Richard

[2CV]

Apart from my pension my wife and I have total assets of approximately £500000, comprising our home plus some £250,000 cash in high interest accounts. An accountant has advised that in order for each of us to take advantage of the inheritance tax-free allowance of £263000 on our death, we should each hold half of the total assets. Our home is already registered as tenants in common so will be treated as part of our individual estates

Cash on deposit was held exclusively in my name and I have now transferred half to my wife. Prior to this she had no income of her own and was not a taxpayer. The interest on her deposit is having tax deducted at 20%, but the gross interest is less than her tax allowances for a person over 75.

She is considering submitting Revenue Form 65 to ask for payment of interest gross, but as the funds were previously in my name could this be in any way disadvantageous or encounter Revenue objections? . We would be grateful for advice on the pros and cons of this action.

[Simon Sweetman]

The Revenue will have no problems with this assuming it to have been a genuine gift (your wife is truly entitled to the capital and the income): they accept that husbands and wives can use the system this way. So she can happily go ahead and fill in the form.

[Arnold Aaro]

In addition to the above which would be good practice, a Discounted Gift Trust could be suitable for you.

Basically a Discounted Gift Trust allows you to rid yourself of some of the cash you have sitting in your estate, for IHT puposes, but still allows you to take a TAX FREE income from it - for life!.

Now, immediately on starting this Trust a good portion (i.e. 40% for healthy 75 year olds) of the amount you put into the Trust is counted as outside of your estate for IHT purposes by the IR. After 7 years the whole amount is outside of their estate. But the cracker here as already mentioned is that you receive a TAX FREE income FOR LIFE from this Trust fund from day 1, which you use to supplement you pension income. On death the Trust fund automatically passes to the beneficiaries you have nominated, and does not get trapped in the probate process.

Arnold Aaron
Investment and Inheritance Tax Planner
Zurich Advice Network
e mail: arnold.aaron@zurichadvice.co.uk
Tel: 0208 437 2500
[I advise on Inheritance Tax Planning, particularly Discounted Gift Trusts and Investments in general].