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Inheritance tax and estate planning - a Close Brothers finance expert answers your questions

(30 Posts)
LauraGransnet (GNHQ) Mon 06-Aug-18 12:01:33

Inheritance Tax (IHT) is a major concern for many people when considering what will happen to their wealth when they are no longer around. But there is much more to estate planning than just reducing the amount of inheritance tax our loved ones will pay. Common considerations include: What will my spouse or partner inherit? What other beneficiaries should I choose? Do I have specific items I’d like particular people to receive?

Close Brothers' Senior Financial Planner, Simon Williams, is here to answer your questions about IHT and estate planning, including what it is, what the rules are and what to expect from working with a Close Brothers financial planner.

Close Brothers’ financial planners can help explain the basics of IHT and how it could affect you, as well as help you put a plan in place to give you the peace of mind that your legacy will be left to your nearest and dearest.

Close Brothers Asset Management is a successful wealth management and financial education business with over 40 years’ experience working across the UK. They aim to build and preserve their clients’ wealth by providing a complete, personalised and professional service.

Simon Williams joined Close Brothers in 2010 and works within the Financial Education team, regularly designing and presenting at a wide range of Financial Education and Wellbeing events. Simon wants to ensure that his clients have the appropriate financial framework to support their lifestyle, without any nasty surprises. Getting this right enables people to do the things they really want to do. Financial wellbeing is essential for our happiness, so we shouldn’t leave it to chance.

It is important to remember that the value of investments can go down as well as up and you could get back less than you originally invested.

Please post your questions on IHT and estate planning on the thread below and we'll choose 15 for Simon Williams to answer. We'll post the responses as soon as possible.

Best wishes,
GNHQ

Ilovecheese Mon 06-Aug-18 15:24:28

I really want to pay any inheritance tax that I might owe.

That doesn't mean that I don't want my children to inherit any money, it just means that I want them to inherit a fairer country as well.

Esspee Mon 06-Aug-18 15:38:21

Well, as all the wealthy people I know ensure that they only pay the minimum tax (all taxes, not just inheritance), I would be cheating my children and grandchildren if I didn't take advice on leaving as much of the assets I have already paid multiple taxes on, to them so I am looking forward to reading the advice on this thread.

Esspee Mon 06-Aug-18 15:50:44

Q. I have lived modestly all of my life and now find that my property and savings mean that if I died tomorrow my estate would be liable to inheritance tax. All my assets were paid for with income I paid tax on, then there were taxes on property purchase, VAT on improvements and general maintenance and even taxes on interest on my savings.
I have two sons, one of whom has two darling daughters. What options do I have Simon to minimise inheritance tax and what is the best way to go about it?

Auntieflo Mon 06-Aug-18 17:17:42

We updated our mirror wills a few years ago, and had a Lasting Power of Attorney, put in place, before it changed to an Enduring Power of Attorney. (I think that's the right way round). Should we change to being Tenants in Common? Will it make a difference? We had this done before the inheritance tax threshold changed. Do you have any suggestions as to how we could make it better for our three children to inherit?

Willow500 Mon 06-Aug-18 17:54:18

Our wills state that when one of us dies the other inherits half of our assets and the remaining half is split between our two children with the proviso that the survivor is able to live in the property until they die. Does the remaining spouse have to pay inheritance tax on the whole estate or do the children?

winterwhite Mon 06-Aug-18 22:17:11

Enlarging on the first response, does IHT distinguish between unearned income and earned income (on which tax has already been paid) of the person whose will it is, or is the whole treated as unearned income on the part of the inheritor? I too think IHT a good advice fair thing on principle, but there are degrees of fairness.

paddywhack Tue 14-Aug-18 09:44:44

My widowed mother is 78 and still lives in the family home. She is thinking of downsizing to a small flat. Someone suggested to me that she should put the flat in our (her children's) names to avoid inheritance tax. Is this a good idea? And is it true that she would have to live at least seven years after doing this for the tax benefit to take effect?

patricia77 Tue 14-Aug-18 09:52:41

My husband and I have two sons, one between us and my stepson (my husband was widowed before we met)

My husband would obviously like to leave his assets jointly for the two in equal share. I would like to leave mine to my own son (other than a gift to my stepson -he inherited from his own mother)

We are all happy with this but I want to make sure we have gone about it in the right way for tax purposes. My husband and I own the house jointly. We have said that the surviving partner has the right to live there for as long as they like and to use the assets to move if needed. But when both of us are gone my husband's half of the property will be split between both boys and my half will go to my son. As I say, we are all happy with this but is there anything specific we need to do or bear in mind to achieve this end result?

