Higher rate Tax and Inheritance Tax Question

jem16

alun4 wrote: »

There will be extra income in this new tax year now the proceeds of sale of home have entered the equation but the income tax will cut the increasing income back substantially.

My understanding from the advice above is this income can be gifted as an excess of income over expenditure on a regular basis to keep lid on the IHT exposure.

So long as you can show it's regular then yes.

I feel most IFA by instinct will want to advise a bond.

Possibly because in your aunt's circumstances it may be the best advice. It can reduce her income tax liability and her IHT liability.

I think the purchase then spread prices could make this a poor investment in the short term.

It should really be for a longer term. I believe that if it's written into trust then there is someway that if your aunt dies earlier then the Investment Bond can be passed on without cashing it in. I don't know enough about that side of it though to be sure.

At the moment, cash looks one of the best places to be.

Cash has its risks too - of inflation.

If we knew when the upturn would be we could invest at the bottom of the cycle but that knowledge is beyond me !

Not even an IFA could answer that for you. All they could say is that now is a btter time than it has been over the last 2 years.

jem16

A similar thread to your aunt's circumstances here;

http://forums.moneysavingexpert.com/showthread.html?t=1008721

alun4

jem 16

Thank you for the link. It seems a lot more complex than I had thought - particularly as in my 86 year old aun'ts case the potential income this new tax year could take her into higher rate tax.

I feel uneasy about a bond as my late father had one (granted, years ago!) and immeadiately lost a 3% fee on purchase. Then the bid to offer price was quite a shock to him. At the time it put the money outside his estate but he could have reversed this if he had wanted to - which was the main attraction to him. Over the many years the bond ran it did eventually show a good return but if he had passed away in the first couple of years I think the investment would have been very poor.

jem16

alun4 wrote: »

jem 16

Thank you for the link. It seems a lot more complex than I had thought - particularly as in my 86 year old aun'ts case the potential income this new tax year could take her into higher rate tax.

I feel uneasy about a bond as my late father had one (granted, years ago!) and immeadiately lost a 3% fee on purchase. Then the bid to offer price was quite a shock to him.

That's why you need to see the right person about this, i.e. an IFA and not an FA from the bank.

I took out an investment bond almost 2.5 years ago mainly due to higher rate tax and IHT issues - in my case the IHT should no longer be an issue but that's because of the recent changes allowing me to use my late husband's NRB.

The initial allocation due to commission rebate from the IFA and special offer was 107.5% so for my £100k, £107.5k was actually invested.


However the main point is that this is only guesswork and possible ideas. An IFA would be able to look at your aunt's circumstances and see what is suitable for her.