IHT

[Kantwebefriends]

A couple of years of pension rises at about 10% p.a. will mightily increase the number of geezers paying Higher Rate income tax too. And if the geezer is over age 75 she can't hope to avoid 40% income tax by making pension contributions.

At least there are ways of reducing the IHT bill - if you are happy to gamble that there won't be adverse changes to the law. And if much of your wealth is flexible rather than being tied up in a house. And if you are prepared to ignore the potential cost of "care" in your calculations.

[scrumpyjack]

Everything is relative. I can remember when death duties were 80% with a marginal rate of 85%. What’s all this fuss about 40%

[Lootman]

At least there are ways of reducing the IHT bill . . if much of your wealth is flexible rather than being tied up in a house

Sure, the most effective strategy, if nothing else matters to you, is to liquidate property, ISAs and anything UK-based, and then relocate yourself and your assets elsewhere. Technically that doesn't escape the obligation but in practice it almost always would.

Given that most people won't do that, the next best thing is PETs, AIM shares and all the other games and gambits. It really would be so much better if IHT were simplified, getting rid of the need for all these tricks, lowering the rate and/or raising the NRB.

[DrFfybes]

Given that most people won't do that, the next best thing is PETs, AIM shares and all the other games and gambits. It really would be so much better if IHT were simplified, getting rid of the need for all these tricks, lowering the rate and/or raising the NRB.

What an outrageous suggestion - asking the government to simplify a taxation structure. They'd much rather tinker around the edges and add complexity, although the upside of this is it does mean that people who have planned aren't completely thrown into disarray by a sudden rule change.

As we have no children we don't get RNRB, so have to think about this already and we're still below state pension age.

Back to the OP's question -
First, use your allowances. It is tinkering around the edges, but with 2 married children you can give £3k to one, then £250 to the other and both their spouses and any of their children, so quite easy to shift £5k a year, and you can both do that. And use last year's £3k if you haven't already. Then there's wedding gifts and surplus income (which given your assets is probably quite a bit?)

Spend non sheltered assets rather than draw from SIPPS (I have a few small DB schemes that I'm thinking of converting to SIPPs when I hit 67 if the IHT benefit is still there).

Expect to live 7 years? - give it away.

Expect to live 2-5 years? - AIM shares - sure they might underperform, but they have to do really badly to make you worse off.

And if one of you is likely to outlive the other, then they are the ones who should make the gifts, no point using your transferable Nil Rate Band up on gifts.

Paul

[Dod101]

[

Spend non sheltered assets rather than draw from SIPPS (I have a few small DB schemes that I'm thinking of converting to SIPPs when I hit 67 if the IHT benefit is still there).

Expect to live 7 years? - give it away.

Expect to live 2-5 years? - AIM shares - sure they might underperform, but they have to do really badly to make you worse off.

And if one of you is likely to outlive the other, then they are the ones who should make the gifts, no point using your transferable Nil Rate Band up on gifts.

Paul

One small point. SIPPs are not an IHT benefit to be there or not. No IHT is charged on a SIPP because its assets do not form part of your estate, provided that is that the assets are held by pension trustees which they usually are.

That is why you do not leave instructions in your Will on where the assets are to go. The whole point is that the trustees have complete discretion on where the assets go although they will usually take account of any Letter of Wishes that you may care to give them.

Dod

[DrFfybes]

And if one of you is likely to outlive the other, then they are the ones who should make the gifts, no point using your transferable Nil Rate Band up on gifts.

Paul

Just to clarify, this relates to gifts separate from the allowances. So if you have 2 children you could both gift £3k to one as an allowance, and the OP's spouse could give £6k to the other which would have 7 years to become exempt.[

[

Spend non sheltered assets rather than draw from SIPPS (I have a few small DB schemes that I'm thinking of converting to SIPPs when I hit 67 if the IHT benefit is still there).

Paul

One small point. SIPPs are not an IHT benefit to be there or not. No IHT is charged on a SIPP because its assets do not form part of your estate, provided that is that the assets are held by pension trustees which they usually are.

That is why you do not leave instructions in your Will on where the assets are to go. The whole point is that the trustees have complete discretion on where the assets go although they will usually take account of any Letter of Wishes that you may care to give them.

Dod

Yes - Expression of wish form nominates niece and nephew. They're not in my will.

[Charlottesquare]

it does not take 40% of their wealth as there are bands with nil charge to first be reached.

True but given that I always have extant PETs that are equal to the nil rate band, the effective rate of IHT on the residue of my estate would be 40%.

Bear in mind that it is not the person who dies who bears the cost of the IHT but his/her children and heirs, and their children whose inheritance is diminished. So there can be many people interested in IHT being reduced, who would not themselves pay it currently on their own wealth. I recall the hugely positive reaction generally to Osborne's promises (never kept) and the kneejerk reaction of Labour who had to promise to ease up on IHT.

