Inheritance Tax - The only certainty in life is Death and Taxes!

[glashIFA@Paramount]

I see your point, but surely that statement is wrong. The mechanics of IHT are that it is levied on the estate. It is never the responsibility of the recipients* (after all if the estate is distributed widely whic beneficieries would you tax and how much?).

The fact that the IHT needs to be settled before disbursement can cause huge problems in physically dealing with the estate, especially since you can't sell the assets to settle the bill (although that should be changing some time soon).

* I don't know what would happen in the case of a deliberately bankrupt estate. Say I flog everything and give you all the money. Then I die. The esate would be due to pay quite a lot of cash in IHT but is broke. I imagine there is some mechnism to chase you for it but only in these specific sorts of circumstance.

Yep you're right. If you give it all away then it's a PET. If you die the Revenue will just come after the beneficiary/ies of the PET.

[glashIFA@Paramount]

Hi

I have an elderly grandmother who's estate is going to get clobbered by Gordan 'the fat controller' brown. She is a widower and Her Inheritance tax liability is £136,000 which sickens me. She had made next to no IHT planning and she's 86. She is in reasonable health, but I do not know whether she had another 7 years in her.

I have been researching the IHT avoidance schemes and wanted to see if any bright people had any suggestions.

She has used up her annual exemptions of £3000. Her house held jointly in her name and her son's (my uncle) who lives in the property with her. She has a large share portfolio which she receives dividends but very little expenditure.

My thoughts are
1) make as may small gift of £250 before the new tax year starts.
2) Gift away £3000 in the new 07/08 tax year.
3) Pay her the family's Council tax bill out of her income from dividends which would not lower her standard of living.
4) Assign proceeds of her dividends to my mother. Holding some to maintain her standard of living
5) Gift away antiques etc, writing a memorandum of intent and date transfer made.
6) Put her proportion of property in a discretionary trust.
7) Re write her will so more of the estate passes to the grandchildren (Obviously I'd be happy with this!!!) to avoid a double hit of Inheritance tax.
8) Get her to marry the Postman, pass on her estate, then hope he doesn't do a runner!!

Does this planning sound prudent?

Would point 3 work if it she made payment on a regular basis? I have read that Trusts came under attack in the last budget. Does this mean they are no longer viable? Should I encourage her to re mortgage part of the house and gift the proceeds away in the hope she lives 7 years???

Anyone got and good ideas? Or should I see professional tax planning advise?

The other thing that worries her is she will have to pay large costs if she needs medical care. This has been a stumbling block in trying to get her to dish out her wealth.

Any thoughts appreciated....

The skint Grandson who has just about two pennies to rub together.

There are a lot of straightforward things that can be done to reduce /mitigate the IHT liability and there are more complex arrangements that can be considered too.

I'd be more than happy to give you some general advice on IHT and funding Long Term Care if you want to get in touch.

[tim123]

I see your point, but surely that statement is wrong. The mechanics of IHT are that it is levied on the estate. It is never the responsibility of the recipients* (after all if the estate is distributed widely whic beneficieries would you tax and how much?).

Yes you are right it is the executors problem to pay the money. But that's not the point.

At the end of the day, IHT is always paid by someone who can afford it, they might not like doing so, but the can. No-one ever becomes destitute because of it. One may have to temporarily borrow some money because an asset can't be liquidated quickly enough. But the bottem line is, the more tax you have to pay, the more that there is left in the pot to keep.

tim

[ASB]

At the end of the day, IHT is always paid by someone who can afford it, they might not like doing so, but the can. No-one ever becomes destitute because of it. One may have to temporarily borrow some money because an asset can't be liquidated quickly enough. But the bottem line is, the more tax you have to pay, the more that there is left in the pot to keep.

I don't diagree with that. I still think it is an unfortunate an unreasonable tax. But ultimately the £10,000 per capita we spend has to come from somewhere. The dead don't complain - although the relatives do.

One thing though: "One may have to temporarily borrow some money because an asset can't be liquidated quickly enough". That makes it sound easy, as though you can just go to the bank and say "'guv, lend me £150k so I can flog this house" but it doesn't work like that.

You can't get a grant of probate (or letters of admin) until you have paid the IHT.
You can't sell the assets until you have a grant of probate.
You can't borrow against the assets because you cannot offer them as security.

It can make dealing with an estate very difficult.

[tim123]

I don't diagree with that. I still think it is an unfortunate an unreasonable tax. But ultimately the £10,000 per capita we spend has to come from somewhere. The dead don't complain - although the relatives do.

One thing though: "One may have to temporarily borrow some money because an asset can't be liquidated quickly enough". That makes it sound easy, as though you can just go to the bank and say "'guv, lend me £150k so I can flog this house" but it doesn't work like that.

You can't get a grant of probate (or letters of admin) until you have paid the IHT.
You can't sell the assets until you have a grant of probate.
You can't borrow against the assets because you cannot offer them as security.

It can make dealing with an estate very difficult.

The revenue have changed the rules. You can now sell the house before paying the tax.

tim

[The AntiChrist]

I still think my idea's the best. Why not just arrange for some of it to go 'missing'?

[ASB]

The revenue have changed the rules. You can now sell the house before paying the tax.

tim

Has that actually happened? I thought it was still under review.