inheritance tax and huge question

bbb0000===

hi

chose to re-register as guest, as worried about giving too much info, but am seriously concerned about amount of inheritance tax i am due to pay soon

i know that it must be paid, but am worried about how to go about it.

my sole parent is leaving everything to me, and is getting on a bit...but this is giving me nightmares, not just about death and funerals - i am resigned to that, but PAPERWORK.

we have been talking to an ifa, and provisions have been made for legal tax cutting, and money to come before probate, but is is still way off even the ifa's [imo rather low] target of what my tax bill will be before probate. my parent has been trying to make new [ as now lone parent] insurance provisions for this, but everyone is dragging their feet, despite being in the best of health for age etc. i know i need to speak to the ifa again, but could really use some help. 6 months on, and between insurance companies and doctors, not much has been done.

i'm not poor, own own home, with small mortgage, but earn next to sweet fa. other half earns ok, but most of this is taken up with our mortgage and everday expenditure. we had some savings, but needed a new car, so that has gone. i have nearly 1/5 of inhertitance tax bill in shares in my own name, but due to cgt don't want to cash them in.

so what do i do....can i take out insurance for this [certain] eventuality.
or do i approach my rather non-friendly bank manager, and ask for an overdraft..of mid six figures.... :rotfl:

should i try talking to the mortgage company about possibly upping my mortgage to 100% of my house's value. - it's a flexi mortgage already, but don't know how flexi they would be about that.

i am very reluctant to take on a bridging loan, as until probate comes through, i could not pay it back - i know that this is the point, but am trying to avoid this.

any advice would be most helpful

thanks

klondyke

As Paul Varjak says, some types of investments can be cashed and paid direct to Inland Revenue. If really stuck, many people resort to a bridging loan. Keep your eyes pinned to this site for the best deal or talk to bank manager. Also, don't be afraid to talk to the Inland Revenue themselves. I have always found them extremely helpful.

oceanblue_3

Your parent and you may be able to exercise a deed of variation if your deceased parent died less than two years ago.

sneekymum

Can we have more details?

Is your parent terminally ill?

Is there money that can be passed to you now in the hope that your parent might survive seven years (or most of that time).

Is there a house that your parent lives in that can be given to you now (with parent paying you rent to live there).

Is your parent under 75? She or he could start a stakeholder pension (even if terminally ill) as this pays out its value on death to a named person (you?) and does not from part of the estate. They've got till Jan 31st to make a contribution counting for last year too.

If you can give more information there may be others who can see options you haven't thought of.

bbb0000===

hi,

thanks for all your replies,

my parent is not terminally ill, and only just under 75. still in good health for age, but insurance companies really being very very slow for everyone's liking.

other parent not alas deceased, but divorced, disowned and very disagreeable. i would rather sell my soul to the devil that ever speak to that person again.

parent has already started some discounted gift trusts, but due to age, they are way off amounts needed, unless they survive another 6.5 years.

[i am not considering bumping anyone off...just worried what would happen if they were to suddenly die - if they survive, and moreover live happily for another 7 years, provisions have been made, but rather late in the day. previous whole of life policies were made, but these are dependent of second death, and other parent still alive, in rude health, and rude everything]

sorry, must rush, will reply more later

bbb0000===

hi again

login probs, and toddlerdom prevented me from replying earlier

just found out insurance progressing slowly as found health prob with parent. eek....i thought they were healthy. not life-threatening, but may need huge surgery, private rather than nhs, but still, i know hospitals' records with old people and survival rates.

anyway, still slightly in shock. seems i was the last to know, as they did not know how to tell me.

re inheritance, it is mostly property and share based, so not a question of getting bridging loan, and once probate granted to empty large bank account.

re reply mentioning talking to IR - either you work for them, or have had more luck than me. personally found them awful, due to personal experience of huge bills, when my income allows me to opt out of ni contributions...it is that low, and yet my tax rate has seemed to be 4000%. this took 2 years and many accountants bills to sort out.