The dead don't vote but their heirs do!

Indeed. There must be millions of people whose ageing parents own properties with a value of a million or more, plus other assets of course, who are concerned that their inheritance will be (partly) confiscated by IHT.

IHT is more unpopular than one would think given how historically not a huge number of estates have paid it. And I believe that a significant part of that is an uneasy feeling that it is a tax on dying, and that it is unfair on families who have worked hard and saved hard in order to build long-term financial security and prosperity for their children and grandchildren.

How unfair given bulk is more often than not the family home , which has been free of CGT?

[Dod101]

it does not take 40% of their wealth as there are bands with nil charge to first be reached.

True but given that I always have extant PETs that are equal to the nil rate band, the effective rate of IHT on the residue of my estate would be 40%.

Bear in mind that it is not the person who dies who bears the cost of the IHT but his/her children and heirs, and their children whose inheritance is diminished. So there can be many people interested in IHT being reduced, who would not themselves pay it currently on their own wealth. I recall the hugely positive reaction generally to Osborne's promises (never kept) and the kneejerk reaction of Labour who had to promise to ease up on IHT.

The dead don't vote but their heirs do!

Indeed. There must be millions of people whose ageing parents own properties with a value of a million or more, plus other assets of course, who are concerned that their inheritance will be (partly) confiscated by IHT.

IHT is more unpopular than one would think given how historically not a huge number of estates have paid it. And I believe that a significant part of that is an uneasy feeling that it is a tax on dying, and that it is unfair on families who have worked hard and saved hard in order to build long-term financial security and prosperity for their children and grandchildren.

How unfair given bulk is more often than not the family home , which has been free of CGT?

I was left very little by way of inheritance and I have certainly not worked hard and saved hard in order to build up long term financial security and prosperity for my offspring. I am afraid the working hard and saving has been to finance my retirement years. There will clearly be a significant sum for my children and grandchildren I expect but that is certainly not my priority. If my estate has to pay IHT well too bad.

Dod

[scrumpyjack]

But it does not take 40% of their wealth as there are bands with nil charge to first be reached.

Our nil rate band of £325,000 does seem a trifle mean compared to the US one which I think is $11 million (each for husband and wife)

[Lootman]

But it does not take 40% of their wealth as there are bands with nil charge to first be reached.

Our nil rate band of £325,000 does seem a trifle mean compared to the US one which I think is $11 million (each for husband and wife)

For 2022 it is $12.06 million for each spouse. Call that £19,750,000 for a married couple. Thereafter the US estate tax is 40% as here.

Some individual states have their own estate tax based either on the federal exemption or their own, but many do not tax estates.

I was left very little by way of inheritance and I have certainly not worked hard and saved hard in order to build up long term financial security and prosperity for my offspring. I am afraid the working hard and saving has been to finance my retirement years. There will clearly be a significant sum for my children and grandchildren I expect but that is certainly not my priority. If my estate has to pay IHT well too bad.

No problem with that and I have talked to others who consciously do not want their children to get unearned handouts.

However I have always wanted to give my kids a competitive edge if I could. That included substantial cash gifts so that they could buy homes in London in their mid-twenties. And because they are keen on making money themselves and will invest monies gifted or left to them rather than fritter it away.

I want them to be richer than me.

[scrumpyjack]

The US £20 million includes the cumulative total of gifts whilst alive, though I think there are numerous ways round it in the US if you hire a good tax lawyer.

Of course for those who find the US £20 million tax free limit restricting, in the UK you can give unlimited amounts away without tax as long as you live 7 years, (if you hate the taxman more than your offspring!).

Australia has no estate tax.

[Eboli]

The last major uplift of IHT thresholds occurred under John Major in the mid 1990s when he was persuaded, eventually, that it did not look good that in real terms rates of IHT were higher than under CTT in the time of Denis Healey (especially when he, Major, was endlessly talking about 'cascading wealth through the generations') - well, it made him gulp his gin and tonic. Osborne, of course, had to tinker and instead of simply increasing the nil-rate band to £1m (as promised at the party conference that persuaded Gordon Brown not to run to a general election) introduced the nonsense of an additional main residence allowance (and introduced it in tranches, to boot!) thereby needlessly complicating the tax again *. In real terms I suspect the current take of IHT (at c£6bn) is near enough equivalent to the pre-Major take (of about c£2.5bn). So it would seem we are due for another rachet up of allowances and bands (though of course the fixed amounts, e.g., in contemplation of a marriage, would stay fixed as they have done so since 1981).

I agree with most of the main points made here - KISS; avoid trusts, unless for good non-fiscal reasons; use the 7 year rule; use Aim shares if you fall within a prognosis of 2-7 years; use the other exemption - regular gifts out of income. And don't become obsessed with the tax to the extent you fail to enjoy your life. My only doubts concern Lootman's expressed wish that he wants his children to be richer than he: I think happier is the quality I would chose.


