Tax & IHT guidance - Intelligent Money Private Clients
Discussion
Hi I posted in the general section and it was suggested I post here.
Hello all, I'd just like to run something passed the gurus on here re income tax.
65 y/o
State pension due in 12 months
Adequate savings
Wife has decent DB pension
We retired 12 yrs ago, I've been drawing down from the taxable portion of my pot, and some from the tax free bit. Therefor keeping below the personal allowance threshold and avoiding income tax.
At some point I'm going to have to pay tax anyway, should I.
A) Pay it now but keep below the 40% tax rate, leaving my tax free portion alone in case I need aa chunky sum? (I can't see myself needing a chunky sum we have ISAs and savings but you never know)?
B) Avoid paying tax for as long as I can then take it on the chin in due course?
C) Is it as long as its broad?
Hello all, I'd just like to run something passed the gurus on here re income tax.
65 y/o
State pension due in 12 months
Adequate savings
Wife has decent DB pension
We retired 12 yrs ago, I've been drawing down from the taxable portion of my pot, and some from the tax free bit. Therefor keeping below the personal allowance threshold and avoiding income tax.
At some point I'm going to have to pay tax anyway, should I.
A) Pay it now but keep below the 40% tax rate, leaving my tax free portion alone in case I need aa chunky sum? (I can't see myself needing a chunky sum we have ISAs and savings but you never know)?
B) Avoid paying tax for as long as I can then take it on the chin in due course?
C) Is it as long as its broad?
Very brief synopsis. My MIL has just passed away and I am helping her husband with some basics of which I have already said my knowledge may not be as good as required.
Knowing that we may need to see outside professional help can I therefore just ask now if my following assumptions are correct.
1) Her will leaves everything to him but she has some assets in sole name ( circa £100k ) - do we therefore need to seek probate on this quantum ?
2) He wants to leave his grandchildren some money now. Am I right in assuming he can do this but IHT is payable on any such amount in excess of £325k ?
3) Assuming 2) above is correct would I be right in saying that using up said £325k in effect leaves a further £325k intact for when he passes away ?
TIA.
Knowing that we may need to see outside professional help can I therefore just ask now if my following assumptions are correct.
1) Her will leaves everything to him but she has some assets in sole name ( circa £100k ) - do we therefore need to seek probate on this quantum ?
2) He wants to leave his grandchildren some money now. Am I right in assuming he can do this but IHT is payable on any such amount in excess of £325k ?
3) Assuming 2) above is correct would I be right in saying that using up said £325k in effect leaves a further £325k intact for when he passes away ?
TIA.
alscar said:
Very brief synopsis. My MIL has just passed away and I am helping her husband with some basics of which I have already said my knowledge may not be as good as required.
Knowing that we may need to see outside professional help can I therefore just ask now if my following assumptions are correct.
1) Her will leaves everything to him but she has some assets in sole name ( circa £100k ) - do we therefore need to seek probate on this quantum ?
2) He wants to leave his grandchildren some money now. Am I right in assuming he can do this but IHT is payable on any such amount in excess of £325k ?
3) Assuming 2) above is correct would I be right in saying that using up said £325k in effect leaves a further £325k intact for when he passes away ?
TIA.
https://www.co-oplegalservices.co.uk/probate-solic...Knowing that we may need to see outside professional help can I therefore just ask now if my following assumptions are correct.
1) Her will leaves everything to him but she has some assets in sole name ( circa £100k ) - do we therefore need to seek probate on this quantum ?
2) He wants to leave his grandchildren some money now. Am I right in assuming he can do this but IHT is payable on any such amount in excess of £325k ?
3) Assuming 2) above is correct would I be right in saying that using up said £325k in effect leaves a further £325k intact for when he passes away ?
TIA.
I think that all deaths require probate. The executor is responsible for this.
Anything left to the FIL is exempt from inheritence tax.
Both the MIL and FIL have a £325k allowance. All the stuff left to him (including her half of the house) will be taxed when he dies. His estate will have a £650k (her £325k plus his £325k) allowance when that happens.
It may be worth doing the maths to see if it is worth investigating a Deed of Variation to see if the gifts to the children can come from the MIL's will. This will mean that the children will not be hit for any unexpected tax payments if he dies within seven years, as the inheritence tax liability will have already been dealt with in the MIL's will.
I think if the kids get £100k from the MIL's will, the MIL's tax allowance will drop to £225k, and his tax allowance will drop to £550k (her £225k plus his £325k).
Hopefully, this will give you some ideas.