am i right in thinking that cgt rate is taken at point of transfer, so property could be disposed of without another huge bill. also re shares, if no cgt payable, would i have to pay income tax?

re. being given private home of parent, and them then paying rent, does this in itself not incur charges, re gift with reservation?

everywhere i turn i see huge tax bills....please let me know answers to above. i will go to see ifa again, but would like to be more informed.

don't mean to sound like spoilt only child, just worried about putting my - young - family into huge debt to get inheritance due.


many thanks

sneekymum

"re inheritance, it is mostly property and share based, so not a question of getting bridging loan, and once probate granted to empty large bank account." - I am in a very similar situation. One day I shall inherit a lot of commercial property and a large amount of IHT will have to be paid.

"my income allows me to opt out of ni contributions...it is that low, and yet my tax rate has seemed to be 4000%. this took 2 years and many accountants bills to sort out." - we too live on a low income - but from choice as with three children and no mortgage its better to receive massive tax creditds than work too hard.

am i right in thinking that cgt rate is taken at point of transfer, so property could be disposed of without another huge bill. also re shares, if no cgt payable, would i have to pay income tax? - yes CGT is taken at point of transfer - ie transfer to you - and tax would be payable at that point (which seems to be the opposite of your understanding). To have property other than someone's main residence put in your name would require that the giver (not receiver) pay CGT on any increase in value since it was acquired. (Reductions given through taper relief, which may be generous if its a business asset, and other things - see elsewhere on Cutting Tax). No income tax payable though.

re. being given private home of parent, and them then paying rent, does this in itself not incur charges, re gift with reservation? - no - the point being that once the parent is paying a true market rent they are not getting FREE use of that pre-owned asset. There's no reservation on that gift - you could have let it to someone else.

everywhere i turn i see huge tax bills....please let me know answers to above. i will go to see ifa again, but would like to be more informed. - now there's the real problem. The bottom line is that an IFA (or solicitor), if acting correctly, cannot be engaged by you to consult on your parent's money. And since you don't actually have the money yet they will not advise on how to reduce tax. I've been there. The only way to take professional advice is to get the parent to engage the adviser. If your parent is anything like my mother they'll be happy to go along with anything that's suggested to them. And what's suggested will not include giving money away.

You can get a very good guidebook to IHT from BestInvest - they'll post it to you. It includes all the main methods of IHT avoidance + some odd ones (buy a restaurant!). The first one in the book is to give your money away - the sooner the better - if you can afford to do so.

don't mean to sound like spoilt only child, just worried about putting my - young - family into huge debt to get inheritance due.- not at all - my father died too young through hard work building up what my mother has now - we won't be handing it to the tax man without a fight.

sneekymum

I should like to tell you our approach to this problem though you need to appreciate that I'm in no way qualified financially.

Your parent can give away £3000 a year in total free of IHT (plus any unused £3000 or part thereof from last year). They can also give gifts out of income that do not affect their standard of living. If you're in my situation though this sounds like peanuts and bigger action is needed.

Our approach is that mother gives me all her money and I choose to keep it safe in case I choose to give it back. This works because I have little need of money - no mortgage and big tax credits plus some self-employed earnings (and lots of free time). I put mother's money in tax-free National Savings Certificates (in my name) because these reflect her attitude to risk they have no impact on Tax Credits. (Tax Credits are reduced by 37p for every pound you income goes up by.) I could also put her money in ISAs but I've already filled up my allowance with money she actually wants me to have. The maximum in Savings Certificates is £15K per type per issue = £60K each time they reissue.

I'm still struggling to stuff it away fast enough and recently took advice here about shifting a big lump all at once. From that I'm now looking into Investment Bonds where the interest is not paid out until some years in the future when I may not be getting Tax Credits and mother might have passed on anyway.

Now what if mother dies before the seven years is up? Well the tax would need to be paid. But its paid out of the estate first. The tax man only comes after those gifts I received if there's not enough left in the estate to pay the tax. So while the tax due on the gifts does increase the tax due on the residue of the estate, its taken from the estate first. If my (or your) parent has no liquid assets on death then the property must be sold to pay the tax before you get the money or you can pay out of your 'own' money.

