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Tax implications of indirect bequests

Hi,

Firstly, to derail the obvious train of thought, I'm not trying to sidestep inheritance tax on some vast estate. I'm well below the IHT threshold and likely to be for as long as this plan is relevant.

I've been persuaded that I should probably write a will, even though I'm relatively young, have no partner or children, and limited assets (a few thousand in savings and a house with most of a mortgage still to pay)[1]. Given this simple situation, I don't want the complexity and inflexibility of a will laying out every single detail of what I would like to happen. Instead, I have the idea of creating a very simple will leaving everything to my parents[2], whom I trust implicitly, and writing them an informal letter setting out my wishes. There are a few reasons why I'd prefer to do this that are immaterial to my question.

What I want to know, is whether this approach (parents passing on money originally inherited[3]) is likely to have disastrous tax implications for anyone, compared to leaving it directly from the estate (such as it is)? I've had a browse through HMRC's site, and can't find anything that seems to apply in Capital Gains terms, but this is an area I know very little about. I'd expect any significantly large sums (if there's that much cash available!) to end up with my brother, if family relationship is relevant.

Cheers,

Pete

[1] And yes, I'm currently stuffing the maximum penalty-free overpayment into it each month :-) [2] Barring accidents, they're likely to be around for as long as this arrangement is relevant, and I would probably also nominate my brother as "backup". [3] Is it still inheritance when it's going "upstream"? :-)
Reply to
Pete Verdon
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You say your estate is will be below the IHT threshold and that you have no spouse. This means that, come what may, there are no immediate tax implications.

There may be administrative cost implications. If there is no will, then the default rules ("intestacy rules") will apply, but there will still need to be an executor to the estate, and in the absence of a will appointing one, it may be necessary to petition probate court to appoint one (typically one of the default heirs), and this may involve a fee which is likely to be rather higher than any fee involved in drawing up a will.

A will need not be so detailed as to "lay out every detail of what you would like to happen". It simply needs at a minimum to appoint an executor, and it could in principle than say that the executor has total discretion in how to distribute your estate.

Capital Gains are irrelevant. IHT applies *instead of* CGT.

In the absence of children or a spouse, intestacy rules would provide that your parents are first in line, and your siblings *after* them. There might be tax implications for them if they are your sole legal heirs and then give your assets to your brother, since this would count (in terms of any inheritance *they* would leave behind) as a gift from them to him. They could avoid this by drawing up a "deed of variation" which would vary your "will" (even if there isn't one) so that your brother (instead of your parents) inherits your assets, but this would involve a fee. It's always simpler and cheaper if you make a will instead of them having to go through all this rigmarole. It needn't be expensive or complicated. Check out some of the DIY packs. Even Tesco sell them.

Reply to
Ronald Raygun

Thanks for the advice - but I think you have missed a step. I did intend to write a will, just a very simple one leaving everything to my parents for them to pass on as they saw fit (alongside my non-binding suggestions expressed separately).

However, you make an interesting point saying that "it could in principle than say that the executor has total discretion in how to distribute your estate." That sounds like it might do what I'm after without the additional complication of money changing hands twice.

Thanks,

Pete

Reply to
Pete Verdon

If the recipients arrange for a Deed of Variation (must be done within two years after date of death) they can posthumously change beneficiaries of the will. So they can take a bequest that they would have received and pass it on to someone else, as if the original will had stated that. I'm no tax expert, but as far as I know that changes the situation so that the money was never theirs in the first place and there's no tax implications on them.

Of course arranging this will incur some legal costs.

Theo

Reply to
Theo Markettos

I have a feeling that this, technically, would create a "trust". Those are the sort of things that lawyers delight in! Some sorts of trusts have interesting income tax implications. I believe your "informal letter" is called a "letter of wishes".

Without either successfully creating a trust or a subsequent deed of variation, I believe the redistribution by your parents would be a "potentially exempt transfer", which might affect their inheritance tax.

Reply to
David Woolley

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