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Inheritance tax planning - advice

Practical Issues
Binlid
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Inheritance tax planning - advice

#673604

Postby Binlid » July 9th, 2024, 3:00 pm

Hi,
I'm 71 married & retired with two grown up kids, good health & no debts
House value £650k, joint investments 1.1 million (ISAs & Non-ISA) plus un-used pension pot of 400k
To date, I've done no Inheritance tax planning
Any suggestions ?

SebsCat
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Re: Inheritance tax planning - advice

#673618

Postby SebsCat » July 9th, 2024, 3:50 pm

Get yourself a copy of "How to Save Inheritance Tax 2023/24" by Carl Bayley (https://www.amazon.co.uk/How-Save-Inher ... 1911020862 - other bookshops are available).

Lootman
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Re: Inheritance tax planning - advice

#673620

Postby Lootman » July 9th, 2024, 3:54 pm

You are married and so there should be no IHT issue upon the first death. It is the second death you need to plan for.

Being/getting married is easily the best anti-IHT strategy there is.

scrumpyjack
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Re: Inheritance tax planning - advice

#673628

Postby scrumpyjack » July 9th, 2024, 4:26 pm

Apart from what is possible in tax planning terms you need to think of all the family issues.

Only you know the people involved, their strengths, weaknesses, aims, health, marriages, earning prospects etc etc.

Then you also need to think about the grandchildren – similar points but should you skip a generation with your largesse?

I have found all those issues are far more difficult than the tax planning ones!

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Re: Inheritance tax planning - advice

#673643

Postby Urbandreamer » July 9th, 2024, 5:21 pm

Lootman wrote:You are married and so there should be no IHT issue upon the first death. It is the second death you need to plan for.

Being/getting married is easily the best anti-IHT strategy there is.


I would disagree, Because it may not delay the bill by very long and we know the thing about few things being as certain as death and taxes. She may get your allowances, but tax would still be due.

You can forget the unused pension pot, it should be outside of IHT, unless you put each other on your expression of wishes form. Change it to your children if you currently name each other.

Gifts out of income are exempt from tax, but you need professional advice as it's to easy to get wrong. Basically it's likely to only be true if you dividend income exceeds your living expenses and your capital remains untouched. I'd recommend keeping a record of your dividend for the executor to argue the case.

If that isn't an option then start gifting in the hope that it will become a potentially exempt transfer.
Look at your investments. Which of them would be covered by Business Property Relief? You might need professional advice in this area, as HMRC don't publish a list and companies that did, may no longer

There was a recent thread about Labour and taxation, where I got into a ding-dong over the duke of Westminster receiving rather a lot without paying IHT.
I maintained that the journalists were misrepresenting the position as the Trust he received would be subject to significant taxation. It still might be worth talking to a professional as to if this might be a good way to mitigate IHT, The different taxation might be worth having.

Life insurance could be an option. It wouldn't be cheap, but could avoid IHT.
Or possibly an insurance bond, which is a investment product structured as life insurance. Again, advice needed.

Hope this provides food for thought.

kempiejon
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Re: Inheritance tax planning - advice

#673647

Postby kempiejon » July 9th, 2024, 5:34 pm

Binlid wrote:Hi,
I'm 71 married & retired with two grown up kids, good health & no debts
House value £650k, joint investments 1.1 million (ISAs & Non-ISA) plus un-used pension pot of 400k
To date, I've done no Inheritance tax planning
Any suggestions ?


Write a will. If you are the surviving spouse or vv will anything change? What is your source of income? To avoid your estate having a bill spend it now. Start your philanthropy too as you have enough. Make regular gifts out of income to the progeny to stop the pile growing. Live as long as you can. Is the purpose of inheritance planning to stop any money going to the government or make it easy on death?

Lootman
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Re: Inheritance tax planning - advice

#673650

Postby Lootman » July 9th, 2024, 5:39 pm

kempiejon wrote:Is the purpose of inheritance planning to stop any money going to the government or make it easy on death?

For me, both.

