web chat archive

Web Chat Archive

Avoid the inheritance tax trap!

Young or old, super-rich or just ‘an average householder’, if you own a property then, sadly, inheritance tax (IHT) is something that will affect you. What’s more, because of rising house prices it is something that is affecting us more than ever before.

Anne Young, tax expert from Scottish Widows, is live now to answer all your questions about inheritance tax including what it is, who’s likely to be liable and how you can avoid it.

For general information you can also visit www.leavemore.com

Transcript

Host: Hello and welcome. Anne is just settling in and is ready to answer your questions.

Anne Young: Hi everyone. I look forward to answering your questions

Neil: Hi Anne, can I ask exactly what IHT is and how it affects me?

Anne Young: IHT is a tax which is payable on gifts, but for most people it is only relevant on death as this is the time when they give money away. You are assessable to IHT on your worldwide assets if you are UK domiciled. In other words it does not matter where your assets are situated, you will be UK domiciled if you father was UK domiciled. The rate of IHT is 40% on death, but you only pay this if your estate is worth more than what is known as the nil rate band, currently £285,000. Some tax may be payable on lifetime gifs but generally this is only where gifts are made to trusts. The lifetime rate is 20%, but you will also be taxed, on death, on gifts made in the seven years prior to your death.

Tim Hinchliff: Hi Anne My Grandfather has a small property company (worth roughly 1.5m) based in West Yorkshire. He recently gave me half that shares in order to reduce iht later, on which we will pay capital gains tax (we are hopefully soon to sell a large part of the company for redevelopment almost tripling its the company value) but is there anything we can do about his remaining shares? The company is regarded as a property trading company. Of course as well as that he has a house thats value is above the threshold although would him gettting as large a mortgage as possible help alleviate the iht burden?

Anne Young: As you say the previous gift of share will potentially reduce your grandfather's estate for IHT provided he survives for 7 years from the date of the gift. Unfortunately gifts are treated as disposals for CGT so although the gift was potentially good for IHT it also triggered a capital gain on your grandfather which is assessable to CGT. With these kinds of assets it is always a decision to be made - whether to keep the shares which isn't good for IHT but the capital gain disappears on death. Or bite the bullet as regards CGT and hope to survive the 7 years. Because the company is regarded as a property trading company, it is unlikely that the shares will qualify for Business Property Relief. As a result, the whole value will continue to be included in your grandfather's estate. And of course there is also his main residence. He needs to take advice but could consider (as you suggest) realising some cash from the property by taking out a mortgage. That way he will have a house with a debt which is good IHT planning. Another option would be downsizing and again realising cash. He could then use that cash to do some IHT planning - possibly making absolute gifts or gifts into trusts. There are trust plans which would allow him to give money away but give him payments for life. Again survival for 7 years is usually a requirement! All plans have charges involved and it pays to get someone to look over the whole of your grandfather's affairs before taking any action.

Rosemary: My house is in my name only. How can I avoid IHT without getting married?

Anne Young: It is difficult to plan for IHT where your main asset is your property. The main reason being that if you give your house away but continue to live in it, you have to pay a market rent for the gift to be effective. The recipient of that rent will be assessable to income tax on that rent and assessable to capital gains tax (CGT) on any future gains on the property. You may want to consider realising some cash from your property by means of downsizing or equity release - you would then have some cash that you could maybe use in IHT planning, e.g. lifetime gifts.

alan spence: I have just been advised that i have a potential IHT of £900000 on the second death,A financial advisor has indicated a hourly fee of £135.00 p.h What would you expect for this sort of figure,could I simply carry out the work myself,what is involved? thanks alan spence

Anne Young:
Poli Poli: Looking good - but we can't hear a thing...can you hold up a sign saying "hi Pauline and Rich" please?

Anne Young: We'll work on that one - but in the meantime, we'll answer some more questions...

Michael: What can be done to reduce inheritance from received in another EU country? Where is it taxable? I assume in the other EU country (Denmark)? Thanks Michael

Anne Young: The basis for assessing people to IHT is based on their domicile and it is a donor based tax. If you have received an inheritance from someone domiciled in Denmark then the primary tax is Danish tax. If, on the other hand, you inherited a Danish property from a UK domiciled person then he/she will be assessable to UK IHT on his/her worldwide assets - including the Danish property.

