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IHT

Practical Issues
Lootman
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Re: IHT

#278918

Postby Lootman » January 21st, 2020, 11:00 am

scrumpyjack wrote:
Lootman wrote:
JohnB wrote:Er, if you are UK domiciled, aren't you liable for all income tax on foreign income and IHT on the assets? I suppose you could always move to a country with no IHT, there are a dozen or so

Not to take us too far off-topic, but you are taxed on non-UK income only if you are UK-resident for that tax year. Domicile doesn't have anything to do with that.

Domicile is harder to lose than residency, and does theoretically mean that you retain a liability for UK IHT. Although in practice if you, your assets, your death and your probate are all overseas, collection of any UK IHT would be somewhere between unlikely and impossible. It is also unlikely that a foreign executor would notify the British authorities of your death. Nor could he/she be penalised for that omission due to a lack of jurisdiction.

And if it was a country with its own IHT then that would take precedence. Also note that some countries tax the beneficiaries rather than the estate.

Has this scenario ever been tested?

HMRC have certainly gone after some expats who died overseas without ever formally shedding UK domicile. It was my understanding that this was mostly for high-value people like billionaires and celebrities. Seems much less likely to happen with your average Joe. After all, that situation has probably applied to millions of expats, most of whom would never bother to lose their domicile.

scrumpyjack wrote:I understand that HMRC can recover IHT from the beneficiaries where the estate does not pay it, so you would have to have only beneficiaries who are non UK resident (and non UK domiciled?) as well as an Executor who was prepared to risk being personally pursued by the UK authorities.

If those beneficiaries were in the UK and HMRC had full information about the death, the Will, the estate and the subsequent transactions then, yes, that is possible. The question is more about how HMRC would get all that information if the only people who have it are overseas and who therefore do not answer to HMRC or UK law.

Ditto for an Executor who is a foreign national and resident. What would HMRC threaten him with if he just ignores their questions? What could the government of Thailand threaten you with if you handled the UK estate of a Thai expat who lived here?

scrumpyjack wrote:The UK authorities would know of the death unless you ceased claiming the state pension before death or your estate continued receiving it after death, which in itself would be an offence of some sort?

That's probably the main way the UK authorities would know that a UK-domiciled non-celebrity had died overseas. Perhaps DWP informs HMRC every time a state pension is terminated, and then HMRC cross-checks that against applications for probate?

Still leaves open the question of how HMRC would obtain more information, however. That would require a lot of work and they'd have to believe that the tax due and the probability of cost-effective collection justifies the effort. That might in turn depend on how co-operative the tax authorities of the two countries were.

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Re: IHT

#278936

Postby Howard » January 21st, 2020, 12:25 pm

So going back to your original question Uncle Philip, you are faced with two broad suggestions:

One option is rather like a Somerset Maugham short story. Lootman’s suggestion of flitting to Thailand and indulging in nefarious tax practices. Sitting on your verandah, far away from your friends and family nervously sipping gin, waiting for the visit by the tax inspector, living in fear of discovery. Finally death wrenching your ill gotten fortune from your claw-like hand whilst your family curses your memory. ;)

Or taking sensible actions now, to give away some serious money to your family and to enjoy your sunset years with them, perhaps accepting that some tax has to be paid to the society who nurtured you. Thanks to Scrumpyjack and others for their suggestions.

The lesson I take from the discussion is that the time for action is now! I am personally so pleased that I gave away substantial sums more than seven years ago rather than agonise about what to do. These gifts have paid Mrs H and me priceless dividends. Money given to children openly for the benefit of themselves and their families has not proved at all divisive, in fact it has strengthened our family bonds. Much better to do this while one is alive than wait for death, when the admin can take away a lot of the joy!

