Inheritance Tax question please

[flame]

Hi

Would someone be able to advise if the £325k allowance is applied to just the estate or if it is at a personal level ?

So for example , say £600k estate would that be 40% tax to be paid on anything over £325k ( 40% of £275 )

or

if there are say 2x beneficiaries from the will/estate do you get an allowance of £325k each and therefore based on the £600k estate , nothing would be due ?

Apologies for the seemingly daft question....

Best Neil

[Kingstepper]

Per estate.

[JonRA]

Per estate.

This - though there may be specific circumstances or allowances that may be relevant - this is a good starting point https://www.gov.uk/inheritance-tax

[Cooper85]

I am no expert on this and have been doing my own research.

I believe that in 2015 Budget by George Osborne it allowed an additional allowance on top of the nil rate band (£325K) but only when leaving property (or proceeds of the sale of the property) to direct descendants. This was £175K. I would get a professional to clarify on this matter and confirm if this is correct.

So a couple could get £325K + £175K x 2 = £1M allowance for a couple leaving property to their children.

You might owe George a pint.

[wileeeeeey]

I am no expert on this and have been doing my own research.

I believe that in 2015 Budget by George Osborne it allowed an additional allowance on top of the nil rate band (£325K) but only when leaving property (or proceeds of the sale of the property) to direct descendants. This was £175K. I would get a professional to clarify on this matter and confirm if this is correct.

So a couple could get £325K + £175K x 2 = £1M allowance for a couple leaving property to their children.

You might owe George a pint.

I don’t know about a married couple but the above is what I was told recently when employing someone to go over this for my mum.

No IHT on the house up to 500k so long as it goes to a direct descendant or charity.

[Kingstepper]

So a couple could get £325K + £175K x 2 = £1M allowance for a couple leaving property to their children.

You might owe George a pint.

Yes that’s correct. First to die leaves estate to spouse and their allowance passed down on second death so 2x £325,000 (+ 2x £175,00 if left to children or grandchildren).

[Skier]

I am no expert on this and have been doing my own research.

I believe that in 2015 Budget by George Osborne it allowed an additional allowance on top of the nil rate band (£325K) but only when leaving property (or proceeds of the sale of the property) to direct descendants. This was £175K. I would get a professional to clarify on this matter and confirm if this is correct.

So a couple could get £325K + £175K x 2 = £1M allowance for a couple leaving property to their children.

You might owe George a pint.

This is spot on. I've just been through the Inheritance Tax process and now awaiting Grant of Probate following my father's death in late June. As long as the property is left to children, step-children or grand children the Residence Nil-Rate Band applies.

A point for all about this process (IHT and Probate); if the estate is relatively straightforward, irrespective of total value, don't pay solicitors an extortionate amount to do it on your behalf. It's little more than form filling and a bit of admin and solicitors wanted an estimated £13k for this in my case. After laughing, I informed them I'd do it myself.

[Taxboy]

This is spot on. I've just been through the Inheritance Tax process and now awaiting Grant of Probate following my father's death in late June. As long as the property is left to children, step-children or grand children the Residence Nil-Rate Band applies.

A point for all about this process (IHT and Probate); if the estate is relatively straightforward, irrespective of total value, don't pay solicitors an extortionate amount to do it on your behalf. It's little more than form filling and a bit of admin and solicitors wanted an estimated £13k for this in my case. After laughing, I informed them I'd do it myself.

Agreed - the most admin I found for my late mother's estate was obtaining the values for everything and a solicitor would probably ask you to do that anyway. If you take your time and aren't put off by form filling it's not as daunting as many like to make out

Sent from my moto g(7) plus using Tapatalk

[flame]

Thanks to all for their input - very interesting !

My Mother got divorced in the 1980's and has remained single since , so looks like £325k + £175k in total if leaving her estate to her children ( although she does threaten to leave it all to the Cats home....I'll have to update her on her Tax status if she does that ! ).

Best Neil

[Montello]

Thanks to all for their input - very interesting !

My Mother got divorced in the 1980's and has remained single since , so looks like £325k + £175k in total if leaving her estate to her children ( although she does threaten to leave it all to the Cats home....I'll have to update her on her Tax status if she does that ! ).

Best Neil

If she leaves it to the cats home that will be very tax efficient but less good for her children.

I have one two probates myself, and one with a solicitor which is still ongoing and cost over £15k to date.

Do it yourself and save time and money. I honestly think the solicitor has actually made this worse rather than easier.

[Kingstepper]

Do it yourself and save time and money. I honestly think the solicitor has actually made this worse rather than easier.

One I did recently took an age and when phoning Probate Service there's different number for professionals - wonder whether they get preferential treatment and might be quicker?

[mrushton]

If it's straightforward it's not difficult. My wife's uncle died and left a seven figure sum, house, car etc. He was single and luckily had taken advice about avoiding inheritance tax. Stuff you learn tho about HMRC. 6 months to pay from date of death and they won't grant probate until you've settled with them.

