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

[mulletman]

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.

[The AntiChrist]

Convince her to sell the shares and keep the proceeds in a jar on the mantlepiece. Then break in and steal it.

[Troll]

Convince her to sell the shares and keep the proceeds in a jar on the mantlepiece. Then break in and steal it.

Yup she's gotta convert the shares to cash, pack her off on a cruise round the world with a small allowance & trouser the rest (best if you go and buy gold coins or similar non-traceable items to launder the cash) - if the taxman asks - she blew the lot while on holiday

[rootsnall]

For 136K I would consider getting some proper paid for advice. There was an IFA answered some questions of mine on here and he seemed to know his stuff. You are probably better paying an upfront fee rather then having them try and make money out of you via commission. For DIY try www.taxationweb.co.uk/forum. The easiest way when I looked into it is to get the oldies to give the money away and hope they live 7 years, if they don't its hard lines and you have to pay up.

[ASB]

"Her house held jointly in her name and her son's (my uncle) who lives in the property with her."

Whether they are joint tenants or tenants in common is important.

"1) make as may small gift of £250 before the new tax year starts."

I'll send you my addess. I'll be happy to help reduce her estate in this way.

"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."

Doesn't help. IHT is paid on the estate, not the legacies.

"Or should I see professional tax planning advise?"

Yes. But you need to find one who knows his stuff when it comes to trusts and IHT. Do a search, there is one who posts here periodically.

"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."

A good advisor should be able to give details of ways round that.

You could also try fool.co.uk. But it is important to remember your situation is absolutely specific to you. Omissions may well render any advice received as absolute useless, or even damaging.

Ultimately, "heres a little bit of information, could you tell me how to save 136 grand for free" is not likely to work overly well.

[THEPUMA]

There are various schemes available, which will help in these circumstances. We can help if you do decide to go down the route of professional advice.

Incidentally, ASB, I think the point re gifting to the grandchildren was to avoid the situation whereby gifts were made to the children which were subject to IHT and then the children die and leave the same monies to the grandchildren, incurring another tranche of IHT.

[ASB]

Incidentally, ASB, I think the point re gifting to the grandchildren was to avoid the situation whereby gifts were made to the children which were subject to IHT and then the children die and leave the same monies to the grandchildren, incurring another tranche of IHT.

Quite possibly. It's the second death that causes the issue. My point was it makes no difference to the orignal estate (unless it is gifted before death and the PET rules apply).

One point which might just help, if she is receivng income in excess of her needs (and by the sound of it she is) then this only increase the problem - in that if it is not spent it becomes capital and then subject to IHT on death.

In principle she can give this excess income away without it being a PET. I think in practice this becomes a bit of a minefield because it is not allowed to deplete standard of living but it might just help.

I suppose if there are any weddings coming up that might help, I seem to remember there is a higher limit for gifts there.

[lukemg]

I am trying to work on a similar situatiion. If you can persuade her, she can make payments based on her income e.g. if she is earning 30k, she can give 20k away as long as the remaining 10 is enough to pay her bills/food etc. This is best done via a regular large payment - say once or twice a year.
Why not offer to hold these payments in a separate account which you will pay her back (unofficially) if she ever needs it. Reality is - if she goes into a home, sale of her house will finance even a very expensive place for years.
Trouble is - this is unlikely to reduce the overall amount significantly, but may stablilise things. My mum's estate is already over the IHT threshold and going up by 30k a year ! Retirement planning - just spend the bloody stuff !
I am trying to get my mum to spend lots more but she doesn't really want/need anything ! She is planning a trip to the states so that will be first class flights for starters !

[tim123]

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

No, the people who are going to inherit her wealth will have a tax liabiliy of 136 grand.

I wish I had a IHT liability of 136 grand coming my way. Because if I did it would mean that almost 500K would be ending up in my bank account.

IHT may be morally wrong, but please stop pretending that it is paid by people who are destitute.

tim

[ASB]

No, the people who are going to inherit her wealth will have a tax liabiliy of 136 grand.tim

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.