Tax planning for singles

[AnnSmith]

What is the most tax efficient way to dispose of property by means of a will for a comfortably off single person - intending to leave estate to nieces and nephews?

My estate is over £263,000.

I am also concerned about my estate being eaten away by care costs in the future should I ever need residential care.

Many thanks

[bob.fraser@towrylaw.]

If you are looking for tax efficiency and own assets above £263,000, then you should be making financial plans now. Leaving everything through your will is probably inefficient.
It would help if you could summarise what your assets comprise, and whether your income is independent of your assets.

[AnnSmith]

Thank you

My income is based on money held in various bank accounts, approx 15k in isas/peps, 150k in various bonds and national savings. My property is worth 150k and is mortgage free.

I can live comfortably on my income.

Presumably a visit to IFA in order?

[bob.fraser@towrylaw.]

I think that I'd be cautious. Whilst I admire your spirit of generosity to your nieces/nephews, the more important issue must be your own financial security. At the moment the total tax liability on your estate would be about £20,800 from an estate of £315,000, meaning that your heirs would get £294,200 among them. Not bad from an aunt!

The only way that you are going to be able to avoid IHT is to gift £52,000 of your capital. If you were to place this into a discounted gift trust you would still be able to get a tax efficient income of £2,600pa, but you would not be able to access the capital. Would you feel happy with reducing your capital to £100,000?

As for residential care costs, the capital currently held in a bond will not be able to be taken into account by the local authority in any case. You also need to be aware that the local authority have very wide ranging powers to recover assets if they believe that an individual has deliberately divested themselves of property to avoid care home fees. This is often done as a clawback through the benefits system or by simply refusing to fund a care home place. The local authority also have the power to place a charge over the property which would have to be discharged on your death. Your executors would have a legal obligation to discharge this debt as a priority.

If you want to chat this through, please feel free to do so without obligation.

Bob Fraser MA, MBA, FPFS
Associate Director, Rensburg Plc
Fellow, Personal Finance Society
email: bob.fraser@rensburg.co.uk
office: 02890321002
mobile:07709430958