Inheritance Tax
Discussion
sticking a bond in trust is a gift so you are still stuck at 7 yrs. there are some trusts that are designed to give an immediate IHT saving but they rely on needing income and being in good health.
bottom line, once the 7 yrs becomes iffy the options most IFAs will come up with are all going to achieve little. if you talk to someone decent they may be able to expand your options but that may then incur higher risk and they'll have you looking at schemes based on AIM shares.
should add...putting things in trust is not ALL about IHT - i have plenty of clients that wont make 7 yrs but still use trust funds to assist to with passing assets with more control and efficiency than a will can offer.
T (IHT consultant - stick up any advice the IFA gives you, happy to comment)
bottom line, once the 7 yrs becomes iffy the options most IFAs will come up with are all going to achieve little. if you talk to someone decent they may be able to expand your options but that may then incur higher risk and they'll have you looking at schemes based on AIM shares.
should add...putting things in trust is not ALL about IHT - i have plenty of clients that wont make 7 yrs but still use trust funds to assist to with passing assets with more control and efficiency than a will can offer.
T (IHT consultant - stick up any advice the IFA gives you, happy to comment)
Robin,
There are a number of us here that work in the IHt arena to be able to help. Tiggsy has already posted and someone has suggested the CGA as well.
Definitely worth talking to those of us here I think.
One note of caution, you refer in your post to your Father making a PET (potentially exempt transfer) and the tax liability reducing on it after 3 years. That will not happen. Taper Relief only applies to a tax liability. Many IFS's get it wrong, so don't worry about it.
In reality, any gift made within 7 years of death is added back into the estate and is counted first when looking at the applicable nil rate band. Thus, if a gift of £300,000 was made 6 years 11 months before death, it would be added in and use up most of the Nil Rate Band. At the moment the tax liability on the nil rate band is 0% so no tax is due at all. It just means that there is very little of the nil rate band left so the bulk of the remaining estate would be taxed at 40%.
Now, if the gift was say £525,000, then the first £325,000 would have no tax and the remaining £200,000 would have a potential liability of £80,000. Taper relief would apply to the £80,000 and in the scenario above, the tax would be only £16,000 on the gift and all of the remaining estate would be taxed at 40%.
Another thing to consider is Domicile and how long someone has been in the UK. Is your Father UK Domicile? If not, then excluded property trusts might be appropriate.
There are a number of us here that work in the IHt arena to be able to help. Tiggsy has already posted and someone has suggested the CGA as well.
Definitely worth talking to those of us here I think.
One note of caution, you refer in your post to your Father making a PET (potentially exempt transfer) and the tax liability reducing on it after 3 years. That will not happen. Taper Relief only applies to a tax liability. Many IFS's get it wrong, so don't worry about it.
In reality, any gift made within 7 years of death is added back into the estate and is counted first when looking at the applicable nil rate band. Thus, if a gift of £300,000 was made 6 years 11 months before death, it would be added in and use up most of the Nil Rate Band. At the moment the tax liability on the nil rate band is 0% so no tax is due at all. It just means that there is very little of the nil rate band left so the bulk of the remaining estate would be taxed at 40%.
Now, if the gift was say £525,000, then the first £325,000 would have no tax and the remaining £200,000 would have a potential liability of £80,000. Taper relief would apply to the £80,000 and in the scenario above, the tax would be only £16,000 on the gift and all of the remaining estate would be taxed at 40%.
Another thing to consider is Domicile and how long someone has been in the UK. Is your Father UK Domicile? If not, then excluded property trusts might be appropriate.
Where the above becomes very relevant is if, for example, £325k is put in trust for Billy and that leaves £325k in the estate that will go to Sammy when dad is dead via his Will.
Dad dies and Nil Band is used up on Billy's gift - Billy keeps all £325k in the trust. Sammy's £325k goes through IHT and comes out £130k lighter.
A rather simplistic explanation but shows the relevance off seeing what PETs do to the other beneficiaries if you start to have different people benefiting from the Will than those benefiting from the trust (if you use one - and many IFAs will suggest it as just gifting the cash to the kids outright (though sometimes easier) doest allow them to get any "business" - not saying a trust is no goo, i put millions in every year for people, but just make sure its for good reason)
Dad dies and Nil Band is used up on Billy's gift - Billy keeps all £325k in the trust. Sammy's £325k goes through IHT and comes out £130k lighter.
A rather simplistic explanation but shows the relevance off seeing what PETs do to the other beneficiaries if you start to have different people benefiting from the Will than those benefiting from the trust (if you use one - and many IFAs will suggest it as just gifting the cash to the kids outright (though sometimes easier) doest allow them to get any "business" - not saying a trust is no goo, i put millions in every year for people, but just make sure its for good reason)
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