I want the government to get nothing. I would rather leave it all to charity and then at least I choose the cause and not the government.

But also, yes, to save my surviving family the pain of probate. My ambition is that there will be no probate, and no IHT. I do not want my demise to cause any work or stress for those I care about. Only for those I dislike.

DrFfybes
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Re: Inheritance tax planning - advice

#673670

Postby DrFfybes » July 9th, 2024, 6:43 pm

You can really only plan under current rules, but the simplest way is to take the Red Hot Chilli Peppers' advices and Give It Away Now. Alternative routes for reducing Wealth are spening it on a high end sports car, or divorce. Note the 2 are not mutually exclusive, and often one is a consequence of the other :)

But firstly, decide where you want your money to go. Sounds really obvious, but like ScrumpyJack says, do you want it to go to children, grandchildren, charities, etc?

THEN WRITE IT ALL DOWN IN A WILL!!!!!

Next - do you have enough to live on? Sounds like it, so assuming you intend to give much to direct descendants then you need to get total assets (excluding Pension, at least under the current rules) down to £1m. Actually it's not as simple as that, as you get £650k of non house assets and UP TO £350k of house to pass down, so house over £350k eats into 'normal' IHT allowance, however if you have downsized to a house worth less than £350k then the whole £350k can still generally be claimed.

Third, are you thinking of downsizing? If so then given your age the best bet might be to give the excess away when you do. Mum did that, lived another decade, and that meant her flat and transferred NRB put her under the limit.

IF you are making large charity bequests, you can do some now and you/they benefit from Gift Aid/Tax relief. If you leave 10% or more of your Estate to charity then you can reduce the IHT rate on the balance to 36%, but you will always give away more than you save in IHT.
https://www.gov.uk/donating-to-charity/ ... -your-will

We're in a similar position to you financially but an average age of 60 and already have monthly payments into JISAs for 2 generations down (although these actually come from surplus income), and with no children we won't get the RNRB. At that level of wealth then Trusts have their own tax rules and personally I'd rather just keep it really simple and we have joint accounts that we intend to use to give sums away from age 70, then if one of us keels over unexpectedly AIUI only 50% of the gifts fall within the Estate.

Last thought - if the "unused" pension has not been crystallised, you could crystallise it, take the £100k Tax Free Lump Sum, and give it away. That way if the rules change on it falling outside of the Estate then you've reduced the amount in there. AIUI once you hit 75 your beneficiaries are taxed on anything they take from their portion as though it was Income, whereas if you don't make 75 they can take their share out tax free should they wish.

Paul

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Re: Inheritance tax planning - advice

#673674

Postby SalvorHardin » July 9th, 2024, 6:52 pm

Some years ago I worked for a firm of solicitors and in my dealings with the wills and trusts team I heard some interesting stories. A few thoughts:

As a rule make a will. This also encourages the person to document their assets, which makes probate a lot easier (many people can't remember everything that they own). If there are divorces, remarriage, etc. the division of assets under the intestacy laws can become a nightmare (and can lead to messy court cases when everyone loses except the lawyers).

Make gifts (if you can afford it) and if needs be take out a life assurance policy to cover the potential IHT liability on the gift. Gifts out of surplus income avoid IHT but ensure that you can prove that it really is surplus income.

Executors will get annoyed if you leave a percentage of your estate to a big charity, because the charity will regularly ask them to hurry up with the distribution. In one case the will included a provision that the charity would lose 5% of its inheritance for every time that they contacted the executor, to deter the charity from ringing the executor every day.

Some people are known to give things away to evade IHT. One story concerned a person who spent a huge amount on a variety of antiques not long before he died. He then had a massive bonfire in his garden where the antiques (and rubbish) were destroyed.

It was suspected that the antiques had been given away to relatives and friends, but this could not be proven.

scrumpyjack
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Re: Inheritance tax planning - advice

#673680

Postby scrumpyjack » July 9th, 2024, 7:39 pm

I have heard of a case (alleged!) where the deceased had a lot of valuable antiques. Funnily enough by the time the valuer was called in to assess the house contents, all the stuff was from Ikea!