And, slightly off-topic, if one has been lucky enough in investing, giving substantial sums to charities is also hugely rewarding and has pleasant tax side-effects. Much better than waiting for death to relieve one of excess wealth - see above. :)

Whatever choice is taken, the other lesson for me, is to keep a record of one’s actions. This will make probate so much easier for one’s family. Sadly I’m aware of wealthy individuals who have died and left an unpleasant mess for their family to sort out. Instead of fond memories, they leave behind a nasty taste, which can blight their children and grandchildren’s inheritances.

regards

Howard

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Re: IHT

#278953

Postby scrumpyjack » January 21st, 2020, 1:21 pm

Howard wrote:So going back to your original question Uncle Philip, you are faced with two broad suggestions:

One option is rather like a Somerset Maugham short story. Lootman’s suggestion of flitting to Thailand and indulging in nefarious tax practices. Sitting on your verandah, far away from your friends and family nervously sipping gin, waiting for the visit by the tax inspector, living in fear of discovery. Finally death wrenching your ill gotten fortune from your claw-like hand whilst your family curses your memory. ;)

Or taking sensible actions now, to give away some serious money to your family and to enjoy your sunset years with them, perhaps accepting that some tax has to be paid to the society who nurtured you. Thanks to Scrumpyjack and others for their suggestions.

The lesson I take from the discussion is that the time for action is now! I am personally so pleased that I gave away substantial sums more than seven years ago rather than agonise about what to do. These gifts have paid Mrs H and me priceless dividends. Money given to children openly for the benefit of themselves and their families has not proved at all divisive, in fact it has strengthened our family bonds. Much better to do this while one is alive than wait for death, when the admin can take away a lot of the joy!

And, slightly off-topic, if one has been lucky enough in investing, giving substantial sums to charities is also hugely rewarding and has pleasant tax side-effects. Much better than waiting for death to relieve one of excess wealth - see above. :)

Whatever choice is taken, the other lesson for me, is to keep a record of one’s actions. This will make probate so much easier for one’s family. Sadly I’m aware of wealthy individuals who have died and left an unpleasant mess for their family to sort out. Instead of fond memories, they leave behind a nasty taste, which can blight their children and grandchildren’s inheritances.

regards

Howard


Yes giving to charities can give one a warm feeling but there are problems.

I was a trustee for 5 years of a charitable trust which gave substantial sums to other charities, from its income, rather than performing direct charitable activities. Other trustees had had wide experience of the big charities and some fairly horrific stories of waste and inefficiency.

We therefore had a policy of only giving to local charities which were mainly staff by volunteers and could be seen to be doing good work. We did not give anything to large charities with overpaid chief executives and expensive central London office space. That ruled out most of big ones!

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Re: IHT

#278955

Postby JohnB » January 21st, 2020, 1:26 pm

The 2 problems with large charitable giving is 1) getting on their mailing lists when still alive 2) letting them sniff round your estate when mentioned in a will. LF has lots of stories about the problems of the latter.

So using anonymous donations using an intermediary account that can reclaim gift-aid is best.

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Re: IHT

#278956

Postby Dod101 » January 21st, 2020, 1:33 pm

All of this giving away of substantial sums during one's lifetime is a great idea, but of course one needs to have substantial excess wealth to do so.

Looking back on it now, I gave my two children substantial sums when they were starting out and that certainly helped them setting up house and so on. At the time, I was being well paid and so the sums were soon made up. In my retirement years I have lived entirely off my investments and still do, but I do not feel able to do a great deal for my family at this stage. Life is for living after all and I am just about to set off on a three week trip to the Far East. I am doing that so long as I am blessed with good heath and the ability to do so, but it is not cheap. Life is for living.

Dod

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Re: IHT

#278958

Postby Dod101 » January 21st, 2020, 1:38 pm

JohnB wrote:The 2 problems with large charitable giving is 1) getting on their mailing lists when still alive 2) letting them sniff round your estate when mentioned in a will. LF has lots of stories about the problems of the latter.

So using anonymous donations using an intermediary account that can reclaim gift-aid is best.


Getting your name on the mailing lists is not the problem; getting them off is.

As for bequests in a Will, if you leave specific sums for each of your charities there is no big problem. If you leave them the residue it is more complicated as they are then entitled to query expenses etc to ensure that they are getting their fair share.

Dod

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Re: IHT

#278961

Postby Gan020 » January 21st, 2020, 1:59 pm

UnclePhilip wrote:Thanks for the stimulating replies.

The £3K gifts wouldn't more than scratch the surface I'm afraid.