Richard John: My father gave us his house in 2001 it was then worth about £80,000. He lives with us. We have had an extension built. Will the house as it is now valued, if above the present IHT threshold, be considered his for the purposes of IHT assessment?

Anne Young: It sounds as though the gift of the house to you in 2001 may have been ineffective for IHT purposes because your father continues to benefit from the gift. This is known as a gift with reservation. It might have been better for him to have merely transferred part of the house to you with him retaining part. He should then have paid his share of the household expenses. That would have been more effective IHT planning. However, that is maybe water under the bridge.

Jane Redfern: My husband will have to move into a nursing home if I die first. We both have savings and investments in our own names but the majority of our wealth is tied up in the value of our jointly owned house. How can we pass on the majority of our wealth to our only daughter, bearing in mind that the high cost of nursing home fees will have to be met?

Anne Young: This is always a concern. A lot of people have a potential IHT problem but are unwilling or unable to gift assets away during their lifetime in the hope of reducing the tax. I think you should talk to a financial adviser. He may be able to suggest a plan to pay nursing home fees.

D Pritchard: My wife and I have been advised to set up a discretionary trust that will hopefully allow us to obtain the full IHT allowance for both of us. The surviving spouse will also be able access the finances. Could you advise us regarding the wisdom of this type of IHT planning and confirm that our inheritance cannot be claimed by any individual other than our children who are our beneficiaries (ie by a spouse of theirs in a divorce settlement).

Anne Young: I suspect that you mean that you have been advised to set up a trust in your will that will include your spouse (and possibly children etc) as a possible beneficiary. You can restrict the possible beneficiaries to those you might want to benefit. This trust will allow the survivor to benefit from the trust at the discretion of the trustees. It is therefore important that you choose your trustees carefully. Your spouse can be one of those trustees. This is good IHT planning. Ex spouses will have no claim on these trust assets as all the beneficiaries have only a possible interest. The most important thing is to choose your trustees carefully.

GGustaw Kon: I am too late to save IT on my mother's house using the seven-year-rule. It is all but certain that the government has covered the bases for something as naive as my ruse. But I'll ask anyway. Can I BUY the house from my mother for a purely nominal (peppercorn) price? I know all about the idea of peppercorn rents, but I want to buy for a nominal price. As I say, my mother did not bother about these things when there was time and now she will not live for seven years. Alternatively, could an off-shore trust buy for a nominal (peppercorn) sum? This would achieve the same effect that I would by buying myself though the tax saving might be even better.

Anne Young: If you buy the house for a nominal amount then your mother will be deemed to have made you a gift of the difference between the market value and what you paid. If your mother continues to live in the house then this will be an ineffective gift as it will be treated as a gift with reservation - your mother will have retained a benefit. She could think about paying you a market rent but this could be substantial and you would be assessed on the rent to income tax. Also any gain on the subsequent sale of the house would be assessable to CGT. The income tax and CGT issues could be mitigated by using an offshore vehicle but in order to have made an effective gift your mother would still need to pay a rent if she wanted to continue to live in the house. Please take advice before doing anything.

David Joyce: Is it sesnsible to invest in AIM stocks to try and reduce IHT liabilities?

Anne Young: Absolutely and there are various plans on the markets that use this legislation - or you can do it yourself by buying AIM shares. The main problem is the riskiness of the AIM investment so it is probably wise to take advice on where to put your money. You could end up with no IHT problem because the companies you chose to invest in didn't perform. So it is something you may want to consider but whether it is a sensible investment may depend on your attitude to risk.

Marvin: Good Afternoon Anne, With my partner we have a substantial estate (value circa £1.6M) and 2 teenage children. Obviously even with the nil-rate band allowance, there is potentially a large tax bill. Do u have any views on the best way to offset this. We have both made wills. Marvin

Anne Young: Your first problem is, of course, that you are not married by the sounds of it. You need to remember that in this case, there could be IHT to pay on both first and second death, Can I strongly advise that you consider marriage because you can then use the spouse-to-spouse exemption on first death, while leaving a legacy (perhaps into a discretionary will trust) to use the nil-rate band. I would strongly advise that you consult both a solicitor with regard to your wills, but also a financial advisor because it may be possible to make investment into AIM shares or specialist IHT trusts to potentially reduce your IHT liability. You might also want to consider a whole-of-life insurance policy in trust that will pay out sufficient funds to pay the tax so that your estate can pass to your partner and your children intact.

