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IHT planning...what have you done?

Practical Issues
flyer61
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IHT planning...what have you done?

#472756

Postby flyer61 » January 13th, 2022, 2:00 pm

Looking at ideas for mitigating what will be a substantial hit for our children if we do nothing. (M60/F61)

Have a Limited Company that has assets in it and along with my wife and I the children are also Directors and shareholders. Has anybody used a Limited Company as a means for transferring wealth and therefore avoiding IHT. It is not a qualifying Company as defined for Business property Relief. I like the idea of using the Limited Company as we are able to keep control albeit if any money comes into the Company it will be money that has been gifted to the children. ie they will make Directors loans whilst my wife and I still hold a majority shareholding (just).

Has anybody gone down this route?

bluedonkey
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Re: IHT planning...what have you done?

#472757

Postby bluedonkey » January 13th, 2022, 2:02 pm

Keep it simple. Just give money away.

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Re: IHT planning...what have you done?

#472774

Postby DrFfybes » January 13th, 2022, 2:58 pm

What the Azure Asino says, far easier to keep it simple. Assuming you have no health issues, then you are plenty young enough to take a simple approach, and it is a good idea to be thinking about it now. The thing with keeping it simple, is that if the rules change (and they often do), then complicated routes can easily end up expensive or redundant - think of all the people who left assets in Trust to use their personal IHT allowance before it was transferrable between spouses, then never simplified things later on.

Under current regs you can leave a million to your direct descendants tax free, and anything given away more than 7 years before death is ignored. You can also pass the contents of your SIPP(s) outside of IHT A million quid is (IMO) quite sufficient to survive on in your dotage, and if not you could always ask the kids for a loan :)

If the children run/work in the company, presumably you will be handing it over at some point. If so then do it sooner and you can still have the input, and draw an income, without incurring the taxation and asset accrual.

You have annual gift allowances, not a huge amount but £3k a year each plus £250 to any grandchildren adds up over 20 years. You could exceed those, and make larger gifts and hope you live 7 years.

We have no children or business, but enough assets that if we died tomorrow the taxman would take a lot more than each of our beneficiaries. As we're both nearly 60 (although from opposite sides) our plan is to live as we wish for the next 10 years or so whilst making ad hoc gifts to good causes and our nieces and nephews (and their children in JISAs) at a rate that keeps our assets fairly steady. We put what we can into SIPPs each year and even at the statutory max that should be thick end of £100k disposed of by the time we go. Once we hit 70 the next generation will be reaching or over 18 and we intend to pass it down the line in chunks as they come of age.

Paul

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Re: IHT planning...what have you done?

#473017

Postby yorkshirelad1 » January 14th, 2022, 10:30 am

+1. Keep it simple. Do you want to saddle your inheritors with a load of hassle (& potentially fees)?

Personal investment companies seem to be in vogue, but you can be sure as soon as some "good wheeze" comes along, there'll be a clamp down on them. BPR used to be a thing (so people started looking at AIM companies, which has its own hazards in relation to BPR) but that's not guaranteed into the future and it's getting tightened up.
In my experience, nothing is forever, so for example Potentially Exempt Transfers (gifts over 7 years) even get eyed up by Chancellors periodically, so you have to be on the ball, and don't expect your good idea now still to be available in 10 or 15 years, and the current IHT effectiveness of pensions and passing on the pot (noting LTA rules which could change) are probably in the firing line too.
IANAL

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Re: IHT planning...what have you done?

#473023

Postby gryffron » January 14th, 2022, 10:51 am

The easiest option by a long shot is to gift it NOW!

Not only is this (probably) more efficient for tax, but you get to enjoy watching the kids and grandkids enjoy spending it, and hopefully having better lives because of it. You don't need to hoard it until the moment of your demise, when it's too late for you to see the good it can do.

Gryff

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Re: IHT planning...what have you done?

#473028

Postby Sobraon » January 14th, 2022, 11:22 am

Maxing Mrs S's and my SIPPs and filling in IHT403 (annual rolling basis past 7 years), 'gifting'(student loans and house deposits) and 'regular gifting from surplus income'.

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Re: IHT planning...what have you done?