[trident-7]

I have a very good friend from my schooldays who is an independent financial adviser. I spent a few days with him in the Lake District earlier this year. At breakfast one morning we happened to mention inheritance tax & he said that he regarded inheritance tax as a largely a voluntary tax. I think he meant that it could be mitigated against if you planned ahead.

I didn't get him to expand on that because I was more interested in our holiday & climbing fells.

[JonRA]

One I did recently took an age and when phoning Probate Service there's different number for professionals - wonder whether they get preferential treatment and might be quicker?

I did my mother-in-laws probate (on behalf of my wife, who was the executor) - it was all straightforward (I got plenty of copies of the death certificate and other relevant docs) - I never had to ring the probate service. The only minor hassle was my wife's bank account being in her maiden name and her mother's bank kept on trying to release funds in her married name. But that was a minor hassle and sorted by a quick visit to the bank.

[Montello]

I have a very good friend from my schooldays who is an independent financial adviser. I spent a few days with him in the Lake District earlier this year. At breakfast one morning we happened to mention inheritance tax & he said that he regarded inheritance tax as a largely a voluntary tax. I think he meant that it could be mitigated against if you planned ahead.

I didn't get him to expand on that because I was more interested in our holiday & climbing fells.

I think very wealthy people avoid IHT with trusts, middle classes get hit as they aren’t quite rich enough to deal with the problem in the same way.

This year will see a record £8b of IHT collected.

[mrushton]

I have a very good friend from my schooldays who is an independent financial adviser. I spent a few days with him in the Lake District earlier this year. At breakfast one morning we happened to mention inheritance tax & he said that he regarded inheritance tax as a largely a voluntary tax. I think he meant that it could be mitigated against if you planned ahead.

I didn't get him to expand on that because I was more interested in our holiday & climbing fells.

Once heard on the radio a tax consultant describe IHT as easy to avoid. Do it when young and in good health. Then update every few yrs.

[draftsmann]

I have a very good friend from my schooldays who is an independent financial adviser. I spent a few days with him in the Lake District earlier this year. At breakfast one morning we happened to mention inheritance tax & he said that he regarded inheritance tax as a largely a voluntary tax. I think he meant that it could be mitigated against if you planned ahead.

I didn't get him to expand on that because I was more interested in our holiday & climbing fells.

I think very wealthy people avoid IHT with trusts, middle classes get hit as they aren’t quite rich enough to deal with the problem in the same way.

This year will see a record £8b of IHT collected.

Before I retired IHT planning was one of my specialisms over some 35 years.

We used to describe it as a “voluntary tax”, but an ever growing raft of targeted and general anti-avoidance legislation has made this planning rather more difficult. It’s less voluntary than it used to be.

That said, there are trust based solutions which are relatively straightforward and affordable and very much available to “Middle England”. One of my modest claims to fame was that around 1997 I devised what has gone on almost certainly to be the most widely used marketed/packaged IHT planning tool. It remains available to this day.

[higham5]

I did my mother-in-laws probate (on behalf of my wife, who was the executor) - it was all straightforward (I got plenty of copies of the death certificate and other relevant docs) - I never had to ring the probate service. The only minor hassle was my wife's bank account being in her maiden name and her mother's bank kept on trying to release funds in her married name. But that was a minor hassle and sorted by a quick visit to the bank.

Same here ^^^^^^^ I assisted my wife completing her mums probate. The electronic forms are straightforward, there were two steps , application for grant of probate, then probate.

The beauty of doing it yourself is there is no delay, you fill the forms in , you see the confirmations, answer any questions and keep the ball rolling.

[Boss13]

Before I retired IHT planning was one of my specialisms over some 35 years.

We used to describe it as a “voluntary tax”, but an ever growing raft of targeted and general anti-avoidance legislation has made this planning rather more difficult. It’s less voluntary than it used to be.

That said, there are trust based solutions which are relatively straightforward and affordable and very much available to “Middle England”. One of my modest claims to fame was that around 1997 I devised what has gone on almost certainly to be the most widely used marketed/packaged IHT planning tool. It remains available to this day.

Please do share a link to said tool!

[gbn13]

One of my modest claims to fame was that around 1997 I devised what has gone on almost certainly to be the most widely used marketed/packaged IHT planning tool. It remains available to this day.

A DGT?

[Montello]

That said, there are trust based solutions which are relatively straightforward and affordable and very much available to “Middle England”. One of my modest claims to fame was that around 1997 I devised what has gone on almost certainly to be the most widely used marketed/packaged IHT planning tool. It remains available to this day.

You have my attention now … please tell us more …

[draftsmann]

A DGT?

You have my attention now … please tell us more …

Yes, I devised what became (and I believe still is) the industry standard model of discounted gift trust, when I was working in the insurance industry in the 1990s. The boring technicality is that prior to my innovation only two or three insurers offered schemes of this kind, which relied on complex and expensive products, and systems to run them. I found out how to achieve the same tax result using a standard single premium investment bond, as offered by just about all insurers. As a consequence, just about every insurer adopted that model.