Although I'd been avoiding it, perhaps I/we do need to start looking at trusts


For info here's a thread I started on Discretionary Trusts. Others have kindly contributed information on other types of Trusts as well.

viewtopic.php?f=49&t=17088

First thing to note is that regardless of whether you give the money away or put in Trust, it's subject to the 7 year rule.

Trusts can be tax efficient but care must be taken if the amounts are substantial as the tax outcome will depend on the beneficiaries circumstances.

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Re: IHT

#278965

Postby Howard » January 21st, 2020, 2:13 pm

scrumpyjack wrote:
Howard wrote:So going back to your original question Uncle Philip, you are faced with two broad suggestions:

One option is rather like a Somerset Maugham short story. Lootman’s suggestion of flitting to Thailand and indulging in nefarious tax practices. Sitting on your verandah, far away from your friends and family nervously sipping gin, waiting for the visit by the tax inspector, living in fear of discovery. Finally death wrenching your ill gotten fortune from your claw-like hand whilst your family curses your memory. ;)

Or taking sensible actions now, to give away some serious money to your family and to enjoy your sunset years with them, perhaps accepting that some tax has to be paid to the society who nurtured you. Thanks to Scrumpyjack and others for their suggestions.

The lesson I take from the discussion is that the time for action is now! I am personally so pleased that I gave away substantial sums more than seven years ago rather than agonise about what to do. These gifts have paid Mrs H and me priceless dividends. Money given to children openly for the benefit of themselves and their families has not proved at all divisive, in fact it has strengthened our family bonds. Much better to do this while one is alive than wait for death, when the admin can take away a lot of the joy!

And, slightly off-topic, if one has been lucky enough in investing, giving substantial sums to charities is also hugely rewarding and has pleasant tax side-effects. Much better than waiting for death to relieve one of excess wealth - see above. :)

Whatever choice is taken, the other lesson for me, is to keep a record of one’s actions. This will make probate so much easier for one’s family. Sadly I’m aware of wealthy individuals who have died and left an unpleasant mess for their family to sort out. Instead of fond memories, they leave behind a nasty taste, which can blight their children and grandchildren’s inheritances.

regards

Howard


Yes giving to charities can give one a warm feeling but there are problems.

I was a trustee for 5 years of a charitable trust which gave substantial sums to other charities, from its income, rather than performing direct charitable activities. Other trustees had had wide experience of the big charities and some fairly horrific stories of waste and inefficiency.

We therefore had a policy of only giving to local charities which were mainly staff by volunteers and could be seen to be doing good work. We did not give anything to large charities with overpaid chief executives and expensive central London office space. That ruled out most of big ones!


If one’s donations are significant, one can meet the chief executive and make an informed decision. And take a personal interest in how the donation is spent.

Having had a career in business, it is fun in retirement to be able to meet people running very large operations, for example a world-class university, and get a (privileged) insight into their priorities. Or meet young volunteers who have gone to Africa and nursed ebola victims and get their views on the world. A chat over dinner with a Nobel Laureate can also be surprisingly entertaining!

As a fairly analytical individual, on reflection, these (IHT saving) experiences have given me far more pleasure than being cooped up with first class flyers or pampered cruise passengers. But each to their own!

regards

Howard

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Re: IHT

#278977

Postby Lootman » January 21st, 2020, 3:07 pm

Dod101 wrote:All of this giving away of substantial sums during one's lifetime is a great idea, but of course one needs to have substantial excess wealth to do so.

Looking back on it now, I gave my two children substantial sums when they were starting out and that certainly helped them setting up house and so on. At the time, I was being well paid and so the sums were soon made up. In my retirement years I have lived entirely off my investments and still do, but I do not feel able to do a great deal for my family at this stage. Life is for living after all and I am just about to set off on a three week trip to the Far East. I am doing that so long as I am blessed with good heath and the ability to do so, but it is not cheap. Life is for living.

Yes, I gave my kids a six-figure sum each so they could buy their first homes and that was money well spent, as well as being IHT-efficient (5 of the 7 years have now passed).

Gifts are the most common form of IHT avoidance but I think it is flawed. Partly because you are gambing on living 7 more years (for non-charitable giving) and partly because the money is gone for good and you can't know for sure that you won't need it.

