Inheritance tax

[lukemg]

Sorry to get back to the OP.
Going through this at the moment as my dad died before xmas. Everything has gone to my mum, which is bad as she now has assets around 650k. First step is deed of variation to change the will to ensure use of dad's 285k allowance, probably by direct transfer to children/grandchildren, trusts are an option but complex and could be changed later.
There are options to give money away 3k a year one off + 250 to any number of people. In addition you can give money from regular income, as long as you keep enough for day to day costs (and it's better to make these a regular annual amount rather than one-off's)
Even with this, I expect my mum's estate to increase by 20k a year as she has virtually no outgoings and income from investments of 40-50k !!!
My parents had just enough money for most of the time they were married with a family, nice but modest middle class life. Only later when investments and other windfalls and rainy day money saved for decades started to mount up have they been loaded and my dad never got used to it.
My Mum was fairly oblivious until I have spelled it out to her but she can't get her head round it either !
Point is - save for a rainy day/retirement by all means but for god's sake spend some of the damn stuff as you are going along !
Insecurity about work and a couple of rough years cash wise etc has meant I have not been doing this but I am trying to change my attitude !

[rootsnall]

Sorry to get back to the OP.
Going through this at the moment as my dad died before xmas. Everything has gone to my mum, which is bad as she now has assets around 650k. First step is deed of variation to change the will to ensure use of dad's 285k allowance, probably by direct transfer to children/grandchildren, trusts are an option but complex and could be changed later.
There are options to give money away 3k a year one off + 250 to any number of people. In addition you can give money from regular income, as long as you keep enough for day to day costs (and it's better to make these a regular annual amount rather than one-off's)
Even with this, I expect my mum's estate to increase by 20k a year as she has virtually no outgoings and income from investments of 40-50k !!!
My parents had just enough money for most of the time they were married with a family, nice but modest middle class life. Only later when investments and other windfalls and rainy day money saved for decades started to mount up have they been loaded and my dad never got used to it.
My Mum was fairly oblivious until I have spelled it out to her but she can't get her head round it either !
Point is - save for a rainy day/retirement by all means but for god's sake spend some of the damn stuff as you are going along !
Insecurity about work and a couple of rough years cash wise etc has meant I have not been doing this but I am trying to change my attitude !

My parents have similar levels of assets and if I understand correctly if either of them die their half share of the pot goes to kids and grandkids including half the house ( but with some proviso to allow the survivor to live in the house until they die even though they only own 50% ).

Again if I believe correctly ( please correct me !? ) Your mother can give away all she wants without any tax implications for anyone BUT if she dies within 7 years that money ( or a reducing proportion of it ) will be included in her estate for IHT purposes.

So if she's happy to do that she should start doling out the dosh asap !

[Troll]

Sorry to get back to the OP.
Going through this at the moment as my dad died before xmas. Everything has gone to my mum, which is bad as she now has assets around 650k. First step is deed of variation to change the will to ensure use of dad's 285k allowance, probably by direct transfer to children/grandchildren, trusts are an option but complex and could be changed later.
There are options to give money away 3k a year one off + 250 to any number of people. In addition you can give money from regular income, as long as you keep enough for day to day costs (and it's better to make these a regular annual amount rather than one-off's)
Even with this, I expect my mum's estate to increase by 20k a year as she has virtually no outgoings and income from investments of 40-50k !!!
My parents had just enough money for most of the time they were married with a family, nice but modest middle class life. Only later when investments and other windfalls and rainy day money saved for decades started to mount up have they been loaded and my dad never got used to it.
My Mum was fairly oblivious until I have spelled it out to her but she can't get her head round it either !
Point is - save for a rainy day/retirement by all means but for god's sake spend some of the damn stuff as you are going along !
Insecurity about work and a couple of rough years cash wise etc has meant I have not been doing this but I am trying to change my attitude !

You have to remember it's a generation thing - your (& mine) parents grew up in a very different world to today, my fathers father died when he was two, and was bought up in poverty & literally didn't know where the next meal was coming from & was often sent out to relatives who could feed him - naturally once you experience this kind of poverty and the deprivations of living through a World War - it shapes your attitudes to money, work and life.