#473032

Postby yorkshirelad1 » January 14th, 2022, 11:28 am

yorkshirelad1 wrote:+1. Keep it simple. Do you want to saddle your inheritors with a load of hassle (& potentially fees)?

Personal investment companies seem to be in vogue, but you can be sure as soon as some "good wheeze" comes along, there'll be a clamp down on them. BPR used to be a thing (so people started looking at AIM companies, which has its own hazards in relation to BPR) but that's not guaranteed into the future and it's getting tightened up.
In my experience, nothing is forever, so for example Potentially Exempt Transfers (gifts over 7 years) even get eyed up by Chancellors periodically, so you have to be on the ball, and don't expect your good idea now still to be available in 10 or 15 years, and the current IHT effectiveness of pensions and passing on the pot (noting LTA rules which could change) are probably in the firing line too.
IANAL


Forgot to mention: keep and leave good records so that your PRs/exors can do the paperwork more easily (e.g./ especially for help with completing IHT403). But (what I believe is known in the trade as) "dying tidily" is A Good Thing (and gets aired on TLF from time to time)

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Re: IHT planning...what have you done?

#473036

Postby Midsmartin » January 14th, 2022, 11:47 am

My SIPP is only small - for years before the rules changed it never looked attractive. Now I'm wondering whether to view it primarily as a means to avoid IHT while our ISAs provide our 'pension'. I reckon that the differences in income taxes/IHT may balance out, but the absence of CGT inside the SIPP probably makes it worthwhile over (hopefully) two or four decades. If I never withdraw anything out of the SIPP myself, capital gains will continue to mount up free of CGT for our offspring.

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Re: IHT planning...what have you done?

#473077

Postby Lootman » January 14th, 2022, 1:53 pm

yorkshirelad1 wrote:+1. Keep it simple. Do you want to saddle your inheritors with a load of hassle (& potentially fees)?

Personal investment companies seem to be in vogue, but you can be sure as soon as some "good wheeze" comes along, there'll be a clamp down on them. BPR used to be a thing (so people started looking at AIM companies, which has its own hazards in relation to BPR) but that's not guaranteed into the future and it's getting tightened up.

In my experience, nothing is forever, so for example Potentially Exempt Transfers (gifts over 7 years) even get eyed up by Chancellors periodically, so you have to be on the ball, and don't expect your good idea now still to be available in 10 or 15 years, and the current IHT effectiveness of pensions and passing on the pot (noting LTA rules which could change) are probably in the firing line too.

Yes, a major problem with any IHT planning is that you can spend years and decades implementing some plan involving AIM shares or PETs, and then the rules could change quickly, and be effective immediately.

But not retrospectively and you can only work with the rules as they are. This year the 7 year clock runs out on some 6-figure PETS I made in 2015, and that will be a big relief. I will probably do the same again and hope for another 7 years on this planet (and no Labour government).

One strategy not mentioned so far is simply becoming more extravagant. One can take the view that there is a 40% sale on everything. And in general acts of generosity like buying someone a dinner or taking them on holiday is not something that the average executor would regard as a PET. It is just spending.

gryffron wrote:The easiest option by a long shot is to gift it NOW!

Not only is this (probably) more efficient for tax, but you get to enjoy watching the kids and grandkids enjoy spending it, and hopefully having better lives because of it. You don't need to hoard it until the moment of your demise, when it's too late for you to see the good it can do.

Gryff

Yes, and prudent given the comments above. The only issue I have with being even more generous than I have been is that I don't want my kids to have it too easy.

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Re: IHT planning...what have you done?

#473099

Postby Dod101 » January 14th, 2022, 3:58 pm

Midsmartin wrote:My SIPP is only small - for years before the rules changed it never looked attractive. Now I'm wondering whether to view it primarily as a means to avoid IHT while our ISAs provide our 'pension'. I reckon that the differences in income taxes/IHT may balance out, but the absence of CGT inside the SIPP probably makes it worthwhile over (hopefully) two or four decades. If I never withdraw anything out of the SIPP myself, capital gains will continue to mount up free of CGT for our offspring.


Certainly a SIPP will usually help as a means to avoid IHT but remember that there is often a cost at the time of withdrawal of funds from them unless you can arrange to die before you each 75.

Dod

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Re: IHT planning...what have you done?