Therefore I prefer methods that retain access to the assets e.g. the use of qualifying AIM shares. Or at least, as you mention, fritter it away on trips and treats all at a 40% discount :lol:

Howard wrote:So going back to your original question Uncle Philip, you are faced with two broad suggestions:

One option is rather like a Somerset Maugham short story. Lootman’s suggestion of flitting to Thailand and indulging in nefarious tax practices. Sitting on your verandah, far away from your friends and family nervously sipping gin, waiting for the visit by the tax inspector, living in fear of discovery. Finally death wrenching your ill gotten fortune from your claw-like hand whilst your family curses your memory. ;)

Or taking sensible actions now, to give away some serious money to your family and to enjoy your sunset years with them, perhaps accepting that some tax has to be paid to the society who nurtured you.

That made me smile. With your florid command of the English language perhaps you should take up writing short stories in your retirement :D

But for the record I did say that emigrating is a "drastic" solution, that it's not for everyone and that it depends on your appetite for risk and uncertainty. I'd never emigrate for that reason. But if you plan to anyway then the relative freedom from UK taxes that it confers is an added benefit.

As noted above, the gifting strategies are not certain. All IHT strategies have drawbacks which is why each of us adopt different approaches, making it hard to know which is the optimal approach for any one individual.

PS: You are probably more likely to meet a Nobel laureate flying First Class than sending a cheque to Oxfam.

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Re: IHT

#278979

Postby Dod101 » January 21st, 2020, 3:18 pm

scrumpyjack wrote:Yes giving to charities can give one a warm feeling but there are problems.

I was a trustee for 5 years of a charitable trust which gave substantial sums to other charities, from its income, rather than performing direct charitable activities. Other trustees had had wide experience of the big charities and some fairly horrific stories of waste and inefficiency.

We therefore had a policy of only giving to local charities which were mainly staff by volunteers and could be seen to be doing good work. We did not give anything to large charities with overpaid chief executives and expensive central London office space. That ruled out most of big ones!


No doubt there is a lot of waste with big charities just as there is with any big business. I am not so sure about overpaid chief executives. Some may well be overpaid but at the same time, if you want one who has the experience and knowhow he is not going to be cheap. Obviously the stories from the likes of Oxfam are disgraceful and I do not think I would ever support them.

Interesting one charity supporting other charities. You could say that that is a waste of resources. After all the receiving charity must be fundraising in its own right and if a charity just passively gives money away to another charity that is surely wasteful in itself.

Personally I think there are far too many charities and if I were running the Charities Commission I would put a freeze on any new ones. That is probably one reason why we get indifferent management of them because there are just not enough properly motivated executives around.

Dod

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Re: IHT

#278983

Postby scrumpyjack » January 21st, 2020, 3:40 pm

Dod101 wrote:
scrumpyjack wrote:Yes giving to charities can give one a warm feeling but there are problems.

I was a trustee for 5 years of a charitable trust which gave substantial sums to other charities, from its income, rather than performing direct charitable activities. Other trustees had had wide experience of the big charities and some fairly horrific stories of waste and inefficiency.

We therefore had a policy of only giving to local charities which were mainly staff by volunteers and could be seen to be doing good work. We did not give anything to large charities with overpaid chief executives and expensive central London office space. That ruled out most of big ones!


No doubt there is a lot of waste with big charities just as there is with any big business. I am not so sure about overpaid chief executives. Some may well be overpaid but at the same time, if you want one who has the experience and knowhow he is not going to be cheap. Obviously the stories from the likes of Oxfam are disgraceful and I do not think I would ever support them.

Interesting one charity supporting other charities. You could say that that is a waste of resources. After all the receiving charity must be fundraising in its own right and if a charity just passively gives money away to another charity that is surely wasteful in itself.

Personally I think there are far too many charities and if I were running the Charities Commission I would put a freeze on any new ones. That is probably one reason why we get indifferent management of them because there are just not enough properly motivated executives around.

Dod


Well it was an ancestor of mine, before there was a welfare state, who put a very large amount into a charity he set up for the relief of poverty in the county. So it was not trying to fundraise, simply trying to decide how best to use the income on the resources it already had. The trustees and management were all unpaid though we did employ for a very modest amount a retired serviceman to investigate and advise how we could best apply our income.