Tab: Hi there, I have 1000 pounds to invest every month. I dont know where to start. I am looking to invest for 2 years at least. Please advise. Thanks Tab

Anne Young: Probably make sure you have an ISA - the limit is currently £7,000 a year. What kind may depend on how accessible you want the money to be. Options are a cash ISA and a stocks and shares ISA. Although not hugely tax efficient, the income is not assessable to personal income tax and any gain is free of tax. The cash ISA is obviously the more accessible. You might want to think about a pension as well - the down side is that you then can't access the money until your 50s. The good news is that you get a bonus from the government via tax relief. I would suggest you talk to an adviser who can go through all your options. If this is a short term investment you probably don't want to take too much investment risk.

Rosemary Johnson: My house is valued at £500,000. Other than marrying my partner or putting the house in both names, how can I avoid IHT if I should die first?

Anne Young: Tricky. Remember that as you aren't married to one another then the total value of the house(and your other assets) will be in your chargeable estate should you predecease your partner. Even if you put the house in joint names, half the value would be a PET and would remain in your estate for 7 years. And indeed even if you died after that the remaining half would be in your estate. You might want to consider taking out a life assurance policy in trust to ensure that there are funds to pay any tax on your death. Plan B may be to get married!

Keith Edmondson: My wife and I have our own home here in Yorkshire, probably valued at £175,000. We have liquide assets of approximately £120,000. We have the benefit of one index linked Occupational Pension of almost £18,000 per annum plus two state pensions presently amounting to £7,650 per annum. We have a second property in France comprising 3 separate adjacent renovated buildings probaby valued at £200-250,000. We know that the French property will be subject to French law on inheritence i.e. it must pass directly to our son and daughter following our deaths. However, we also believe that it's value will be included in our estate for UK IHT purposes. Is this correct? How should we plan to legally reduce or avoid IHT in the UK. We have 3 grandchildren and would like to make provision for them avoiding IHT if possible.

Anne Young: I assume you are UK domiciled you are assessable to UK IHT on your total estate - no matter where the property is situated. You might want to think about making wills that include a legacy (possibly into a trust) on first death to someone other than the surviving spouse - although he/she can also be a beneficiary of any trust you set up. You might also want to make lifetime gifts. Possibly your French property. Although such a gift would possibly create a CGT liability so you might want to consider other gifts. If you do gift the French property you would need to consider paying a market rent if you continued to use it for holidays. Take advice as to IHT planning. You might just want to take out a life policy in trust that is enough to pay the tax on second death.

John Nicholson: There are a few funds invested primarily in 'Aim' listed stocks of 'trading' companies that qualify for complete IHT relief after 2 years. Although slightly more risky than say 'blue chip' companies, surely it would make economical sense for the overall family benefit if the houseowner took out a mortgage on the home to invest in a fund, primarily exposed to the residential property market if possible, using the income from the fund to pay the mortgage. This may be an over simplification but is it feasible and what are the disadvantages?

Anne Young: Absolutely feasible and there are various plans on the markets that use this legislation - or you can do it yourself by buying AIM shares. The main problem is the riskiness of the AIM investment so it is probably wise to take advice on where to put your money. You could end up with no IHT problem because the companies you chose to invest in didn't perform.

Alison : Can you put a share of your house in the name of a child if they are living in it and you are living elsewhere? Would the half in the name of your child be free of IT?

Anne Young: You can give away anything to your child. If what you have given away is a share of your main residence but you do continue to live there, but your child doesn't then this will not be an effective for IHT purposes as this will be treated as a gift with reservation, unless you pay rent (as previously noted in an earlier answer). However, in this case, if you give away a half share of a house that is not your main residence, then this will be an effective gift for IHT purposes, as long as you survive for seven years after the gift is made. The other thing to realise is that this gift of a half share is a 'disposal' for capital gains tax purposes, so it is treated as if you had sold half the house, and this gift could therefore trigger a CGT charge on you.