He would rather hoarde money than spend it as I believe he didn't want to experience those times again - consequence of which he died very, very rich but wasn't really involved in his childrens childhood - I'm of the opposite outlook on life and absolutely believe in having a good times with your children while they are young (could be a compensating thing), but I have never gone hungry and the money I'm currently earning would have astounded him.

[glashIFA@Paramount]

My parents have similar levels of assets and if I understand correctly if either of them die their half share of the pot goes to kids and grandkids including half the house ( but with some proviso to allow the survivor to live in the house until they die even though they only own 50% ).

Again if I believe correctly ( please correct me !? ) Your mother can give away all she wants without any tax implications for anyone BUT if she dies within 7 years that money ( or a reducing proportion of it ) will be included in her estate for IHT purposes.

So if she's happy to do that she should start doling out the dosh asap !

Its not a given that their half share of the pot goes to kids and grandkids - that depends on what their will says and this would typically only allow for £285,000 (or the nil rate band for inheritance tax at the time) to be passed down a generation. Any more than this will trigger a tax charge of 40% on the surplus, which is why mums and dads tend to leave assets to each other as this benefits from "interspousal exemption", in other words no IHT liability. Problem is it just loads up the survivors estate.

With regard to the house, chances are its owned on a joint tenancy basis which means they don't own 50% each, they each own 100% of it. If you want to pass half the house outside the estate on the first death it has to be owned on a tenants in common basis (a good solicitor can arrange this) and its also a useful exercise in the event of having to fund long term care at any time in the future. This allows for a full lifetime tenancy for the surviving parent too so no problems there.

The surviving parent can give as much as they like away thereafter and as long as they survive 7 years its outside the estate for IHT purposes. The problem nearly always arises with "how long am i going to live and how much can i afford to give away?" Once its gifted its gone.

There are lots of other plannig opportunities, discounted gift schemes etc. and anyone with issues in this area should seek appropriate advice - its complicated!! That said, Inheritance Tax is still by and large a "voluntary" tax and proper planning can mitigate it.

[rootsnall]

Its not a given that their half share of the pot goes to kids and grandkids - that depends on what their will says and this would typically only allow for £285,000 (or the nil rate band for inheritance tax at the time) to be passed down a generation. Any more than this will trigger a tax charge of 40% on the surplus, which is why mums and dads tend to leave assets to each other as this benefits from "interspousal exemption", in other words no IHT liability. Problem is it just loads up the survivors estate.

With regard to the house, chances are its owned on a joint tenancy basis which means they don't own 50% each, they each own 100% of it. If you want to pass half the house outside the estate on the first death it has to be owned on a tenants in common basis (a good solicitor can arrange this) and its also a useful exercise in the event of having to fund long term care at any time in the future. This allows for a full lifetime tenancy for the surviving parent too so no problems there.

The surviving parent can give as much as they like away thereafter and as long as they survive 7 years its outside the estate for IHT purposes. The problem nearly always arises with "how long am i going to live and how much can i afford to give away?" Once its gifted its gone.

There are lots of other plannig opportunities, discounted gift schemes etc. and anyone with issues in this area should seek appropriate advice - its complicated!! That said, Inheritance Tax is still by and large a "voluntary" tax and proper planning can mitigate it.

Thanks for the reply, you sound possibly prof clued up on this (!?). My folks have done the necessary regarding the will and the house tenancy with their solicitor. As far as I can see its easy to avoid aslong as the total pot is less than 2 X 285K, if its more than that, they have to give some away and hope they live 7 years. I guess if the property alone is approaching 2 X 285K then it gets more complicated and you may need one of the planning opportunities mentioned. On the giving away front I think it depends on if they are living off the investments they own and hence can't really give them away. My folks can more than survive on their pensions so its not such an issue.

[Clippy]

There are lots of other planning opportunities, discounted gift schemes etc. and anyone with issues in this area should seek appropriate advice - its complicated!! That said, Inheritance Tax is still by and large a "voluntary" tax and proper planning can mitigate it.

With regards mitigation, my understanding is most of these alternative methods also involve relatively 'long' timeframes of circa 7 years.

Are there currently any valid 'short-term' schemes in existence which help to mitigate any liability?