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Re: IHT

#278993

Postby Dod101 » January 21st, 2020, 4:32 pm

scrumpyjack wrote:
Dod101 wrote:
scrumpyjack wrote:Yes giving to charities can give one a warm feeling but there are problems.

I was a trustee for 5 years of a charitable trust which gave substantial sums to other charities, from its income, rather than performing direct charitable activities. Other trustees had had wide experience of the big charities and some fairly horrific stories of waste and inefficiency.

We therefore had a policy of only giving to local charities which were mainly staff by volunteers and could be seen to be doing good work. We did not give anything to large charities with overpaid chief executives and expensive central London office space. That ruled out most of big ones!


No doubt there is a lot of waste with big charities just as there is with any big business. I am not so sure about overpaid chief executives. Some may well be overpaid but at the same time, if you want one who has the experience and knowhow he is not going to be cheap. Obviously the stories from the likes of Oxfam are disgraceful and I do not think I would ever support them.

Interesting one charity supporting other charities. You could say that that is a waste of resources. After all the receiving charity must be fundraising in its own right and if a charity just passively gives money away to another charity that is surely wasteful in itself.

Personally I think there are far too many charities and if I were running the Charities Commission I would put a freeze on any new ones. That is probably one reason why we get indifferent management of them because there are just not enough properly motivated executives around.

Dod


Well it was an ancestor of mine, before there was a welfare state, who put a very large amount into a charity he set up for the relief of poverty in the county. So it was not trying to fundraise, simply trying to decide how best to use the income on the resources it already had. The trustees and management were all unpaid though we did employ for a very modest amount a retired serviceman to investigate and advise how we could best apply our income.


Sorry I really should not be so personal. I was thinking of military charities where there is so much duplication it is very wasteful of resources I think. It is a bit of a hobbyhorse.

Dod

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Re: IHT

#278996

Postby PinkDalek » January 21st, 2020, 5:01 pm

Yet again returning to the OP and my apologies for attempting to stick to your questions.

UnclePhilip wrote:[However, as my life expectancy is not looking too rosy, I'm beginning to wonder how these gifts work. ...


Without wishing to delve into your health, I've today found a Tolley document from 2013, which is only a 90+ page IHT Summary, but what is included on page 24 may be relevant to you. I hope you can access it as below:

Tolley Estate Planning 2013
Lifetime Planning - Extract

https://www.tolley.co.uk/__data/assets/file/0005/26897/1213-012_estate_planning_content.pdf

The section headed Gifts for maintenance of family may be of interest commencing Although not an exemption, IHTA 1984, s 11 provides that the following dispositions will not be transfers of value. I don't wish to breach copyright issues and am not therefore providing detailed extracts.

That section concludes (my bold):

Because the above dispositions (a)–(e) are not transfers of value they are not taken into account even if the donor dies within seven years. It is therefore possible for a terminally ill donor with young children to make substantial transfers from his estate to provide for their maintenance, education or training tax free. This is a rare form of death bed planning.

It may be worth your while investing in an up to date copy of that or other technical publications or seeking professional advice.

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Re: IHT

#279013

Postby Lootman » January 21st, 2020, 6:11 pm

PinkDalek wrote:Because the above dispositions (a)–(e) are not transfers of value they are not taken into account even if the donor dies within seven years. It is therefore possible for a terminally ill donor with young children to make substantial transfers from his estate to provide for their maintenance, education or training tax free. This is a rare form of death bed planning.

Well, if you are financially supporting young children then I would have thought there are a lot of possibilities for reducing the value of your estate by pre-paying for their care and support. In any event anything you spend reduces the size of your estate. And paying for the care and well-being of your pre-adult children is a normal family expense and not a "gift".

It raises all kinds of possibilities, like pre-paying several year's worth of private school fees, housing, nanny child care and so on.

Surely the problem for most of us is that our children are adults and so such largesse doesn't count as mere child support any more, whether you are terminally sick or not?

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Re: IHT

#279019

Postby PinkDalek » January 21st, 2020, 6:37 pm

Just thought I'd throw it in there, whilst you were once again talking about your own oft mentioned thoughts on the issue, and it may have helped others who don't have such in depth knowledge. :D

Lootman wrote:[Surely the problem for most of us is that our children are adults ...