Allan Johnston: Are monetary gifts left to charities in a will paid before or after the calculation of IHT on the estate?

Anne Young: These are paid before - gifts to charities are exempt from IHT.

Robert, London: Is it still true that buying Premium Bonds for grandchildren takes that amount out of IHT?

Anne Young: What you have done is made an absolute gift to those grandchildren. Some of that gift may be exempt (you can give away £3,000 capital each year without any IHT implications at all). The balance is treated as a potentially exemption transfer. This means that there is no immediate IHT problem and as long as you survive 7 years the gift will fall out of account for IHT purposes on your estate.

Peter Mather: Whats the best way to leave my house to my children. Is it possible to give the house to an offshore company, make the children beneficiaries by placing shares in their name, whilst having a commercial rental agreement with the Company to pay a commercial rent for the house for the remainder of our lives. My understanding is this will work as long as one or both of us remain alive for at least 7 years?

Anne Young: Yes this is a possibility but remember that a commercial rent could be substantial.

Peter: Are SIPP's treated as part of your estate?

Anne Young: Generally speaking no. If you die, and a lump sum is paid from that SIPP, although no IHT will generally be payable on your death, the person who receives that lump sum will have a huge increase in their estate and therefore will have an even bigger potential IHT problem on their death. So no immediate problem, but certainly one further down the line.

Nick: What is currently the best way to shield from IHT using offshore trusts given Mr. Brown's attack over the last year or so ?

Anne Young: Trusts (both onshore and offshore) are still a good way to potentially save on IHT. The main drawback is that gifts into trusts are now chargeable so probably a good idea to keep gifts into trusts within the nil rate band (currently £285,000). Given that husbands and wives are individuals, each could make gifts to a trust of £285,000 amounting in total to £570,000. And of course you could repeat the exercise in 7 years time. When setting up trusts it may be advisable to set up smaller trusts on different days rather than one big trust but you need to take advice.

Alison: How do you work out wether the cgc or the iht is worst!!??

Anne Young: I will assume you mean CGT (Captial Gains Tax) in your question. As mentioned in a previous question, a lifetime gift of some assets is treated as a disposal for CGT and can trigger an immediate charge on the donor. However, if the donor survives for seven years, the asset will be out of his or her estate for IHT purposes. The worse scenario is of course that you trigger a CGT charge and then you die within seven years, meaning you also have an IHT charge as well. To answer your question, CGT is assessable only on the gain, whereas IHT is assessable on the whole value of the asset, so potentially IHT is a higher charge.

Les: Can the surviving husband/wife continue to live in the family home when the first to die leaves their share of the house to the children?

Anne Young: Yes, But the surviving spouse has a potential problem if the children wanted to sell their house and realise their share. Similarly if those children became bankrupt or divorced, their share will be taken into account in those proceedings. It may therefore be more advisable to consider putting that share into a trust on first death, rather than leaving it absolutely to the children. It's probably best to get advice from a solicitor.

mrs kellet: my mother has money in trust for her four daughters.Can this money be drawn drawn to pay for inheritance tax on the rest of her estate?

Anne Young: You don't say what kind of trust this is and whether the trustees have got discreotion and when. However, if the four daughters are entitled to the trust funds then the trustees could pay the trust funds to them and you (the four daughters) could use that money to fund or go towards the IHT bill payable on your mother's death. The executors are - primarily - liable to pay the tax but as a general rule HMRC will accept money from anyone as regards a tax liability.

Don MacBean: Were ASPs mentioned in the PBS?

Anne Young: Yes. The rules are now more focused on providing a minimum pension. There is also a penal tax charge on any lump sum passing to the next generation. There were rumours that ASPs would be abolished so this modified position is better than nothing. Do consult a financial adviser with view to ASPs going forward.

Rosemary: What does PET stand for?

Anne Young: Potentially Exempt Transfer - this is an absolute gift to another individual or into an absolute trust for that individual. No IHT will be payable when you make the gift and potentially it will fall out of count in total if you survive seven years, so no IHT on your death either.