Eb.

* It is a close run thing, to my mind, as to whether Brown or Osborne was the worst post-war Chancellor.

[Lootman]

My only doubts concern Lootman's expressed wish that he wants his children to be richer than he: I think happier is the quality I would chose.

* It is a close run thing, to my mind, as to whether Brown or Osborne was the worst post-war Chancellor.

In my experience being well off doesn't guarantee happiness but it sure as heck doesn't harm it either. And of course this is a site dedicated to becoming and staying rich, so there is that.

Brown was a far worse Chancellor than Osborne for the simple reason that he failed to see the global financial crisis coming, and so did not prepare the nation for it. Maybe any Chancellor would have failed but he was the man on the job at the time, so fail.

Osborne basically cleaned up Brown's mess, but I still will never forgive him for not coming through with the promise of a NRB of a million per individual.

[Charlottesquare]

My only doubts concern Lootman's expressed wish that he wants his children to be richer than he: I think happier is the quality I would chose.

* It is a close run thing, to my mind, as to whether Brown or Osborne was the worst post-war Chancellor.

Brown was a far worse Chancellor than Osborne for the simple reason that he failed to see the global financial crisis coming, and so did not prepare the nation for it. Maybe any Chancellor would have failed but he was the man on the job at the time, so fail.

Name the Chancellors ( or equivalent) of all the other countries in the world that did see it coming? (Of course Brown was, by the time it arrived, not Chancellor )

[DrFfybes]

I was left very little by way of inheritance and I have certainly not worked hard and saved hard in order to build up long term financial security and prosperity for my offspring. I am afraid the working hard and saving has been to finance my retirement years. There will clearly be a significant sum for my children and grandchildren I expect but that is certainly not my priority. If my estate has to pay IHT well too bad.

Dod

I must admit be being surprised by your approach to this. I regard IHT as being voluntary, and I've no real wish to donate £££k to the govt coffers when I die if I can give it to family/charities instead.

Paul

[scrumpyjack]

My only doubts concern Lootman's expressed wish that he wants his children to be richer than he: I think happier is the quality I would chose.

* It is a close run thing, to my mind, as to whether Brown or Osborne was the worst post-war Chancellor.

In my experience being well off doesn't guarantee happiness but it sure as heck doesn't harm it either. And of course this is a site dedicated to becoming and staying rich, so there is that.

Brown was a far worse Chancellor than Osborne for the simple reason that he failed to see the global financial crisis coming, and so did not prepare the nation for it. Maybe any Chancellor would have failed but he was the man on the job at the time, so fail.

Osborne basically cleaned up Brown's mess, but I still will never forgive him for not coming through with the promise of a NRB of a million per individual.

A friend gave me a book describing in detail Brown's catastrophic decisions. It was quite a long book and I was unable to finish it as I became so utterly outraged. Start with flogging off a large portion of the nation's gold reserves at the worst possible time. There is no doubt in my mind that Brown was in a league of his own as an incompetent chancellor!

[Dod101]

I was left very little by way of inheritance and I have certainly not worked hard and saved hard in order to build up long term financial security and prosperity for my offspring. I am afraid the working hard and saving has been to finance my retirement years. There will clearly be a significant sum for my children and grandchildren I expect but that is certainly not my priority. If my estate has to pay IHT well too bad.

Dod

I must admit be being surprised by your approach to this. I regard IHT as being voluntary, and I've no real wish to donate £££k to the govt coffers when I die if I can give it to family/charities instead.

Paul

Well out of my chargeable estate (that is after the various allowances, Nil Rate Bands and the family home relief, I am trying to ensure that at least 10% of it is left to charities (in my case mostly medical charities), thus reducing the charge to IHT to 36% on the remainder so I am not being cavalier. In fact this will leave my residuary beneficiaries with almost the same net amount as if nothing was going to charity. What I intended to convey is that I do not think it is my job to provide long term financial security for my offspring, although I am leaving significant sums to each of my five grandchildren and my two children (long since adults) will get the residue between them. None are currently poor and I think whatever I leave them will be icing on the cake. Lucky them! They have both had sums to help with initial house purchase.

Dod

[ursaminortaur]

My only doubts concern Lootman's expressed wish that he wants his children to be richer than he: I think happier is the quality I would chose.

* It is a close run thing, to my mind, as to whether Brown or Osborne was the worst post-war Chancellor.

Brown was a far worse Chancellor than Osborne for the simple reason that he failed to see the global financial crisis coming, and so did not prepare the nation for it. Maybe any Chancellor would have failed but he was the man on the job at the time, so fail.

Name the Chancellors ( or equivalent) of all the other countries in the world that did see it coming? (Of course Brown was, by the time it arrived, not Chancellor )

And Brown then played a major part along with his then chancellor Darling in cleaning it up. Osborne and Cameron in contrast then pursued a policy of austerity which actually made things worse for the UK.