I've no idea of the age of the OP's issue (and I don't know why they said young children) but this may assist when talking of adults:

http://www.legislation.gov.uk/ukpga/1984/51

11 Dispositions for maintenance of family.

(1) (b) ... for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training.


More generally, there's plenty of interest in the Tolley pdf. Well worth a read.

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Re: IHT

#279023

Postby Lootman » January 21st, 2020, 6:45 pm

PinkDalek wrote: this may assist when talking of adults:

http://www.legislation.gov.uk/ukpga/1984/51

11 Dispositions for maintenance of family.

(1) (b) ... for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training.

Yes, in that situation the pre-payment of University tuition and accommodation might be deemed to be normal support even past age 18. The key would be that the individual is a dependent of yours, I'd imagine.

Certainly as an Executor I would not include such expenditure as any kind of failed PET. It's just normal spend on a dependent.

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Re: IHT

#279030

Postby PinkDalek » January 21st, 2020, 7:15 pm

Lootman wrote:The key would be that the individual is a dependent of yours, I'd imagine.


I don't think that dependent is relevant, in so far as a "child" as defined is concerned under 11 (1) and (2). Look at the legislation - dependent relative isn't mentioned until 11 (3) and is defined further down.

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Re: IHT

#279038

Postby fca2019 » January 21st, 2020, 7:54 pm

Apologies if been answered already but in my example a Joint Gift to children can reduce IHT on a taxable estate, if the surviving spouse lives 7 years.

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Re: IHT

#279042

Postby UnclePhilip » January 21st, 2020, 8:22 pm

PinkDalek wrote:Yet again returning to the OP and my apologies for attempting to stick to your questions.

UnclePhilip wrote:[However, as my life expectancy is not looking too rosy, I'm beginning to wonder how these gifts work. ...


Thank you for coming back on piste!

Without wishing to delve into your health, I've today found a Tolley document from 2013, which is only a 90+ page IHT Summary, but what is included on page 24 may be relevant to you. I hope you can access it as below:

Tolley Estate Planning 2013
Lifetime Planning - Extract

https://www.tolley.co.uk/__data/assets/file/0005/26897/1213-012_estate_planning_content.pdf


Very interesting, I read part of it, it's a good easy read actually

It may be worth your while investing in an up to date copy of that or other technical publications or seeking professional advice.


I've read Carl Bayley a while ago:

https://www.amazon.co.uk/How-Save-Inher ... oks&sr=1-4

Which I found fairly comprehensive.

To clarify a few things;

(i) our three 'children' are 32, 30 and 29

(ii) I'm awaiting biopsy results but am unlikely to peg it imminently

(iii) I have ambivalent feelings as I don't object 'in principle' to IHT as it helps to maintain a civilised society. It's just that I believe in hypocrisy when it comes to family....

(iv) no emmigration or risky arcane structures wanted, it has to be of a 'meat and two veg' type of plan

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Re: IHT

#279160

Postby Howard » January 22nd, 2020, 12:06 pm

UnclePhilip wrote:
I've read Carl Bayley a while ago:

https://www.amazon.co.uk/How-Save-Inher ... oks&sr=1-4

Which I found fairly comprehensive.

To clarify a few things;

(i) our three 'children' are 32, 30 and 29

(ii) I'm awaiting biopsy results but am unlikely to peg it imminently

(iii) I have ambivalent feelings as I don't object 'in principle' to IHT as it helps to maintain a civilised society. It's just that I believe in hypocrisy when it comes to family....

(iv) no emmigration or risky arcane structures wanted, it has to be of a 'meat and two veg' type of plan


Carl Bayley's book looks like it addresses many of the issues your thread has covered. However, would it be correct to say that for you it raised more questions than it answered? Hence your initial post.

I ask, really to help make the decision whether to buy the book. To be really honest and put this question in context, I usually don't find books like this very helpful and learn more from discussions like this thread which you started. And, of course, I quickly learned how much it would cost to employ the sophisticated solutions offered by two Wealth Managers by looking at their costs - they would ensure a very speedy transfer of wealth from my successors to themselves!

regards

Howard

PS Good luck with the biopsy results.


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