IHT for 84 year old parents.

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My parents have total assets of £800,000, half of which is in their residence. Their wills are written to leave everything to each other the surviving one leaving everything to me on death.
House is owned as joint tenants.

Will the half of the house left after the first death then become taxable on the second death as their wills stand ie.effectively taxed twice and they gift cash and surrendered ISA'S to me now and live 3-7 years will slididing relief scale apply?

Thanks in advance - this situation should be a lesson on early planning I think!!

[cranleys]

Will the half of the house left after the first death then become taxable on the second death as their wills stand ie.effectively taxed twice and they gift cash and surrendered ISA'S to me now and live 3-7 years will slididing relief scale apply?

Yes - not an ideal position.

Have you thought about using 100% BPR to bring down some of this excess to 2 years as well as an effective Will (which I have a number of contacts).

Colin Davison
Cranleys Chartered Accountants
Editor of Property Tax Secrets 2005
colin@cranleys.co.uk 01256-766655

[Anthony Nixon]

The best solution in these circumstances is to get the drafting of your parents' wills right.

By including appropriate trusts in the will your parents can:

(1) Keep the house available for the survivor of your parents while ensuring that the first to die makes the maximum use of his/her "nil rate band" (the amount up to the IHT threshold - £263,000 at present). This saves IHT of 40% of the nil rate band, so currently £105,200.

(2) Allow the survivor to make further lifetime transfers of part of the value of the house, without these being treated as gifts caught by the rules on reservation of benefit. If the survivor outlives the first to die by seven years or more this can keep the whole value of the assets owned by the first to die free of IHT.

One other essential step is for your parents to "sever" their joint ownership so that they become tenants in common and their respective half shares of the house pass under their wills, rather than automatically to the survivor.

Your parents need to find a solicitor who specialises in inheritance tax - not all know a great deal about it. The best place to start is a solicitor who is also a member of the society of trust and estate practitioners. If I can help please do get in touch.

Anthony Nixon
Partner
Lester Aldridge Solicitors
Alleyn House
Carlton Crescent
Southampton
SO15 2EU

Tel: + 44 (0) 23 8082 0442
Mob 07881 920742
Fax: + 44 (0) 23 8082 0441
Website: www.lester-aldridge.com

[Arnold Aaro]

Yes - I would second the above. A good solicitor well versed on IHT is a must on this matter.

Its importnat to get clear that the Trusts above which the Solicitors set up will only reduce the IHT bill by £105,200 (this tax year), by effectively removing the first £526k outside of their joint estate.

Further planning is a must to avoid a nasty tax bill on the remainder of the estate i.e. 800-526 = £274k. i.e. there still remains an IHT bill of £109,600!

Assuming the balance of the estate after the house is cash/shares etc., other types of trusts/investment vehicles can be used on top of the above to reduce this bill further. This can also be reduced to zero if your parents are willing. Discounted Gift Trust is one way and is very useful.

Feel free to contact me directly if you want more info on this.

Arnold Aaron
Investment and Inheritance Tax Planner
Zurich Advice Network
e mail: arnold.aaron@zurichadvice.co.uk
Tel: 0208 437 2500

[I advise extensively on Inheritance Tax Planning, particularly Discounted Gift Trusts and Investments in general]

[Arnold Aaro]

Correction, there are some sophisticated will arrangements out there where one can indeed save more than the £105,200. This would be appropriate in certain circumstances.

Arnold Aaron
Investment and Inheritance Tax Planner
Zurich Advice Network
e mail: arnold.aaron@zurichadvice.co.uk
Tel: 0208 437 2500

[I advise extensively on Inheritance Tax Planning, particularly Discounted Gift Trusts and Investments in general]

[robertmlaws]

AIUI Bequests to a spouse are not subject to IHT so there won't be 'double taxation. There will be no tax to pay on the first death as everyhting goes to the spouse.

You might want to get the wills changed so that an amount equal to the nil band is left to you by each of them with the rest left to the surviving spouse. That makes full use of the nil band.

Robert
not a lawyer