Also, IHT is tapered. So if mother survives for at least half that time we'll see a reduction in the tax due.

I don't know the ratio of your parent's shares to property but if I was in your situation I would have mother start turning those shares into cash - making use of the annual CGT allowance of £8,500 (and CGT only applies to the profit after taper relief) and give it to me (with a nice gift certificate she designed herself & signs) to put safely in National Savings Certificates. [NB - she does not benefit from a pre-owned asset here as no one can see inside my head to know that I'll give it straight back to her if she ever asks...]

Finally, if business properties are involves the CGT may well be very small on a gift. Although CGT would not be payable at all on an inheritance it may be that you want to keep control over a particular property and would rather (as a family) pay the CGT and hope the giver survives seven years (or some of that time) - passing the burden of tax from that gift onto the remaining estate. The problem with that one for me though is that I don't want rental income messing up my tax credits - and in our scheme of things I'd only be investing that rent safely in case I should choose to give it to my mother...

We are reducing the property protfolio gradually through natural wastage - and turning it into cash for me to keep safe.... The most recent tennant to leave had not paid rent for months. Folks who dream of having a property empire don't appreciate that tax is due on the rental value rather than rent actually received when rental income exceeds £15K. This means in mother's case that she'll be paying tax at 40% on money she never received.

klondyke

bbb0000=== wrote:

so what do i do....can i take out insurance for this [certain] eventuality.
or do i approach my rather non-friendly bank manager, and ask for an overdraft..of mid six figures.... :rotfl:

should i try talking to the mortgage company about possibly upping my mortgage to 100% of my house's value. - it's a flexi mortgage already, but don't know how flexi they would be about that.

i am very reluctant to take on a bridging loan, as until probate comes through, i could not pay it back - i know that this is the point, but am trying to avoid this.

Sorry, but I'm a bit baffled (though I am not financially qualified except as a payer of IHT:-().

Obviously, you/parent should be doing everything possible to mitigate IHT liability now, but if and when it becomes inevitable, and all monies which can be immediately raised have been utilised, then (term) insurance, overdraft or bridging loan may be the only options. Insurance would need to be already in place - and from what you say, this looks like an expensive option, but overdraft or bridging loan will only be needed at the point of knowing the probate bill - by which time the IHT threshhold should have risen and, with luck (in these circumstances) interest rates may have come down, so it may not look so daunting then.

As you say, the point of a bridging loan is to pay the probate, so you can get at the estate. You would then be able to pay it back from proceeds of the estate - though this would, of course, mean selling some assets to raise the cash. Don't forget that max IHT is 40% of estate over the threshold, so you would still have threshold + 60% of the rest to play with.

Obviously, if you want to keep the estate exactly as it stands you do indeed have a problem. But shares can be sold quickly (and ok you may not get the best price by rushing - or waiting). Bricks and mortar take longer.

Don't forget that CGT is not payable on death, but would be if transferred to you earlier. Also, if rules are still the same, if the sale price(s), when sold within a year, is(are) significantly less than the probate value, the IHT can be reviewed(though not by artificially reducing the price by offering a discount to your pals!) (Can't remember the definition of 'significant' here.)

I am not sure, as it didn't arise with us, whether the cost (interest) of loan or overdraft can be charged as executor's expenses - assuming you will be the executor. Worth finding out from someone on here or the friendly Inland Revenue! (No, I don't work for them, but I have honestly, genuinely always found them helpful.)

I would reiterate everyone's advice on mitigating liability now - but when push comes to shove, it shouldn't be difficult to get a loan, even paid direct to IR. There might even be some 0% ones around then. Stuff your grumpy bank manager - you will need an executor's account for receiving money and paying bills until all is sorted out. Use another bank - whoever Martin is recommending at the time! The probate figures, rather than credit ratings and such will be a more significant factor then.

Good luck - I hope your parent lives much longer than 7 years anyway.