My mom who is quite old will have to pay a substntial iht bill. We saw a financial advisor last week and I don't entirely understand him. If my mom invests her savings with him in a trust, she immedietely reduces her iht bill by many thousand pounds. (I think it stays at that level throughout, but not sure). Is this due to a L&G life assurance scheme, or is it something to do with Revenue& Customs? She has to have a medical, so it must include life assurance.-? They charge 1.3% of whar she has. Is that reasonable? My mum is dead against having anything to do with the scock market. Is there another way we can set up a trust ourselves and invest her money exactly the way she wants.
Can she give as many contributions of £250 to her grandchildren as she wants, say £250 per month, along with £3000 pa total to her children?
Can I find out more about this from the gov't rather than a financial advisor?
Is she legally widowed? In that case, are you aware that any unused part of her late husband's IHT free band can be use?
You need to get a proper explanation. I've never heard of this and I would have thought news of such an option would have leaked to the general public. There used to be an advantage in a married couple, whilst both were still alive, creating a certain type of trust in their wills, but the tax rules have been changed to make that option redundant.
You should get the adviser to point you to the relevant documentation on
the hmrc.gov.uk web site.
You have missed some steps out here. When did L&G get involved. If there is any viable technique, it will depend on the exact nature of the
product.
A medical could also be involved with an annuity. Does she have an "impaired life", i.e. does she have a medical condition, rather than just old age, that is likely to significantly reduce life expectancy?
What is her expectancy of surviving more than 7 years?
I'd expect something like that per year, not just once off. However, if
it is insurance based, you won't see the charges being taken off. If it
is insurance based, the adviser may get trail commission.
Do you mean the risk, or the principle. Is it sufficient that the risk is taken by the financial services company, even though they invest in the stock market?
This scheme is going to have to be a very specific sort of trust to work. You would probably end up with a bare trust, which has no affect at all for tax purposes
She can't give £250 to the same person more than once a year.
If it is possible, there will be rules about it that are available on hmrc.gov.uk. But, as you don't really know what the tax principle behind the scheme is, you may find it difficult to find the information.
If the adviser can't give you the link, at least ask for the name by which HMRC know this sort of scheme.
When the rule says "as many as she wants" it means to as many people as she wants, not as often as she wants to the same person, it's once per year, per person.
The gift rules are simple. You can find them here
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If you don't understand them come back here and ask.
As far as investing in a trust is concerned I think that your making the tail wag the dog here. How much IHT are we talking about?
If it is a substantial amount (say 100K or more) then you presumably have enough money to pay for the necessary independent advice, if we are just talking about a small amount then you are in big danger of compromising the principal by taking an investment risk that you don't want to take to save this tax, Don't forget that the advisor is going to charge you a fee on the whole sum, not on just the tax saved (and 1.3% looks much smaller than the norm, are there some more costs hiding somewhere?).
Which? used to do a book on IHT, and ways of reducing it. It might be worth trying to get hold of a copy provided it has been updated fairly recently - the rules keep changing!
Your mother can make a single lifetime gift of 3000 to one person each tax year, and this is exempt from IHT. It can be to a different person each year, or the same one, and it can be backdated by one tax year. So if she didn't do this in 2008/9, she could immediately give away 6000. She can also give an inlimited number of gifts not exceeding 250 per person to as many people as she likes. In the case of both the 3000 and the 250, it doesn't matter whether the recipients are children, grandchildren, or perfect strangers (as long as it's documented). Additionally, she can make wedding and other special occasion gifts to certain classes of people - with limits (which I forget) which depend on the closeness of the relationship. She can give as much as she likes to registered charities. In addition to the 3000 and N x 250 gifts - which are deemed to come from her capital - she can give away other regular amounts, provided they come out of her
*income* and don't reduce her capital or seriously diminish her lifestyle. So, if she has more than enough pension and investment income to live on, she could - for example - use some of this to help fund her grandchildren through university. All of the above is exempt from IHT, but needs properly documenting so that - when she dies - her personal representative can fill in all the necessary probate etc. forms correctly.
I don't really know about the life insurance in trust business - I think there is such a device which reduces the value of her estate for IHT purposes, but hopefully someone more knowledgeable than me will respond to that bit.
But whether you do that or not, it's worth following up all the other things which I listed.
By the way, I presume that she's a widow? If so, and if her late husband didn't use all of his tax-free allowance when he died, at least some of this will be available to her - increasing the value of her estate at which IHT liability starts.
Thanks everyone. Esp for the clarification over the £250 ...And the fact that £3k has to be given to one person each year. Can the initial 6000 be given to two? That'd make it easier since there are 3 of us and if she did the 6k transaction in march and the 3k in april, that'd be fair.
My mom's divorced. It'd make some sense if she remarried my dad, technically; but that's out of the question. She smoked all her life until 10 years ago, so her health suffers greatly because of that. A guess at 8 years expectancy would not be unreasonable. I won't mention how much on line, but someone mentioned 100k iht which is a useful model to work with.
If she does nothing financially and dies, I presume we can't easily get the house without paying iht, but can we access her savings with which we could pay it? There is also the 30 day clause in her will which means presuma\bly that nothing can be done until we three offspring have outlived our 9 children by 30 days, so tht'd slow things down anyway.