Edit: probate is not always required...
https://www.google.co.uk/search?q=is+probate+requi...
Edited by pingu393 on Wednesday 27th September 20:49
Thanks for the very quick reply pingu - much appreciated and good to see I was along the right lines.
The deed of variation is a good idea for my FIL to at least think about - I knew they existed but mistakenly thought they could only be done whilst the donor was still alive and not up to the beneficiary to perhaps organise.
Obviously I have said to him that he also needs to really consider seriously how much money outside of his house he needs to retain for the future too !
The deed of variation is a good idea for my FIL to at least think about - I knew they existed but mistakenly thought they could only be done whilst the donor was still alive and not up to the beneficiary to perhaps organise.
Obviously I have said to him that he also needs to really consider seriously how much money outside of his house he needs to retain for the future too !
PositronicRay said:
Hi I posted in the general section and it was suggested I post here.
Hello all, I'd just like to run something passed the gurus on here re income tax.
65 y/o
State pension due in 12 months
Adequate savings
Wife has decent DB pension
We retired 12 yrs ago, I've been drawing down from the taxable portion of my pot, and some from the tax free bit. Therefor keeping below the personal allowance threshold and avoiding income tax.
At some point I'm going to have to pay tax anyway, should I.
A) Pay it now but keep below the 40% tax rate, leaving my tax free portion alone in case I need aa chunky sum? (I can't see myself needing a chunky sum we have ISAs and savings but you never know)?
B) Avoid paying tax for as long as I can then take it on the chin in due course?
C) Is it as long as its broad?
If it was me then I would go with (A). If I'm going to be paying tax on the income anyway then I would want to make use of my annual allowance as much as possible although this will mostly be used up the state pension.Hello all, I'd just like to run something passed the gurus on here re income tax.
65 y/o
State pension due in 12 months
Adequate savings
Wife has decent DB pension
We retired 12 yrs ago, I've been drawing down from the taxable portion of my pot, and some from the tax free bit. Therefor keeping below the personal allowance threshold and avoiding income tax.
At some point I'm going to have to pay tax anyway, should I.
A) Pay it now but keep below the 40% tax rate, leaving my tax free portion alone in case I need aa chunky sum? (I can't see myself needing a chunky sum we have ISAs and savings but you never know)?
B) Avoid paying tax for as long as I can then take it on the chin in due course?
C) Is it as long as its broad?
I would supplement my income with private pension income but keeping it within the 20% tax bracket.
Whether you take the tax-free portion or not is a personal choice. If you have savings outside of the tax shelter i.e. savings outside pension and ISA, then I would use those up first. You can then build up the tax-free portion of your pension and take that in a larger one off chunk for a rainy day/emergency funds.
If you pass away before 75 then pensions are passed on without inheritance tax. If after 75 then your beneficiaries pay income tax on it. Hopefully we live past 75 so this is of a lesser consequence unless you have known impactful health issues.
This is my personal view plus we never know what pension laws may change in the next decade or so.
I was basically going to ask the question above, but with slightly different parameters.
I think the answer above makes sense, use up all the money outside of private pensions first.
If you were say 55, so some way off the state pension age, and had enough *cash* outside of private pensions to get there entirely income tax free, would using that first still make sense?
Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
The obvious advantage of not using pension income is that it's inheritable tax free should you go before 75.
If you keep back some of the *cash* from outside of the pension wrapper, then this can be used to help mitigate income tax once state pensions and any DB pensions kick in.
I think the answer above makes sense, use up all the money outside of private pensions first.
If you were say 55, so some way off the state pension age, and had enough *cash* outside of private pensions to get there entirely income tax free, would using that first still make sense?
Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
The obvious advantage of not using pension income is that it's inheritable tax free should you go before 75.
If you keep back some of the *cash* from outside of the pension wrapper, then this can be used to help mitigate income tax once state pensions and any DB pensions kick in.
- cash* - by this I mean a mix of cash, ISA and other investments which themselves might be subject to some forms of tax.
supersport said:
If you were say 55, so some way off the state pension age, and had enough *cash* outside of private pensions to get there entirely income tax free, would using that first still make sense?
Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
It depends....... it's never really a good idea not to use your £12,570 nil tax band, so IMHO you might as well take at least that much (with or without the 25% tax free on top). If you have no other taxable income, then you may as well take that from a pension - assuming that if you leave it inside the pension, you'll be paying tax on it at some point later when you withdraw it.Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
Also, look at whether taking any DB pension earlier makes sense - it did for me, to my surprise.