TUK020
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Re: Inheritance tax planning - advice

#673734

Postby TUK020 » July 10th, 2024, 7:59 am

Just as important as a will - Lasting Power of Attorney, both medical & financial

Adamski
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Re: Inheritance tax planning - advice

#673744

Postby Adamski » July 10th, 2024, 8:42 am

You may think about whether you want to do gifting soon to children or grandchildren. Labour have said little on what they're going to do. However under Corbyn planned a lifetime inheritance limit of £125k with anything above this including gifts taxed as income. It's unlikely that new taxes will be applied retrospectively unless it's specifically to stop tax avoidance schemes. Personally I think they're going to do something along similar lines but we don't know.

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Re: Inheritance tax planning - advice

#673757

Postby Lootman » July 10th, 2024, 9:43 am

Adamski wrote:You may think about whether you want to do gifting soon to children or grandchildren. Labour have said little on what they're going to do. However under Corbyn planned a lifetime inheritance limit of £125k with anything above this including gifts taxed as income.

It is hard for me to imagine how such a policy could be enforced. Right now there is no requirement to report or disclose any gift, no matter what the value nor who is the recipient. And even if there was a reporting requirement it is not easy to see how any government could detect unreported gifts that have no paper trail.

Right now the process of discovering gifts is left to the executors of estates. The taxman relies on the collective honesty and diligence of lay executors to tax estates. The imposition of such a low threshold for gifts would surely lead to an avalanche of unreported gifts, which the government would struggle to monitor and control.

Reeves should do the opposite and increase the nil-rate band to at least a million a person, enabling the authorities to focus on a smaller number of larger estates, which would yield the most revenue for the effort expended.

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Re: Inheritance tax planning - advice

#673761

Postby MuddyBoots » July 10th, 2024, 9:53 am

TUK020 wrote:Just as important as a will - Lasting Power of Attorney, both medical & financial


If you have even a moderately sized estate I'd recommend having your will done by a good lawyer. When we had ours done, she suggested we come back in the future to have things like PoA set up, and also look at our house ownership, because it makes a difference for the care funding means-testing rules whether a couple have joint tenants or tenants in common.

You can also have a letter of wishes for less legal and more personal things like funeral arrangements and non-binding recommendations to your executors.

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Re: Inheritance tax planning - advice

#673841

Postby Nocton » July 10th, 2024, 5:11 pm

I don't think anyone has mentioned AIM shares, but there are several good cos. out there which will pay you regular dividends and give you good growth. Some of my favourites: JET2, Churchill, Billington, FW Thorpe, MP Evans - they have served me well over the years.

Also I would not let the tax tail wag the dog. "I want the government to get nothing." is not a sensible investment objective, IMHO. Better to invest the money wisely and pay some tax, than invest poorly and have less money so your heirs pay less tax. And why do you think that the government will spend it less wisely than a charity? There are some pretty awful 'charities' about, ranging from the corrupt to the incompetent so you need to choose carefully.

And at 71, unless you are in poor health you should be planning to likely live until 86 (with a 1 in 4 chance of 92, 1 in 10 of 96; 88, 94 & 98 for your wife), so I don't think you and your wife have a particularly large retirement pot, so I should be cautious about giving too much away.
See: https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07

scrumpyjack
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Re: Inheritance tax planning - advice

#673844

Postby scrumpyjack » July 10th, 2024, 5:20 pm

I would be very surprised if the AIM shares IHT exemption survives a couple of Labour budgets. There really isn't any economic or public interest justification for it and when it is abolished AIM share prices are likely to fall quite a bit.

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Re: Inheritance tax planning - advice

#673846

Postby Lootman » July 10th, 2024, 5:25 pm

scrumpyjack wrote:I would be very surprised if the AIM shares IHT exemption survives a couple of Labour budgets. There really isn't any economic or public interest justification for it and when it is abolished AIM share prices are likely to fall quite a bit.