Seems unlikely that you will outlive the grand-children!
In any case, the whole probate process takes rather longer than this.
If she can make 8 years, there is a chance that anything she gifts now will be exempt. It is possible that the financial scheme involves an element of insurance against her dying soon enough for the gift not to be exempt. Speculating: it may be a combination of a transfer to a discretionary trust, and insurance against that not being done early enough. As the premium is going to be more than 1.3%, I presume that they cream off some of the profits from the investments.
You don't need to do a thing. The financial advisor should be dropped, preferably from a great height. We have a promise from Mr. Cameron that the threshold for IHT will be raised to 1,000,000 per person during the next parliament.
My mom's divorced. It'd make some sense if she remarried my dad, technically; but that's out of the question. She smoked all her life until 10 years ago, so her health suffers greatly because of that. A guess at 8 years expectancy would not be unreasonable. I won't mention how much on line, but someone mentioned 100k iht which is a useful model to work with.
If she does nothing financially and dies, I presume we can't easily get the house without paying iht, but can we access her savings with which we could pay it? There is also the 30 day clause in her will which means presuma\bly that nothing can be done until we three offspring have outlived our 9 children by 30 days, so tht'd slow things down anyway.
My mom's divorced. It'd make some sense if she remarried my dad, technically; but that's out of the question. She smoked all her life until 10 years ago, so her health suffers greatly because of that. A guess at 8 years expectancy would not be unreasonable. I won't mention how much on line, but someone mentioned 100k iht which is a useful model to work with.
If she does nothing financially and dies, I presume we can't easily get the house without paying iht, but can we access her savings with which we could pay it?
You don't pay it, the estate does. It simply reduces the amount to be distributed (well it's not actually simple in that respect, but that's not the point here)
You can't get the house *or* get your hands on her money until probate is granted - and you can't get probate until IHT has been paid - a bit of a cache 22 if you need her money to pay the IHT! [I think, in practice, that most financial institutions will release money specifically for paying IHT
*before* the grant of probate has been obtained].
I presume you mean that anyone who is to inherit must outlive your *mother* (not your children) by 30 days? As others have said, there's no way you're going to get probate within 30 days - and you can start the proceedings immediately on the *assumption* that you're going to survive long enough.
I wouldn't rely on it! Hasn't that pledge been downgraded to an *aspiration* in the light of the current financial situation? Besides which, the Tories haven't *yet* been elected.
So... One way would be for Mum to distribute all her savings to her children noew, and survive seven years.
- But if she died just within 3 years, all except £6500 + 12 x 250 would be taxable.
So a better way is to distribute £6000 this year plus 12 x £250 gifts,
And then £6000 + 12 x £250 gifts in subsequent years until she reaches the limit of what she wants to give away.
If her life expectancy was considered shorter than the 14 years necessary to completely clear the lot (taking her into her 90s), she could also give substntially more than £6000 in the first year knowing that some may be taxed.
......................................................................... How does a trust help apart from protecting Mum against us running off and spending the money on things other than what she wants -i.e. to pay the rest of the iht on her house?
Can the multiples of £250 be backdated to 08/09 in the first year, thereby doubling it up?
If Cameron changes the rules, no harm done.. Not guaranted though.
Only if she has 12 people to gift to. Forget the twleve months in a year thing.
Speculating: some sorts of trust have an independent tax life from that of their beneficiaries. I suspect you need a discretionary trust. This
was the sort set up to use the surviving partner's allowance. I think this means that the trustees can override the wishes of particular beneficiaries, including your mother, although she could give guidance.
I don't know about lifetime transfers, but I would guess that a transfer
more than seven years from death would be an exempt gift and I'm guessing that the other half of the package is insurance against her dying in the next seven years.
I presume the reason for a trust, rather than gifting to you now, is so that she could still benefit from the money. If she gave it to you with
some expectation that she might get it back if needed, HMRC might take the view that it was still all her money.
However this all goes beyond my real expertise and the most you should do with is to use it as a framework for asking the financial adviser how
Someone else has given the link the the governemt IHT site. there are also books on the subject. it is worth reading these and undertsanding how it works.
I would strongly distrust any advice to do something exotic with the money.
When it comes to investments to save IHT: "if in doubt, do nought".
ther eis another very importnat exeption to IHT: If your mother's income is higher than her outgoings then she can give the excess to anyone she wants and avoid IHT on it. She must do this as a "regular gift out of income" not a "one off payment". the simplest way is for her to set up standing orders that pay a set sum monthly.
There is no limit to the amount of money she can give away like this but it does have to be from income, not from selling assets.
My father did this for many years. When we eventually filled in the IHT tax forms after his death we had to demonstrate that that his income exceeded his expenses by more than the amount of the regular gifts. This was straightforward to do and we were charged no IHT on those gifts.
No. This is not surprising, as the obvious intent is to allow for reasonable Christmas, birthday, leaving, etc. presents, not as a way of escaping IHT. Also note that you can't use both the £3000 and the £2
50 for the same person, otherwise the £250 is ignored.
Note that the gory details of HMRC's IHT rules can be found at: .
(In case of conflict, the URLs override my interpretation.)
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