Peter: If you are left an inheritance I understand that you can retrospectively place this in a trust to avoid it being part of your estate. Is this correct

Anne Young: You are talking about what is known as a Deed of Variation. This can be completed within two years of receiving a legacy, and you can effectively redirect it to someone else or into a trust. For IHt purposes the legacy is deemed to come directly from the deceased to whoever or wherever you have redirected it.

ANON: My parent house valued @ circa £120k will be left via inheritance to myself and three brothers. Whilst we will be under nil rate band will be subject to CGT if we sell the house. Additionally is their a way to shelter the property from nursing home costs up until death?

Anne Young: You are correct to say that there will be no IHT to pay provided your parents' total assets are less than the threshold of £285,000. You will be deemed to inherit the house at its value at the date of death. However if that house is not your main residence from that date onward, then you wil be assessable for CGT on any gain in value on that property from the date of death to when you sell it. Regarding, sheltering the home from nursing home costs, there are huge problems in doing this, and you may want to take specialist advice on doing this i.e. from a financial advisor.

Amol: What about the possibility of investing in very high value items (diamonds) and passing them on. After all a diamond doesnt have a title to it and the IR wouldnt know.

Anne Young: Good idea! But it does not really matter if an asset has a title or not. You are assessable to IHT on all your assets - including diamonds. The executors of your estate have to make a report to HMRC on all your assets. If they fail to do so, they are committing fraud. So not advisable.

snowflake: Edited repeat. Once AIM shares have ben held for a period of two years, they are free(r) of IHT, but do they have to be held until death to remain from IHT?

Anne Young: You are correct in that AIM shares are eligible for what is known as Business Property Relief. If you hold them for two years they will qualify for 100% relief,. However, if you sell them, you once again have cash (or other assets) which will no longer qualify so they are back in your estate. You do also need to remember that AIM shares tend to be at the riskier end of stocks and shares investment.

Yunis Khan: hi ann which other countries besides uk impose iht and how the limits compare?

Anne Young: It is a difficult one to answer! Some countries have abolished IHT but they collect their tax elsewhere possibly with more stringent income tax laws. One that springs to mind is Canada. Other countries have IHT but it is on a different basis to the UK so it is difficult to compare. For example, in Ireland, it is a recipient-based tax, whereas in the UK it is donor-based tax. If you are thinking of emigrating, you should take advice on this aspect.

S P Tindall: How does Civil Partnership affect Inheritance tax? If a will leaves everything to a partner without a civil partnership taking place is that sufficient to avoid inheritance tax? Thank you

Anne Young: If there is no Civil Partnership in place, unfortunately the legacy is chargeable to IHT.

Alison: What can one do to rescue the situation now the gov. has made life policies written in trust taxable

Anne Young: In actual fact, the new rules that now apply to most trusts are not as penal as was first thought when the legislation was introduced. You should therefore still always consider putting your life assurance policies in trust as in many instances there will not be any additional tax to pay.

KEN HEALEY: What is the position, if on the death of the husband the propertyi is sold and the house value plus any other assets is then divided between the wife /children on a percentage basis say 25 % to each entitled person

Anne Young: If the husband dies first and all the assets are turned into cost and distributed 25% to surviving spouse and say 25% to each of three children, then the 25% to the spouse is totally exempt for IHT purposes, but the 75% will be assessable to IHT and if more than £285,000 (or the nil rate band) then the excess will be taxed at 40%.

alison matthews: how can it legally be avoided?

Anne Young: The first step would be to take advice. You also need to ensure you have a well drafted will. Use lifetime exemptions and consider lifetime gifts either absolutely or into trusts. Purchase tax efficient assets such as AIM shares but remember these are a risky investment. Finally, provide a fund for the tax through a whole of life policy in trust.

paul: my parents wish to give a substantial amount of money to each of me and my sisters, approx £50,000 will this be subject to any kind of taxation?

Anne Young: Assuming this is an absolute gift - and not made via a trust - it will be a potentially exempt transfer (PET). There is no tax payable at the time of the gift, but it will be liable for IHT if your parents do not survive seven years from the date of the gift.