#473135

Postby dealtn » January 14th, 2022, 5:53 pm

flyer61 wrote:Looking at ideas for mitigating what will be a substantial hit for our children if we do nothing. (M60/F61)



As well as looking for ways to reduce the IHT claim I continue to grow the "pot". It has the unfortunate side-effect that the amount of IHT paid also potentially grows, but that which is left behind is larger too, and by greater.

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Re: IHT planning...what have you done?

#473141

Postby Eboli » January 14th, 2022, 6:02 pm

I would add my own vote to the many who have suggested KISS.

But the OP mentions something that suggests he has not appreciated the charge to IHT. He said:

I like the idea of using the Limited Company as we are able to keep control ...


Remember under the basic charging provisions of IHT that (IHTA 1984 s 3{1)):

...a transfer of value is a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer.


It is not the value transferred that matters but the amount by which there is a diminution of the transferor's estate. Transfers out of private companies which do not result in a transfer of control are unlikely to have a value near to actual value.

Eb.

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Re: IHT planning...what have you done?

#473149

Postby DrFfybes » January 14th, 2022, 6:43 pm

Lootman wrote:But not retrospectively and you can only work with the rules as they are. This year the 7 year clock runs out on some 6-figure PETS I made in 2015, and that will be a big relief. I will probably do the same again and hope for another 7 years on this planet (and no Labour government).

One strategy not mentioned so far is simply becoming more extravagant. One can take the view that there is a 40% sale on everything. And in general acts of generosity like buying someone a dinner or taking them on holiday is not something that the average executor would regard as a PET. It is just spending.


On your first point, is there a reason you waited 7 years before making a second sift? I assumed they all start from the date of gift?

On your second point, this is good sense. Much as it is nice to treat the elderly parents, it can be far more tax efficient for them to treat you. Sadly by the time we enacted PoA over MrsF's parents it was far too late to stop the taxman getting more than any of the children. All we could do was put them in very good (and expensive) care homes, secure in the knowledge that they had excellent care which was funded more by the taxman than any of the family.

Paul

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Re: IHT planning...what have you done?

#473175

Postby Lootman » January 14th, 2022, 8:00 pm

DrFfybes wrote:
Lootman wrote:But not retrospectively and you can only work with the rules as they are. This year the 7 year clock runs out on some 6-figure PETS I made in 2015, and that will be a big relief. I will probably do the same again and hope for another 7 years on this planet (and no Labour government).

One strategy not mentioned so far is simply becoming more extravagant. One can take the view that there is a 40% sale on everything. And in general acts of generosity like buying someone a dinner or taking them on holiday is not something that the average executor would regard as a PET. It is just spending.

On your first point, is there a reason you waited 7 years before making a second sift? I assumed they all start from the date of gift?

My reasoning was that as long as the value of the "open" PETs is less than the nil rate band allowance, then those gift beneficiaries are not the first port of call for the taxman if the estate cannot cover the IHT due. Once the gifts exceed that level then they can be.

It's also easier for me to keep it all straight in my head if I do it that way, rather than drip feed gifts to them.

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Re: IHT planning...what have you done?

#473205

Postby Kantwebefriends » January 14th, 2022, 11:51 pm

"rules could change quickly, and be effective immediately.

But not retrospectively"

In his 1975 budget Denis Healey imposed a retrospective change on whatever IHT was called at the time. (Estate Duty, perhaps?)

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Re: IHT planning...what have you done?

#473225

Postby DrFfybes » January 15th, 2022, 8:17 am

Lootman wrote:
DrFfybes wrote:On your first point, is there a reason you waited 7 years before making a second sift? I assumed they all start from the date of gift?


My reasoning was that as long as the value of the "open" PETs is less than the nil rate band allowance, then those gift beneficiaries are not the first port of call for the taxman if the estate cannot cover the IHT due. Once the gifts exceed that level then they can be.

It's also easier for me to keep it all straight in my head if I do it that way, rather than drip feed gifts to them.


Ahh, right. Good point. I hadn't considered that as a problem. Its unlikely we'll be handing out 90+k/year repeatedly (650k/7 at current allowances), and out plan is to drip it out as it feels more comfortable to us.

Thanks

Paul

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Re: IHT planning...what have you done?