The more interesting part: what is it, and what does it do?

The IHT rules include an anti-avoidance rule- the “gift with reservation” rule- which means that a gift which remains accessible to the donor is not treated as an effective gift for the purposes of that tax. So for example a gift onto trust where the person who established the trust is or can be a beneficiary won’t reduce that person’s estate because the trust assets are treated as if still part of the estate.

A discounted gift trust is an arrangement where the person establishing the trust defines and retains precisely-defined rights, with all other rights over the trust assets given away absolutely. It doesn’t offend the gift with reservation rules because of this precise definition of rights. What is retained is retained, and what is given away is given away irrevocably.

Now, the retained rights are usually defined as the right to receive a fixed capital sum of money out of the trust on defined future dates. So typically the client will retain the right to a defined cash sum every month or every year for a defined future period, usually being the rest of his or her life.

In simple terms this means that the taxpayer can give away a substantial lump sum and reduce his or her estate value, while retaining what for practical purposes amounts to an annuity for life. The value of that retained interest is still part of the taxpayer’s estate but because it dies with the taxpayer its value on death is nil.

These arrangements are called discounted gift schemes by the way because the retained interest- the quasi annuity right- does have a substantial value at the time of setting up the arrangement, provided the taxpayer is in good health at that time. The value of the given away rights is calculated by deducting the retained interest value from the total amount placed in trust- hence those rights are “discounted”. This is of little consequence unless the taxpayer dies within seven years, at which point the amount notionally added back to the estate value on death is correspondingly reduced or discounted. In simple terms this means that there would be some tax saving even if the taxpayer died very soon after setup, for example in an accident.

[noTAGlove]

You have my attention now … please tell us more …

My best mate from Uni Dad died not that long ago and he was pretty wealthy, think £1.5 million. Higher end of middle class and definitely not super rich.

It was all split 3 ways between 3 sons completely free of IHT as it was all in a trust. I will ask him next time I see him and post an update.

He was posh Scottish so the tax man was never go to see a penny in death duties.

[thegreatdogwood]

Same here ^^^^^^^ I assisted my wife completing her mums probate. The electronic forms are straightforward, there were two steps , application for grant of probate, then probate.

The beauty of doing it yourself is there is no delay, you fill the forms in , you see the confirmations, answer any questions and keep the ball rolling.

You've got to be careful with a few things if doing it yourself though, especially if it is not for a parent otherwise you can technically end up with a personal liability. So for instance do spend the money publishing an estate notice with The Gazette and in a local paper inviting creditor claims even when you are 99.9% confident there are none as if you don't, the executor can be liable for proven claims against the estate after proceeds have been distributed and there is no money left.

It's certainly a process most organised people can do for themselves, but just be mindful of avoiding any personal liability when acting on something where you don't get any benefits but essentially spend your own time and have personal liability to benefit others!

[Montello]

Yes, I devised what became (and I believe still is) the industry standard model of discounted gift trust, when I was working in the insurance industry in the 1990s. The boring technicality is that prior to my innovation only two or three insurers offered schemes of this kind, which relied on complex and expensive products, and systems to run them. I found out how to achieve the same tax result using a standard single premium investment bond, as offered by just about all insurers. As a consequence, just about every insurer adopted that model.

The more interesting part: what is it, and what does it do?

The IHT rules include an anti-avoidance rule- the “gift with reservation” rule- which means that a gift which remains accessible to the donor is not treated as an effective gift for the purposes of that tax. So for example a gift onto trust where the person who established the trust is or can be a beneficiary won’t reduce that person’s estate because the trust assets are treated as if still part of the estate.

A discounted gift trust is an arrangement where the person establishing the trust defines and retains precisely-defined rights, with all other rights over the trust assets given away absolutely. It doesn’t offend the gift with reservation rules because of this precise definition of rights. What is retained is retained, and what is given away is given away irrevocably.

Now, the retained rights are usually defined as the right to receive a fixed capital sum of money out of the trust on defined future dates. So typically the client will retain the right to a defined cash sum every month or every year for a defined future period, usually being the rest of his or her life.

In simple terms this means that the taxpayer can give away a substantial lump sum and reduce his or her estate value, while retaining what for practical purposes amounts to an annuity for life. The value of that retained interest is still part of the taxpayer’s estate but because it dies with the taxpayer its value on death is nil.

These arrangements are called discounted gift schemes by the way because the retained interest- the quasi annuity right- does have a substantial value at the time of setting up the arrangement, provided the taxpayer is in good health at that time. The value of the given away rights is calculated by deducting the retained interest value from the total amount placed in trust- hence those rights are “discounted”. This is of little consequence unless the taxpayer dies within seven years, at which point the amount notionally added back to the estate value on death is correspondingly reduced or discounted. In simple terms this means that there would be some tax saving even if the taxpayer died very soon after setup, for example in an accident.

I have now read this a few times and still don't understand the proposition; where would one start if we were interested in implementing such a scheme?