Warmthlover Tue 14-Aug-18 12:42:17

My partner jointly owned the house with his father, who died in 2006. My partner has never finalised probate (don’t ask!). It is likely that there would have been only a few £ thousand to pay in inheritance tax at the time. I am the sole beneficiary of my partner’s will but we are not married/in a civil partnership. If I survive him and inherit, I know I will be liable for the inheritance tax on the taxable value of the property but will I also be liable for the tax and penalty he didn’t pay? And if we got married to avoid my liability for inheritance tax would I still be liable for the 2006 amounts?

Ramblingrose22 Tue 14-Aug-18 13:18:47

HMRC said we didn't have to pay IHT on the probate value of our late mother's flat because it was (and remains) occupied by her second husband until he dies.

Will HMRC use the probate value of the flat to calculate the IHT or the value at the date of her second husband's death?

Will we be able to reduce the IHT bill at that time by using part of her second husband's nil rate band? He has a son who will want the nil rate band to be used first to cover any savings his father may have on his death?

josiejack Tue 14-Aug-18 16:02:59

I am 60 and married. My husband and I have agreed that if one of us survives the other, that person will have use of property and assets for their lifetime which I think is fairly standard. Then what is left will be divided between our children. But with taxes in mind is there any forward planning we should be doing to maximise whatever is left for them (or at least to minimise taxes they may pay on it). Should we be thinking about trusts? But how would that affect our use of things in the interim

Pocketmum Tue 14-Aug-18 20:25:27

My situation is not straightforward. I have my own property which I rent out. I live with my 2nd husband in his house.
If he should die before me I may move back to my own property as his house is not mine. It will be left to his adult children. What are the rules for IHT if I let one of my own adult children live in my own property or if I move back there and leave it to them in my will, what costs will they pay in IHT when I die.

Bossyrossy Wed 15-Aug-18 18:54:38

Ok, so lots of questions but where are the answers? Is this post just an ad for your business?

Doodle Wed 15-Aug-18 19:43:06

bossy if you read the OP, GN will pass on the best 15 questions for the company to answe in due course.

Bossyrossy Thu 16-Aug-18 18:13:09

Oops, I should have read the post more carefully. I look forward to reading the answers.

pheasant75 Fri 17-Aug-18 13:16:23

the rule for IHT changed last year, and the probate fees increased dramatically, so all in all you do need to get good advice, you can some research on internet .
there are rules if husbands IHT has n,t been used,
and there are some changes to property left to family , but as I said get good advice from an authorized estate planner.

SimonWilliams Wed 29-Aug-18 15:40:15

Hi all. The responses below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

SimonWilliams Wed 29-Aug-18 15:42:59

Esspee

Q. I have lived modestly all of my life and now find that my property and savings mean that if I died tomorrow my estate would be liable to inheritance tax. All my assets were paid for with income I paid tax on, then there were taxes on property purchase, VAT on improvements and general maintenance and even taxes on interest on my savings.
I have two sons, one of whom has two darling daughters. What options do I have Simon to minimise inheritance tax and what is the best way to go about it?

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

You may wish to consider gifting, either directly to them or into a trust. Most large gifts would be considered a Potentially Exempt Transfer (PET) and would take 7 years to fall outside of your estate. There are several smaller gifting allowances that you can use, which would be immediately exempt.

You need to be certain that you don’t need the capital you gift and also be happy that the money you gift could be used for anything once received!