#473280

Postby ursaminortaur » January 15th, 2022, 12:20 pm

Lootman wrote:
DrFfybes wrote:
Lootman wrote:But not retrospectively and you can only work with the rules as they are. This year the 7 year clock runs out on some 6-figure PETS I made in 2015, and that will be a big relief. I will probably do the same again and hope for another 7 years on this planet (and no Labour government).

One strategy not mentioned so far is simply becoming more extravagant. One can take the view that there is a 40% sale on everything. And in general acts of generosity like buying someone a dinner or taking them on holiday is not something that the average executor would regard as a PET. It is just spending.

On your first point, is there a reason you waited 7 years before making a second sift? I assumed they all start from the date of gift?

My reasoning was that as long as the value of the "open" PETs is less than the nil rate band allowance, then those gift beneficiaries are not the first port of call for the taxman if the estate cannot cover the IHT due. Once the gifts exceed that level then they can be.

It's also easier for me to keep it all straight in my head if I do it that way, rather than drip feed gifts to them.


My understanding is that you can state in your Will that the IHT on any failed PETs are paid out of your estate so that HMRC will not bother your beneficiaries unless your estate cannot cover it.

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Re: IHT planning...what have you done?

#473522

Postby gryffron » January 16th, 2022, 1:58 pm

ursaminortaur wrote:My understanding is that you can state in your Will that the IHT on any failed PETs are paid out of your estate so that HMRC will not bother your beneficiaries unless your estate cannot cover it.

My understanding is that is the default position. So completely unnecessary to state it.

Gryff

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Re: IHT planning...what have you done?

#473536

Postby ursaminortaur » January 16th, 2022, 3:17 pm

gryffron wrote:
ursaminortaur wrote:My understanding is that you can state in your Will that the IHT on any failed PETs are paid out of your estate so that HMRC will not bother your beneficiaries unless your estate cannot cover it.

My understanding is that is the default position. So completely unnecessary to state it.

Gryff


That was what I thought but in a previous reply Gengulphus disagreed

viewtopic.php?p=449083#p449083

That seems quite clear that it's the gift recipient who is liable to pay the IHT. It does indicate that the gift recipient won't normally be expected to make an IHT return - just to pay the IHT assessed on the gifts they received. But that does mean that the gift recipient is involved.

That is to do with who is formally required to pay the tax, and it may well be that HMRC have informal procedures for dealing with the situation informally, such as asking the executor(s) to pay it from the estate on behalf of the gift recipients - after which the executor(s) would presumably calculate what each beneficiary of the will would have received if those 'on behalf of gift recipient' payments had not been made, then pay each of those beneficiaries that amount minus any of those payments that were made on the beneficiary's behalf. But I can see plenty of reasons why the executor(s) might not agree to that, such as that it would mean that they had to 'pay a negative amount' to a beneficiary or indeed someone who isn't a beneficiary at all... The executor(s) would want HMRC to bear any costs of collecting from such people rather than the estate bearing them, and indeed would I think have a duty to the beneficiaries collectively not to reduce the value of the estate by accepting unnecessary costs.

If HMRC cannot collect from a gift recipient, due e.g. to them simply not having the assets to pay it or having moved abroad to a country whose legal system isn't cooperative about such debt collection, I think I've read somewhere that HMRC can fall back on claiming it from the estate or possibly even other gift recipients, but at least formally, that's their second (or later) recourse for collecting the tax, not the first. I'm afraid all I have on that is my memory of something I read years ago, not any memory of where I read it, and I haven't found any links or other references about it with a quick look (which is all I'm willing to put into it right now). So that's basically 'hearsay' evidence which I'm offering for what it's worth, not proper evidence.

So basically, yes, I am sure about what I said, at least as far as the legal responsibilities are concerned. In practice, HMRC might well try to streamline things, and indeed might well frequently succeed in doing so, but I've no practical experience of such situations and so cannot comment on what they actually try in practice. I do know that in the (very unlikely) event that I were to act as executor again, for someone who had made such large gifts, I would be decidedly cautious about agreeing to any HMRC request to pay IHT from the estate on behalf of a gift recipient who is actually responsible for paying it themselves.

Gengulphus

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Re: IHT planning...what have you done?

#473538

Postby scrumpyjack » January 16th, 2022, 3:29 pm

What is the position where the recipient predeceased the donor?


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