IHT mitigations (Inheritance Tax)

michaels

Seperate and instead enter into a civil partnership with you children's partners.…

Alternatively, has anyone looked into family limited partnerships?

ali_bear

The tax system is used by policymakers to encourage people to save into pensions to pay for their retirement.

Pensions were never intended to be a means of avoiding IHT, or any other kind of tax. If you have excess income you should be doing something better with it, not trying to hoard it away down the generations.

Can't you still buy farmland to avoid IHT?

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/82179123#Comment_82179123

so Mr Clarkson thought

Dead_keen

Alternatively, has anyone looked into family limited partnerships?

An LP would not save IHT. It would also mean more admin (e..g. you'd need a GP) and has other risks (since it may well be a collective investment scheme). An LLP would not save IHT either (compared to doing the same thing without the LLP), but it can be very helpful in doing family things together. But there are quite a lot of anti-avoidance rules to think about, depending what you plan to use it for.

JoLam

I'm struggling with this issue too - my sole beneficiary is hopeless with money and as the only sensible parent (the other one has drifted away) I dont like to think of her left with a large value sipp which will attract 40%IHT and then 20% when she draws on whats left. Im considering an annuity at the ripe old age of 75,

af1963

Another consideration maybe: is it worth bypassing one generation and leaving more to grandchildren ?

Gives them money at a stage when they're more likely to need it - adult children could easily be 50+ or 60+ by the time they inherit. Bypasses a subsequent stage when another chunk of IHT could be taken when the grandchildren eventually inherit. And possibly spreads the inheritance among more people, which might help them to access more of it at lower income tax bands if that is due.

Charity donations, already mentioned as an inheritance option which can reduce the IHT rate for other recipients, but it you can also donate using gift aid while alive, which means they get the money sooner, you can see the results of it, and the gift aid means you can effectively withdraw it tax free from the pension.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82179208#Comment_82179208

It is very unlikely that the whole SIPP will attract 40% IHT.

It will be included into the rest of your estate for IHT calculation purposes. Then IHT will normally be allocated proportionately between the unused SIPP and the rest of the estate. The exact rules are not totally clear ( to me anyway), but it looks like in fact the Executor of the estate could decide not to allocate the IHT proportionately if that was thought to be a good idea.

artyboy

I'm glad I've got one child studying finance. She doesn't want to be an accountant, but might appreciate knowing how to deal with our estate when the time finally comes!

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82179208#Comment_82179208

so rather than one of your beneficiaries maybe paying 20% tax on a portion of inheritance above £1m, you’d give them less in the first place? that sounds a little odd if you don’t mind me saying so

of course if you want to spend that money thats fine -its your retirement. but if you were to spend it you’d be leaving less either way.

and paying 20% tax on withdrawals isn’t the end of the world. at least you’d be potentially passing on something to be used in their retirement and maybe they would benefit from that safety net if they are hopeless with money now and not saving for retirement as much as they should? Still they can draw from the inherited pension any time so its not full protection

dharm999

We are gifting substantial sums now to our son, to enable him to trade up his property. The one he’s buying is bigger, and in a better location, and he could be there for 20 years. We are 67, and 56, so a good chance we’ll live 7 years to make it exempt from IHT. We are also gifting monthly to him, out of surplus income. He’s increased his salary sacrifice amount in to his pension, and we are giving him the drop in his net salary.

Assuming the world doesn’t go to hell, and the stock markets continue to perform at a reasonable level over the next 20 years, then we’ll also leave 10% of our estate to charity, which, when you work through the numbers ends up costing you far less then you think, given the 4% drop in IHT that you get the benefit of if you do that.

Apart from that, we are also spending it, and viewing that spending as actually costing 40% less, giving we are saving the IHT. Not strictly true of course, but it helps us to spend what we have.