[Troll]

Its not a given that their half share of the pot goes to kids and grandkids - that depends on what their will says and this would typically only allow for £285,000 (or the nil rate band for inheritance tax at the time) to be passed down a generation. Any more than this will trigger a tax charge of 40% on the surplus, which is why mums and dads tend to leave assets to each other as this benefits from "interspousal exemption", in other words no IHT liability. Problem is it just loads up the survivors estate.

With regard to the house, chances are its owned on a joint tenancy basis which means they don't own 50% each, they each own 100% of it. If you want to pass half the house outside the estate on the first death it has to be owned on a tenants in common basis (a good solicitor can arrange this) and its also a useful exercise in the event of having to fund long term care at any time in the future. This allows for a full lifetime tenancy for the surviving parent too so no problems there.

The surviving parent can give as much as they like away thereafter and as long as they survive 7 years its outside the estate for IHT purposes. The problem nearly always arises with "how long am i going to live and how much can i afford to give away?" Once its gifted its gone.

There are lots of other plannig opportunities, discounted gift schemes etc. and anyone with issues in this area should seek appropriate advice - its complicated!! That said, Inheritance Tax is still by and large a "voluntary" tax and proper planning can mitigate it.

Who assesses the value of the estate - if the house it is a dilapidated ruin - can you say it's worth only £250k because it's a ruin, but omit to mention that it stands in 3 acres and could be developed for millions - sell it to a limited company formed of the beneficiaries of the original estate and develop it yourself & trouser the profit?

… all hypothetically of course

[glashIFA@Paramount]

[QUOTE=rootsnall]Thanks for the reply, you sound possibly prof clued up on this (!?). My folks have done the necessary regarding the will and the house tenancy with their solicitor. As far as I can see its easy to avoid aslong as the total pot is less than 2 X 285K, if its more than that, they have to give some away and hope they live 7 years. I guess if the property alone is approaching 2 X 285K then it gets more complicated and you may need one of the planning opportunities mentioned. On the giving away front I think it depends on if they are living off the investments they own and hence can't really give them away. My folks can more than survive on their pensions so its not such an issue.[/QUOTE

Looks like an okay situation then, you're just about there with your understanding. An ideal option for them if they wanted would be to set up a "gift and loan scheme" whereby they a small gift to a trust and LOAN any surplus to it. Any growth on this is outside estate from day one and all outside after 7 years. The big benefit is that IF they do decide they need some of the capital at a future date then they can have their money back at any time as they are the trustees. Othwise, if income is more than adequate then give the surplus away now and let the kids enjoy it.

[glashIFA@Paramount]

With regards mitigation, my understanding is most of these alternative methods also involve relatively 'long' timeframes of circa 7 years.

Are there currently any valid 'short-term' schemes in existence which help to mitigate any liability?

Yep, there are arrangements available that get some of the capital outside the estate from day 1 by way of a discount and there are planning opportunities that get all of the capital out of the estate after 2 years by using business property relief.

[rootsnall]

[QUOTE=glashIFA@Paramount]

Thanks for the reply, you sound possibly prof clued up on this (!?). My folks have done the necessary regarding the will and the house tenancy with their solicitor. As far as I can see its easy to avoid aslong as the total pot is less than 2 X 285K, if its more than that, they have to give some away and hope they live 7 years. I guess if the property alone is approaching 2 X 285K then it gets more complicated and you may need one of the planning opportunities mentioned. On the giving away front I think it depends on if they are living off the investments they own and hence can't really give them away. My folks can more than survive on their pensions so its not such an issue.[/QUOTE

Looks like an okay situation then, you're just about there with your understanding. An ideal option for them if they wanted would be to set up a "gift and loan scheme" whereby they a small gift to a trust and LOAN any surplus to it. Any growth on this is outside estate from day one and all outside after 7 years. The big benefit is that IF they do decide they need some of the capital at a future date then they can have their money back at any time as they are the trustees. Othwise, if income is more than adequate then give the surplus away now and let the kids enjoy it.

YIPPEE !!!!!! The sun has got his hat on ......................

Back to sensible for a minute while you are there. My Grandad is also still around and his will is 50% to me and 50% to my Dad. Is it correct that we can rejig the will ( with my Dad's consent ) on his death. In other words leave the lot to me if that makes sense.