SimonWilliams Wed 29-Aug-18 15:44:15

Auntieflo

We updated our mirror wills a few years ago, and had a Lasting Power of Attorney, put in place, before it changed to an Enduring Power of Attorney. (I think that's the right way round). Should we change to being Tenants in Common? Will it make a difference? We had this done before the inheritance tax threshold changed. Do you have any suggestions as to how we could make it better for our three children to inherit?

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

Holding a property as Tenants in Common allows a proportion of the property to be gifted in a will in the event of first death. This would reduce the value of the estate for the survivor. The property does not need to be owned in equal amounts. There is also the increasing main residence nil rate band, which should be looked at.

SimonWilliams Wed 29-Aug-18 15:45:29

Willow500

Our wills state that when one of us dies the other inherits half of our assets and the remaining half is split between our two children with the proviso that the survivor is able to live in the property until they die. Does the remaining spouse have to pay inheritance tax on the whole estate or do the children?

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

There would be no inheritance tax due when assets pass to a surviving spouse on first death. There will be a nil rate band and potentially main residence nil rate band which will be used on first death, to pass assets to your children. Depending on the amount, there might be inheritance tax to pay above these allowances.

SimonWilliams Wed 29-Aug-18 15:47:33

winterwhite

Enlarging on the first response, does IHT distinguish between unearned income and earned income (on which tax has already been paid) of the person whose will it is, or is the whole treated as unearned income on the part of the inheritor? I too think IHT a good advice fair thing on principle, but there are degrees of fairness.

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

Sadly not. Inheritance tax will be paid on all assets within the estate.

SimonWilliams Wed 29-Aug-18 15:48:50

paddywhack

My widowed mother is 78 and still lives in the family home. She is thinking of downsizing to a small flat. Someone suggested to me that she should put the flat in our (her children's) names to avoid inheritance tax. Is this a good idea? And is it true that she would have to live at least seven years after doing this for the tax benefit to take effect?

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

A gift would take 7 years to fully leave her estate. That said, you can’t gift something away, despite retaining full rights to it. This would be seen as a gift with reservation. If she is selling a larger house to purchase a smaller flat there is a good chance that she will have excess capital that can be gifted, but not the ownership of the property in which she wants to live.

SimonWilliams Wed 29-Aug-18 15:51:41

patricia77

My husband and I have two sons, one between us and my stepson (my husband was widowed before we met)

My husband would obviously like to leave his assets jointly for the two in equal share. I would like to leave mine to my own son (other than a gift to my stepson -he inherited from his own mother)

We are all happy with this but I want to make sure we have gone about it in the right way for tax purposes. My husband and I own the house jointly. We have said that the surviving partner has the right to live there for as long as they like and to use the assets to move if needed. But when both of us are gone my husband's half of the property will be split between both boys and my half will go to my son. As I say, we are all happy with this but is there anything specific we need to do or bear in mind to achieve this end result?

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

It sounds like that you have these wishes expressed in a will. Apart from this, I would always suggest that there is understanding between the beneficiaries. Not necessarily full details, but a basic understanding. This manages expectations and can avoid any unnecessary conflict.

SimonWilliams Wed 29-Aug-18 15:53:28

Warmthlover

My partner jointly owned the house with his father, who died in 2006. My partner has never finalised probate (don’t ask!). It is likely that there would have been only a few £ thousand to pay in inheritance tax at the time. I am the sole beneficiary of my partner’s will but we are not married/in a civil partnership. If I survive him and inherit, I know I will be liable for the inheritance tax on the taxable value of the property but will I also be liable for the tax and penalty he didn’t pay? And if we got married to avoid my liability for inheritance tax would I still be liable for the 2006 amounts?

N.B. The response below should not be considered advice or a personal recommendation. Any tax benefits or tax planning opportunities depend on individual circumstances and are subject to change. If you are in any doubt, you should speak to a Financial Planner who can talk through your options and advise you appropriately.

Probate needs to be sorted! The ownership of the property will be from this date. You need to check the legal deeds of the property to avoid further complications. If you are legally married then there is no inheritance tax to pay between spouse/civil partner if directly passed between each other.

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