Jo: My mother is about to sell her home approx 400k and buy another ,which I will live in along with her, when she purchases the new house can she put the new deeds in our joint name to help alleviate IT or would this be classed as a potential capital gain. she also has a buy to let worth 150 K which would be the best way, so as not to have a potential capital gain, I realise you have to survive 7 years to avoid th I.t Many thanks

Anne Young: If the new property is put in joint names of your mother and yourself, and both of you live in this new property, then this will be an effective gift for IHT purposes provided that each of you pay your fair share of the household expenses. If however, you don't live in this house it will be treated as a gift of reservation and be ineffective as a gift for IHT, unless your mother paid a market rent to you in respect of your half-share. If you both use this new property as your main residence there will be no CGT implications. Giving away the buy-to-let or a share of it, would be treated as a disposal for CGT purposes so could trigger a CGT charge on your mother, so you need to be careful but it may be easier for IHT purposes as there are no gift with reservation issues. Remember the rent in the future will be assesable to income tax for both of you in the future,

Sarah: My parents wish to avoid inheritance tax. They have suggested that my brother and I buy a property which they then rent from us, with the rent being enough to cover the mortgage. They would use the capital from the sale of their house to fund the rent. When they die any remianing capital they have would then be used to pay off the mortgage on the rental property - this property would then be mine and my brothers inheritance. Is this really as simple and good a solution as it sounds?

Anne Young: Yes, it sounds okay. Rent is assessable to income tax on you but only net rent after expenses (inc mortgage interest). As the house is not your main residence you will be assessable on any capital gain when it is sold.

Ken Bain: Can I take out a life policy to cover any Inheritance tax the beneficiaries of my will may be liable for ?

Anne Young: Yes and this is probably the easiest way to deal with IHT. Do put it in a trust however to ensure the proceeds don't add to your estate.

liz: our small family business has a SSAS with Scottish Widows, are there any IHT advantages?

Anne Young: The great benefit with pensions is that while you are alive the fund the money is protected within the pension fund. So if you die before aged 75 any lump-sum death benefit is free of IHT, However, as mentioned earlier, if that lump-sum is paid to your spouse (for example) this will increase his or her estate for IHT. Best to take advice here from a financial advisor about the possibilities of extending any IHT potential benefits.

Alan: What is the best way to ensure we can retain access to our properties in our lifetime and still ensure they go to our children?

Anne Young: Make sure you have a properly drafted will.

Ravi: A question regarding spouses exemption. Once an estate has been passed from one spouse to another, is there a time limit that the beneficiary has to wait to avoid IHT, before he or she can pass it onto their children?

Anne Young: No - there is no time limit

Derek Reynolds: would ones Wife be exempt from inheritance tax

Anne Young: Your wife is not exempt - but gifts to her are! It's worth noting for other visitors to this chat, that gifts are in fact exempt to husbands, wives and registered civil partners.

Jacqui: My mother has been advised by a financial advisor to set up a small trust fund for her children, which would be outside of her estate for IHT purposes. However, she wants to be able to access the money in the trust if she runs out of funds. Would it make more sense for her to gift the money to the children now (with taper relief kicking in after 3 years) and then they lend her the money back if or when she requires funds at a later date? Would such a loan count as part of her Estate and would the children be entitled to repayment of the loan before the Estate is valued for IHT?

Anne Young: This is one of the major problems with IHT. You want to give things away, but you never know what will happen in the future and you may need the funds, I am concerned about your plan that it may be regarded as a circuitous way of trying to get money outside your mother's estate but actually ending up back in your mother's bank account. So the whole plan may be totally ineffective. I would suggest that perhaps your mother may consider a trust called a Loan Trust where she gives away all the growth on her money but she can access the outstanding loan at any time. This is sometimes known as a 'Freezer Trust' because any outstanding loan will be in her estate but all the growth will be out. She can call on the loan at any time either as regular small repayments or a lump sum in the future.

Martin Hales: My wife and I have been living in Australia for the past two years as temporary residents. We have our own property here and only have investments back in the UK. Where would we be considered domiciled regarding IHT? Our only child is the benefactor who is an Australian citizen in Sydney. Do we need a UK Will to cover UK assets and an Australian Will to cover the assets in Australia? Many thanks for your anticipated help.

Anne Young: I suspect as you still have a property here and are only temporary residents in Australia that you will still be regarded as UK domiciled and therefore assessable to UK IHT on worldwide assets. I would suggest getting both an Australian will and a UK will.

