Inheritence tax via building Society/ Trust

Also note that, last time I looked, gifts from excess =income= are not counted either, you can give away income you don't need to live the way you always have, there's no obligation to add it to the existing capital pile.

The most important thing is to have the IHT money readily available on the day we need to pay it. We can't rescue it all.

It would be (a bit ruthlessly) worthwhile to have a good authouritative guess at Mum's life expectancy. If it's less than 7 years, we'd have to distribute the bulk of money up-front,accepting that much will be taxeable.

I can see the advantage of giving £3000 to just one person in that it would free up two siblings for the £250, but it would be better to keep it simple and split it three ways - and Mum would be happier too, so I'll phone the tax office tomorrow and see if that's allowable.

Tony

The gift has to be a regular, habitual one, and you will need to document the situation. I think the wording is something like "maintaining the standard of living", so deliberately economising might not be allowable.

Again the full guidance to HMRC staff is on the site I referenced.

This raises an important point. You can't get probate until the IHT is paid, so how do you get access to the money to pay the IHT. One answer is NSI savings certificates which have a special status: they can be used to pay IHT before probate.

Robert

Another answer is to pay the IHT out of your own pocket and then reimburse yourself from the estate once you get probate. This (or borrowing the money elsewhere) is the only option in cases where most of the estate consists of illiquid assets i.e. where cash and bank balances are insufficient to cover the IHT bill.

The usual answer, though, is to get a form from IHT which will authorise the bank to release funds just for the IHT, which the bank will generally remit directly to the taxman.

Will visit bank and discuss form aand loan requirements. . I phoned HM Tax & Customs regarding the £3000 gift allowance. They said that the 'single person aspect applies to the potentially deceased alone' Whether it is to go to three people at £1000 or six at £500, etc, is entirely up to that person.

Tony

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?

Thanks Tony

This is called a Discounted Gift Trust and is eminently suitable for certain people. You pay a sum of money into the Trust by making an appropriate investment. You cannot have any access to this money in the future and after

You may also arrange for an 'income' to be paid from this fund. The greater the income the greater the discount. You may invest the money in cash-type deposits rather than the stockmarket but this will mean that you are likely to run the fund down over the years if you take an income. The cash-type deposits need to be the insurance company's own funds, rather than direct to a building society - albeit building societies often have an insurance company arm and it is into this that you would make the investment. But don't jump into bed with a building society's advisor. He will be tied to that institution. Seek advice from an IFA who knows about this topic and to whom you will pay a fee.

Rob Graham

HMRC seem to use the term "Discounted Gift Scheme" , and it does seem to be a combination of a gift and a life insurance policy.

But there also has to be a life insurance element. In fact, the relevant HMRC manual page falls in the life insurance section . More precisely, it looks like, unless a real life insurance policy is used, the HMRC calculations are based on the open market premiums for an appropriate life insurance policy.

If you invest money into an insurance bond (as you would do if you entered into one of these schemes) you are taking out a life policy, albeit it does not conform to what one normally thinks of as a life policy, i.e. monthly or annual premiums in return for a payout considerably in excess of the premiums if you die. In the case of a bond the payout is generally in the order of 101% of the amount invested or the fund value at the date of death. And yes, Discounted Gift Scheme is maybe the correct term although you will be setting up a trust while you're at it.

Rob

My mum is going to give each of her children a substntial sum now. All above £6000 will be a GWR. Thereafter she will give us £3000pa. She will also give £250 pa to the grandchildren.

This may not be the most financially efficient way, but Mum is happy with it, and it will work.

Many thanks Tony.

You presumably mean that the first £6000 are to count as last year's and this year's £3000 allowances, but I think you must mean that the excess over £6000 would be a PET, not a GWR. In other words, if she survives for 7 years, then you/she would intend this excess to become exempt. A GWR never becomes exempt, and in any case it would be unusual for a cash gift to have reservations.

sorry yes. I got my terms mixed up. Tony

If Mom gives the three of us £6000 each, totalling £18000, of which £6000 constitutes two years' tax allowance, and £12000 onstitutes a PET, how can she control how the tax allowance is allocated after her demise? She would want it to be £2000 each, but HMRC might decide £6000 to one person. I'll suggest she puts her preferences in a letter attached to her will. Maybe that will work.

Tony

She can't. HMRC wouldn't "decide" as such; in the event that any IHT due remains unpaid, they would simply sue the executor, or in effect all the heirs jointly and severally, so that whoever can pay, will pay.

The question you ask only rarely arises, because the tax bill would usually be settled out of the remaining estate instead of by "reversing" potentially exempt gifts made years prior to death.

Presumably she will want to divide up the rest of her estate (e.g. her house if there is one, plus any remaining liquid assets) equally amongst the three of you anyway. Let's simplify things a bit and say that when she dies her estate is worth H+M (H=house, M=money). Her taxable estate would then be H+M+£12k-T, where T is the IHT threshold (currently £325k).

Obviously if H+M+£12k is less than T, there will be no tax to pay.

Suppose H+M happens to equal T, then there would be 40% of £12k to pay, but normally these £4800 would come out of the M instead of asking each of you to pay back £1600 each. Only if M is not enough would you have a problem, and this situation would be similar to that when H+M is itself more than T, since then the tax bill will be £4800 plus 40% of H+M. If M is not enough to pay this, i.e. if most of the value of the estate is in the house itself, then it's up to you to agree what to do. Typically you would either chip in together what you can, or borrow, perhaps by mortgaging the house (whether or not you plan to sell it). Bear in mind that the amount you would need to chip in could be quite a lot more than £1600 each, and therefore there's not much point in worrying now about how to "allocate" liability for the tax on the £12k.

It doesn't actually affect the *amount* of IHT which would be payable on her death, but it *would* affect the distribution of liablity on the PETs if she fails to survive for 7 years.

Why not get her to give each of you two cheques - one for 2k and one for

Are you making use of the facility which allows her to make additional tax-free gifts out of *income*? If she has more than enough to live on, she could get rid of quite a lot in that way, and could reduce her IHT liability by an appropriate amount.