Car bon said:
supersport said:
If you were say 55, so some way off the state pension age, and had enough *cash* outside of private pensions to get there entirely income tax free, would using that first still make sense?
Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
It depends....... it's never really a good idea not to use your £12,570 nil tax band, so IMHO you might as well take at least that much (with or without the 25% tax free on top). If you have no other taxable income, then you may as well take that from a pension - assuming that if you leave it inside the pension, you'll be paying tax on it at some point later when you withdraw it.Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
Also, look at whether taking any DB pension earlier makes sense - it did for me, to my surprise.
supersport said:
Car bon said:
supersport said:
If you were say 55, so some way off the state pension age, and had enough *cash* outside of private pensions to get there entirely income tax free, would using that first still make sense?
Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
It depends....... it's never really a good idea not to use your £12,570 nil tax band, so IMHO you might as well take at least that much (with or without the 25% tax free on top). If you have no other taxable income, then you may as well take that from a pension - assuming that if you leave it inside the pension, you'll be paying tax on it at some point later when you withdraw it.Might it make sense to take the income tax free bit from the private pension, i.e. the ~£16K and the rest from non pension sources?
Also, look at whether taking any DB pension earlier makes sense - it did for me, to my surprise.
You never know how pension laws may change in the future in terms of tax so there is some comfort in taking it when the other investments are "tax-free".
However, note that equity investments outside of ISA and pension are subject to dividend tax if exceeding the allowance.
I made a separate thread but not getting nuxb traction so just wanted to ask here if someone know about that 30 hour free childcare allowance and salary? Details below.
https://www.pistonheads.com/gassing/topic.asp?h=0&...
Thanks
https://www.pistonheads.com/gassing/topic.asp?h=0&...
Thanks
Quick IHT question from me regarding the 325k IHT thresh hold.
I lost my Mum recently and in her will her one main house has been left to her children, me, my sister, and brother.
I take it that due to this there is an additional 175K allowance on top of the 325K?
The house and savings left are worth around 350K in total, with the house itself worth around 320K.
Many thanks for any clarity.
I lost my Mum recently and in her will her one main house has been left to her children, me, my sister, and brother.
I take it that due to this there is an additional 175K allowance on top of the 325K?
The house and savings left are worth around 350K in total, with the house itself worth around 320K.
Many thanks for any clarity.
Scrubs said:
Quick IHT question from me regarding the 325k IHT thresh hold.
I lost my Mum recently and in her will her one main house has been left to her children, me, my sister, and brother.
I take it that due to this there is an additional 175K allowance on top of the 325K?
The house and savings left are worth around 350K in total, with the house itself worth around 320K.
Many thanks for any clarity.
Sorry to hear of your loss I lost my Mum recently and in her will her one main house has been left to her children, me, my sister, and brother.
I take it that due to this there is an additional 175K allowance on top of the 325K?
The house and savings left are worth around 350K in total, with the house itself worth around 320K.
Many thanks for any clarity.
Passing on to children: yes.
https://www.gov.uk/inheritance-tax/passing-on-home
See also https://www.moneysavingexpert.com/family/inheritan... - scroll down
Take your time to sort things out. MrsMikeIOW death with probate after her mum passed 18months ago. She has 2 siblings, but did all the paperwork. Slowly getting there….house has been on the market most of this year: people keen to buy but nobody can sell theirs, so a bit of a waiting game really….
Best of luck.
mikeiow said:
Sorry to hear of your loss
Passing on to children: yes.
https://www.gov.uk/inheritance-tax/passing-on-home
See also https://www.moneysavingexpert.com/family/inheritan... - scroll down
Take your time to sort things out. MrsMikeIOW death with probate after her mum passed 18months ago. She has 2 siblings, but did all the paperwork. Slowly getting there….house has been on the market most of this year: people keen to buy but nobody can sell theirs, so a bit of a waiting game really….
Best of luck.
Many thanks for this and for the sympathy note.Passing on to children: yes.
https://www.gov.uk/inheritance-tax/passing-on-home
See also https://www.moneysavingexpert.com/family/inheritan... - scroll down
Take your time to sort things out. MrsMikeIOW death with probate after her mum passed 18months ago. She has 2 siblings, but did all the paperwork. Slowly getting there….house has been on the market most of this year: people keen to buy but nobody can sell theirs, so a bit of a waiting game really….
Best of luck.