Exactly. You can spend 20 years invested in these under-performing and riskier shares, only to find out that their IHT exemption vanishes overnight. And their share prices drop to add insult to injury.

And nobody in their right mind would devote more than a small percentage of their net worth to AIM shares, and so it really doesn't solve the bigger issue. There are easier and safer ways to make IHT go away.

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Re: Inheritance tax planning - advice

#673854

Postby kempiejon » July 10th, 2024, 6:52 pm

Nocton wrote:I don't think anyone has mentioned AIM shares, but there are several good cos. out there which will pay you regular dividends and give you good growth. Some of my favourites: JET2, Churchill, Billington, FW Thorpe, MP Evans - they have served me well over the years.


Good pointer on AIM picks, bit risky not just the casino of AIM but the chance of regulation changes. I have not checked are they all AIM IHT exempt, I know the rules and eligibility can change? I guess that's Churchill China Clay a share I investigated 20 odd years ago, I used to have them. Billington have had a good year, might warrant a further sniff. FW Thorpe hasn't done me any major favours in my 5 year holdings though I have had more in dividends that capital decline. The others are not on my radar so cheers for offering them as options.

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Re: Inheritance tax planning - advice

#673866

Postby Urbandreamer » July 10th, 2024, 8:12 pm

kempiejon wrote:
Nocton wrote:I don't think anyone has mentioned AIM shares, but there are several good cos. out there which will pay you regular dividends and give you good growth. Some of my favourites: JET2, Churchill, Billington, FW Thorpe, MP Evans - they have served me well over the years.


Good pointer on AIM picks, bit risky not just the casino of AIM but the chance of regulation changes. I have not checked are they all AIM IHT exempt, I know the rules and eligibility can change? I guess that's Churchill China Clay a share I investigated 20 odd years ago, I used to have them. Billington have had a good year, might warrant a further sniff. FW Thorpe hasn't done me any major favours in my 5 year holdings though I have had more in dividends that capital decline. The others are not on my radar so cheers for offering them as options.


The thing about BPR is it's misnamed. It applies to trading, rather than investing. There will be plenty of AIM shares that don't qualify for BPR.

I bought shares in Renew holdings back in 2014, partly for IHT reasons. I believe that it still qualifies as:

Renew's activities are focused into two business streams: Engineering Services, which accounts for over 95 per cent of the Group's adjusted operating profit, focuses on the key markets of Rail, Infrastructure, Energy (including Nuclear) and Environmental which are largely governed by regulation and benefit from non-discretionary spend with long-term visibility of committed funding.

Specialist Building focuses on the High Quality Residential, Landmark and Science markets in London and the Home Counties.


It's been a good investment over that time period.
Here is an IC article on the company.
https://www.investorschronicle.co.uk/ne ... for-renew/

I'm sure that there are others who frolic in the grime and hard work, making a decent return. I'd make sure that their business is conducted in the UK. I'm not convinced that M P Evens qualifies, you might need advice if you wanted to rely upon palm plantations for your BPR.

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Re: Inheritance tax planning - advice

#673917

Postby Nocton » July 11th, 2024, 8:39 am

scrumpyjack wrote:I would be very surprised if the AIM shares IHT exemption survives a couple of Labour budgets. There really isn't any economic or public interest justification for it and when it is abolished AIM share prices are likely to fall quite a bit.

You may be right about Labour, but I don't agree that "There really isn't any economic or public interest justification for it". If Labour wants to encourage growth then they need to encourage smaller cos. that can grow into larger ones, so helping cos. raise capital is important. Also, with the LSE currently suffering headwinds, I think it would be a foolish chancellor who added to them.

For the record, as an example of the sort of co. I am thinking of, Jet2 published its results today:
https://www.investegate.co.uk/announcem ... ts/8305214
They started from small beginnings as a freight carrier and are now the UK's largest holiday co. and one of the largest European airlines. In 2008, at the time of the financial crisis when the pundits said no one would be able to afford foreign holidays, I bought for 16p (and I wish I'd bought more as they are now about £13).


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