £500k. That would mean £200k liable for IHT. The £200k liable for IHT would increase by the value of the PBs. In that scenario, is the Estate to be distributed still £700k or does that also increase by the value of the PBs?
0 -
The discussion was somewhat longer than that. Our first suggestion as to what we'd do with the money was to buy some new furniture. We did suggest we'd take a holiday second. Both were knocked back as "I don't want my money frittered away."
He suggested we might want an extension on the house - why don't we add a conservatory. But we simply don't.
He suggested we buy a bigger house. Well, two of us with four bedrooms is too big really.
He suggested we buy another BTL. It is not enough money for that.
We'd really rather not have money that we might have to return. If he is fortunate to eventually still have enough that IHT is an issue when he passes on, then the tax is properly due and anything that passes towards us will be gratefully received.
It is not the first time this type of issue has arisen. He gifted us some money a dozen years back or thereabouts with a comment that we spend it on something "sensible". It became a real bind as every time we were going to buy anything, he retorted that was frittering away his money. It was disruptive to us actually getting on with things. We eventually gave him a cheque to return the money. That freed us up to do what we wanted with our own money. It was a tense couple of years having this interference over everything.
The money now instructed to go to PBs is a lot simpler in a way.
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Do you have any idea of the total value if his estate? Is he a widower?
1 -
Well don't have the money then. It's clear he will still see it as 'his' money. You can't make someone accept money they don't want. Does he have your bank details to send the money? If he doesn't then don't give him them. If he does tell him you have changes bank account.
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Not a widower - divorced.
Not really sure on the value of his Estate. His bungalow about £650k plus whatever he has in bank accounts. No SIPP as he has DB pension.
He has our bank account details as he uses that to make Birthday and Christmas presents.
It is an odd bit of deja-vu as he always blamed his Mum interfering and creating differences of opinion relating to money as the reason for their divorce. My wife says she doesn't want the same to happen to us (which I take as a great compliment).
0 -
Does a failed PET assessed as GWR create a headache for the Executors?
Not normally. There's a bit of extra calculation but with a cash amount unlikely to make a difference (you do one calc with the PET, one with the GWR). I've not looked at the payment of tax for a while but I think that if it is a GWR it is the recipient that pays a proportion of the IHT (e.g. if £80k was due on an £700k estate (including a £100k GWR) then 80,000 x 100/700 of IHT is due from the recipient). So far, so good. The trouble for the executor arises if the recipient hasn't paid it for 12 months. If that case, the executor is also liable for the IHT. For a small GWR with a liquid estate, not a big deal. But for a larger GWR with a smaller estate, that's perhaps an issue for the executors.
1 -
Tell him if he sends you money that you will spend it.
1
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