My brother is the executor so he will be dealing with it and getting probate sorted for house to get sold etc. Incredible the amount of time it all takes from reading other posts. I have only in the last day or so actually found out about the extra 175K if passing estate to children as everytime I had a quick read the 325K figure was always the main one. Nothing complicated here for us now though with being under IHT with that main residence allowance on top as it's just the house, savings, and a few K of assets of approx 350K. No shares or trusts involved and Mum had no other debts apart from whatever we owe gas and electric etc.
Cheers.
Edited by Scrubs on Sunday 10th December 13:34
Scrubs said:
Many thanks for this and for the sympathy note.
My brother is the executor so he will be dealing with it and getting probate sorted for house to get sold etc. Incredible the amount of time it all takes from reading other posts. I have only in the last day or so actually found out about the extra 175K if passing estate to children as everytime I had a quick read the 325K figure was always the main one. Nothing complicated here for us now though with being under IHT with that main residence allowance on top as it's just the house, savings, and a few K of assets of approx 350K. No shares or trusts involved and Mum had no other debts apart from whatever we owe gas and electric etc.
Cheers.
There is also any allowance that your father's estate didn't use when it was probated (if that's a verb My brother is the executor so he will be dealing with it and getting probate sorted for house to get sold etc. Incredible the amount of time it all takes from reading other posts. I have only in the last day or so actually found out about the extra 175K if passing estate to children as everytime I had a quick read the 325K figure was always the main one. Nothing complicated here for us now though with being under IHT with that main residence allowance on top as it's just the house, savings, and a few K of assets of approx 350K. No shares or trusts involved and Mum had no other debts apart from whatever we owe gas and electric etc.
Cheers.
Edited by Scrubs on Sunday 10th December 13:34
)pingu393 said:
Scrubs said:
Many thanks for this and for the sympathy note.
My brother is the executor so he will be dealing with it and getting probate sorted for house to get sold etc. Incredible the amount of time it all takes from reading other posts. I have only in the last day or so actually found out about the extra 175K if passing estate to children as everytime I had a quick read the 325K figure was always the main one. Nothing complicated here for us now though with being under IHT with that main residence allowance on top as it's just the house, savings, and a few K of assets of approx 350K. No shares or trusts involved and Mum had no other debts apart from whatever we owe gas and electric etc.
Cheers.
There is also any allowance that your father's estate didn't use when it was probated (if that's a verb My brother is the executor so he will be dealing with it and getting probate sorted for house to get sold etc. Incredible the amount of time it all takes from reading other posts. I have only in the last day or so actually found out about the extra 175K if passing estate to children as everytime I had a quick read the 325K figure was always the main one. Nothing complicated here for us now though with being under IHT with that main residence allowance on top as it's just the house, savings, and a few K of assets of approx 350K. No shares or trusts involved and Mum had no other debts apart from whatever we owe gas and electric etc.
Cheers.
)On the time thing….it took us (her, with my encouragement
) around 5 months to get all paperwork and forms completed, although we were away for a month of that, so really 4 months. Elapsed time, not actual working hours!Do use the Tell Us Once service - both the government one (bills etc) and also there is a banking one. I imagine that has been done.
Some banks were very quick to hand money over without probate (depends on the sums), some wanted probate.
After posting off for probate, we had about 4 months to it being issued.
& now we wait for markets to pick up to sell the house……people keen, but nobody is able to sell theirs at the moment. I imagine it will pick up after the new year, especially now rates appear to have turned a corner.
It’s a long process, for sure. Good luck!
Thanks again for the replies.
One thing I am trying to get my head around though when it comes to 'gifts'.
If my Mum gave away around 10K to family members as a simple money gift in the last few months, does that then also come under the 'estate' inheritance tax?
It is 7K over what her annual allowance was, but I take it the 7K gets added to the estate amount? But would the 325K allowance plus the extra 175K takes care of that for IHT purposes as long as it never all went above the 500K full allowance?
Starting to confuse myself here I think...
Think I've found the answer now. Anything above the 3K yearly gift allowance gets added onto the estate value Then this answered my other question from the HMRC site.
''You apply the residence 175K nil rate band to the whole taxable estate, not just to the value of the home, so the whole estate shares the benefit of the tax-free residence allowance''
One thing I am trying to get my head around though when it comes to 'gifts'.
If my Mum gave away around 10K to family members as a simple money gift in the last few months, does that then also come under the 'estate' inheritance tax?
It is 7K over what her annual allowance was, but I take it the 7K gets added to the estate amount? But would the 325K allowance plus the extra 175K takes care of that for IHT purposes as long as it never all went above the 500K full allowance?
