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Financial Guidance Thread

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View Badger11's Profile Badger11 Flag Beckenham 20 Jul 20 11.43am Send a Private Message to Badger11 Add Badger11 as a friend

Originally posted by Goal Machine

It certainly isn't for everyone.

Ideal for those who don't want to move out of their home but are in need of liquidity. The roll up interest rates are high so eat away at your estate pretty quickly. In your situation with no children, it might be the ideal solution - might as well spend the money and enjoy it if you can.

Where ER is starting to be used differently in recent years are for individuals with large Defined Contribution pensions and properties valued over £1m. Property is included within the estate for IHT purposes whereas the pension isn't. If there is no desire to pass on the property to your children, it is more tax efficient for the beneficiary to receive the pension tax free than a property with the excess over £1m taxed at 40%.

Now that is a great suggestion


One more point

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View Goal Machine's Profile Goal Machine Flag The Cronx Today 8.46am Send a Private Message to Goal Machine Add Goal Machine as a friend

Helping elderly relatives and you plan for the future (part 3)

In the previous two articles in this series we discussed the basic assistance required help an elderly person manage their finances, plus a couple of different options to help pay for their care.
I wanted to discuss more tax planning around inheritance tax.

The Government announced that revenues from inheritance tax were £5.4 BILLION for the tax year 18/19. The expectation from HMRC is this figure is set to reach £10 BILLION by 2030. Whether you agree with this or not, these are enormous amounts of family wealth that are being transferred across to HMRC.

I would argue that with just some basic understanding of how this tax works, most families could certainly look to reduce their inheritance tax bill and increase the wealth staying in the family.

Here are the key areas to look out for:

1. Life insurance
If your elderly relative still has life insurance, are these written into trust? If not, then the funds will pay out to the deceased’s estate (thereby becoming subject to inheritance tax). If written into trust, the sum assured will bypass the deceased’s estate and be paid directly to the beneficiaries – dare I argue, where it’s meant to be paid.

The best thing about this is the policy can be written into trust at any time – even if the life cover is very old. The policy provider will normally have a trust document that can be completed. So simple, yet so effective.

2- Investment properties
Whilst your elderly relative is still living in their main property then not much can be done with that for inheritance tax purposes, however investment properties are different. If your relative doesn’t rely on the income then these properties can be gifted to another family member (or multiple members). As this is not technically a sale, then there is no stamp duty charged. However, all other legal costs of selling a property should be considered. After 4 years the inheritance tax liability of this gift will begin to reduce and after 7 years it is gone, provided the elderly relative is still alive.

3 – ISAs
ISAs are fantastic tax-free options for income and growth whilst a person is alive. However, on death they are counted as part of the estate and therefore liable for inheritance tax. One option to consider is switching this ISA into another ISA-based investment that qualifies for Business Property Relief (or BPR). BPR‘s main advantage is these assets will become EXEMPT from inheritance tax after only 2 years, versus the normal 7 for a gift. Another benefit is that the investment will always be held in the elderly relative’s name (because they are not giving the funds away) and they can always access them again if required.

4- Cash and shares
There are a couple of options we could look at here. First, we could look at using trusts as a way of managing the assets. Trusts can be particularly useful as you can structure them to invest the money how you would like, but also pay you an income (which is classed as return of capital) back from the trust. This allows you to receive an instant reduction in your asset value and not wait the full 7 years.
The above are just a few different ideas a family could consider when thinking about options around inheritance tax.

Every family situation is different, so if you would like any specialist advice in this area, please feel free to get in contact, either by response to this thread or by PM.


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