Derek Reynolds: Thanks for your response Ann to my question of wife and IHT,so then what is a wifes limit to inheritance

Anne Young: All individuals have a nil rate band of £285,000 so both of you have that limit. Any legacies that you make in excess of that will be assessable to 40% IHT.

john: can i put property into a limited company,and make my children directors along with myself. can we draw a dividend from rental income

Anne Young: If you transfer your property to a company but you continue to live in it, you would need to pay a market rent to that company in order for the transaction to be exempt for IHT, If you own shares in that company, then the value of the shares will be in your estate when you die, and the value of these shares will reflect the value of the house. The company could pay dividends to each shareholder but then then those dividends would be back in your bank account and assessable to income tax. I am not convinced that this is a viable way to plan to avoid / minimise IHT.

Rosemary: If I sold my house valued at £500,000, which is in my name only, and purchased another with my partner of 16 years could we purchase it in both names and therefore avoid IHT if I died first?

Anne Young: First of all, if you purchased it in joint names you would be deemed to have made a PET of half the value of the house, so if you were to survive another seven years that £250,000 would fall out of account for IHT. However, your share of the house will still be in the estate and if you pre-decease your partner (die first) then your half-share and any other assets will be assessable to IHT on the excess at 40%.

Robin Pearson: How is a Civil Partnership defined? Is there no alternative to marriage for different sex couples who live together?

Anne Young: Civil partnership is only an option for same sex couples, as currently marriage is not an option for them in this country. Heterosexual couples need to be legally married in order for any spouse-spouse exemption to apply.

Yunis Khan: my wife has gifted money to our children tohelp them with their house puchases.AS she is younger than me,I epect her to live loger than me.I transfer money to her account when she gifts this to the children.Are there any IHT implicationas on the tapering relief on my death assuming my wife survives 7 years after these gifts and I don,t.

Anne Young: First of all, there are no real implications in that you have made an exempt gift between spouses. Can I however point out that as regards taper relief where you make non-exempt gifts it will not apply as a general rule unless it is in excess of the nil-rate band so most gifts will probably not qualify for taper relief at all. You have heard about stealth taxes, and taper relief is a stealth relief for most people - for most people it doesn't apply.

Nigel Bartrip: What is you opinion of IOU Trusts for property, i.e. my wife and I becoming tenants in common to reduce IHT for our children?

Anne Young: These are a really good way of using the nil rate band on first death, whilst giving the surviving spouse access to the whole estate. Consider talking to a solicitor about setting up your will in this way.

Nick White: My father passed away in June of this year. He owned the house with my mother, who is still alive as tenants in common. He bequeathed me his half of the house. I have 2 concerns. Concern 1 is that when my mother passes on, HMRC will deem that my mother has been living in the "whole" of the house and consequently will levy the whole amount of the value of the house against her estate for IHT. If this is the case, then I could do a deed of variation on my father's will so that his half is in a trust and my mother's estate owes the trust half the value of the house as an "I owe you". Is my understanding correct???? The second concern is that the IHT helpline which I have used several times has not been that helpful and according to 2 solicitors has given incorrect advice on how much value to place on the house for my father's estate. The helpline claims it should be 50% whilst the solicitors claim 40%. The house being owned by mother and father as tenants in common. Thanks, - Nick

Anne Young: I suspect this change is a Deed of Variation, and what I would suggest is that you use this to leave assets to the value of the nil rate band into a Trust, with the trustees then lending your mother these assets. That way she ends up with access to the whole estate but with a debt on it equivalent to the loan of the amount owed. As regards the valuation of the house, HMRC will determine the value at the date of death. It is important to seek legal advice if contemplating a Deed of Variation. Solicitors have probably more experience as well in putting a value on property for probate purposes.

Host: Unfortunately that is all the time we have today. Many thanks for all your questions.

Anne Young: Many thanks for all your questions, Inheritance tax (IHT) is a difficult subject so it is important that you take professional advice from a financial advisor, solicitor or accountant on these issues, You might also want to have a look at our website www.leavemore.com which has a calculator to allow you to estimate your liability and also a short video of me answering some IHT questions. I hope this is useful and that this event today has helped you plan or think about any future IHT liability.

Web Chat Archive