Starting to confuse myself here I think...
EDIT
Think I've found the answer now. Anything above the 3K yearly gift allowance gets added onto the estate value Then this answered my other question from the HMRC site.
''You apply the residence 175K nil rate band to the whole taxable estate, not just to the value of the home, so the whole estate shares the benefit of the tax-free residence allowance''
Edited by Scrubs on Monday 11th December 21:08
Scrubs said:
Thanks again for the replies.
One thing I am trying to get my head around though when it comes to 'gifts'.
If my Mum gave away around 10K to family members as a simple money gift in the last few months, does that then also come under the 'estate' inheritance tax?
It is 7K over what her annual allowance was, but I take it the 7K gets added to the estate amount? But would the 325K allowance plus the extra 175K takes care of that for IHT purposes as long as it never all went above the 500K full allowance?
Starting to confuse myself here I think...
Think I've found the answer now. Anything above the 3K yearly gift allowance gets added onto the estate value Then this answered my other question from the HMRC site.
''You apply the residence 175K nil rate band to the whole taxable estate, not just to the value of the home, so the whole estate shares the benefit of the tax-free residence allowance''
You can carry forward unused exemption from the last year so if she has not made any gifts to that person in the previous year then that gives you a total of £6k exempt.One thing I am trying to get my head around though when it comes to 'gifts'.
If my Mum gave away around 10K to family members as a simple money gift in the last few months, does that then also come under the 'estate' inheritance tax?
It is 7K over what her annual allowance was, but I take it the 7K gets added to the estate amount? But would the 325K allowance plus the extra 175K takes care of that for IHT purposes as long as it never all went above the 500K full allowance?
Starting to confuse myself here I think...
EDIT
Think I've found the answer now. Anything above the 3K yearly gift allowance gets added onto the estate value Then this answered my other question from the HMRC site.
''You apply the residence 175K nil rate band to the whole taxable estate, not just to the value of the home, so the whole estate shares the benefit of the tax-free residence allowance''
Edited by Scrubs on Monday 11th December 21:08
https://www.gov.uk/inheritance-tax/gifts#:~:text=Y...
leef44 said:
You can carry forward unused exemption from the last year so if she has not made any gifts to that person in the previous year then that gives you a total of £6k exempt.
https://www.gov.uk/inheritance-tax/gifts#:~:text=Y...
Thanks.https://www.gov.uk/inheritance-tax/gifts#:~:text=Y...
If my Mum has gifted, say 10K, over her 3k 'gift allowance' for this year, does that 10k amount then just get added to 'the estate' for any IHT purposes? If that makes sense?
Scrubs said:
leef44 said:
You can carry forward unused exemption from the last year so if she has not made any gifts to that person in the previous year then that gives you a total of £6k exempt.
https://www.gov.uk/inheritance-tax/gifts#:~:text=Y...
Thanks.https://www.gov.uk/inheritance-tax/gifts#:~:text=Y...
If my Mum has gifted, say 10K, over her 3k 'gift allowance' for this year, does that 10k amount then just get added to 'the estate' for any IHT purposes? If that makes sense?
[edit]
As usual, it depends...
https://www.gov.uk/inheritance-tax/gifts
See the last part. If the gifts were less than £325k, the estate pays. More and the recipient pays. I would guess the recipient would also pay if there are insufficient funds in the estate.
Edited by pingu393 on Wednesday 13th December 20:51
pingu393 said:
I think the giftee is responsible for any underpayments.
[edit]
As usual, it depends...
https://www.gov.uk/inheritance-tax/gifts
See the last part. If the gifts were less than £325k, the estate pays. More and the recipient pays. I would guess the recipient would also pay if there are insufficient funds in the estate.
Thanks. Think I have got this right now.[edit]
As usual, it depends...
https://www.gov.uk/inheritance-tax/gifts
See the last part. If the gifts were less than £325k, the estate pays. More and the recipient pays. I would guess the recipient would also pay if there are insufficient funds in the estate.
Edited by pingu393 on Wednesday 13th December 20:51
Quick example.
House - 320K
Savings and assest - 30K
Estate value - 350k
Mum has no IHT to pay due to husbands tax free allowance been added to hers which takes allowance to 650k.
Any gifts above her 3K allowances, went 10K above the allowance this year, then gets added on to that 350k estate value.
But as it is still way below her IHT threshhold, then the 10K over the allowance won't be hit with IHT.
Giving myself a sore head now tbh, but thanks for the replies.
Edited by Scrubs on Wednesday 13th December 22:34
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