Forward planning - Parents - IHT and Carehome fees

[jonamv8]

Hi,

Hoping someone can offer some advice or some experience with this.

Parents both in 70's and healthy which is great, they are still loving life holidaying for fun doing their best to spend their kids inheritance which is also great but they insist they wish to pass on their property when no longer here and so we are looking into cutting down IHT liabilities and also the potential risk of it disappearing in care home fees.

My understanding on IHT is that we can set up a trust and place the property into it. In regard to potential care home fees I heard on the news that anyone with assets over £28k will have to pay their fees but have no idea whether a trust protects against this.

I'm going to start to engage with solicitors but thought I would consult PH as to what I could be looking to pay for this type of service and whether there is anything that I should be aware of going down this route?

Many thanks in advance

[anonymous-user]

Any legitimate IHT planning will be accepted should the local authority ever try to imply that assets were deliberately transferred to avoid paying care home costs.


It's quite a complex area though so definitely best to get decent advice and do so ASAP,

My old man thought he did so in plenty of time but died 5 years after putting all the planning in place aged 67.

[jonamv8]

desolate said:

Any legitimate IHT planning will be accepted should the local authority ever try to imply that assets were deliberately transferred to avoid paying care home costs.


It's quite a complex area though so definitely best to get decent advice and do so ASAP,

My old man thought he did so in plenty of time but died 5 years after putting all the planning in place aged 67.

Thanks - Am I right in thinking that there is a 7 year threshold?

I want to get this in place ASAP for the above reasons. Anyone on here offer this service or can you point me in the right direction?

[anonymous-user]

jonamv8 said:

Thanks - Am I right in thinking that there is a 7 year threshold?

I want to get this in place ASAP for the above reasons. Anyone on here offer this service or can you point me in the right direction?

It's 7 years for IHT yes. The care home fee thing is not as straightforward.

I would say you need both an IFA and a lawyer - one will often recommend the other. I am no expert but doing anything with the main residence isn't as easy as you would think.

I am sure someone will be along and put their hand up soon.

[jonamv8]

Thanks for the advice,

Any idea what sorts of costs are involved in the setting up of the trust?

In terms of the main residence, they plan at some point to rent it out and possibly move abroad for a few years using the rental income from UK property to finance rental costs overseas so the trust would need to take that into consideration.

I'm pretty experienced in commercial law but this IHT stuff is new to me.

[wisbech]

https://www.gov.uk/trusts-taxes/trusts-and-inherit...

Yep looks like professional advice is required- especially as for some trusts looks like 20% IHT is paid on transfer of the assets to the trust.

[anonymous-user]

jonamv8 said:

Thanks for the advice,

Any idea what sorts of costs are involved in the setting up of the trust?

In terms of the main residence, they plan at some point to rent it out and possibly move abroad for a few years using the rental income from UK property to finance rental costs overseas so the trust would need to take that into consideration.

I'm pretty experienced in commercial law but this IHT stuff is new to me.

It's a real "how long is a piece of string?" question.

Unless the estate is truly substantial (significantly over the threshold) I would question whether it was the right way to go.

[jonamv8]

desolate said:

It's a real "how long is a piece of string?" question.

Unless the estate is truly substantial (significantly over the threshold) I would question whether it was the right way to go.

Sure, I understand and will look to explain the question in full to a qualified legal or IFA person.

It's significant enough to us as in many hundreds of thousands of pounds

[anonymous-user]

jonamv8 said:

Sure, I understand and will look to explain the question in full to a qualified legal or IFA person.

It's significant enough to us as in many hundreds of thousands of pounds

I am not sure I would bother if that's the case, particularly if a good deal of that is made up of property.

I would definitely make your first port of call a decent IFA. Offer a decent fee so they do more than the free "desktop review".

[jonamv8]

desolate said:

jonamv8 said:

Sure, I understand and will look to explain the question in full to a qualified legal or IFA person.

It's significant enough to us as in many hundreds of thousands of pounds

I am not sure I would bother if that's the case, particularly if a good deal of that is made up of property.

I would definitely make your first port of call a decent IFA. Offer a decent fee so they do more than the free "desktop review".

Taken from gov.uk:

Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Example
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000). 


40% of £175k seems to be a lot more than I thought the trust fees would be.

[anonymous-user]

jonamv8 said:

Taken from gov.uk:

Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Example
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000). ?

40% of £175k seems to be a lot more than I thought the trust fees would be.

If they are married then the threshold is doubled. So if a married couple's estate is worth 500k then there will almost certainly be no IHT. If one spouse dies before the other then any transfer is free of IHT and SDLT etc.
There is a tax charge for transferring into the trust, together with ongoing taxes.
Set up fees and ongoing management fees.
Your stuff is owned by someone else.

If you have a Tax/trust partner in your firm it may be worth buying them lunch.

It's definitely worth exploring but, seriously, it needs to be thought about long and hard.

[jonamv8]

desolate said:

jonamv8 said:

Taken from gov.uk:

Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Example
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000). ?

40% of £175k seems to be a lot more than I thought the trust fees would be.

If they are married then the threshold is doubled. So if a married couple's estate is worth 500k then there will almost certainly be no IHT. If one spouse dies before the other then any transfer is free of IHT and SDLT etc.
There is a tax charge for transferring into the trust, together with ongoing taxes.
Set up fees and ongoing management fees.
Your stuff is owned by someone else.

If you have a Tax/trust partner in your firm it may be worth buying them lunch.

It's definitely worth exploring but, seriously, it needs to be thought about long and hard.

Thanks for all this info.

Yes they are married so in the event one passes away and the other stays alive for another 10 years for example, this still applies?

Unfortunately none in my firm or they would be fine dining already LOL

[anonymous-user]

jonamv8 said:

Thanks for all this info.

Yes they are married so in the event one passes away and the other stays alive for another 10 years for example, this still applies?

Unfortunately none in my firm or they would be fine dining already LOL

There is nil IHT when the spouse inherits.

Under normal circumstances the surviving spouse then has double the IHT threshold upon their death.

There are rinky dinks and it's worth paying a few hundred quid, maybe a bit more to get chapter and verse from an expert. There are some much simpler things that can be done to mitigate any tax.

[wisbech]

For most trusts you need to pay 20% IHT tax on set up. Set up fees will probably be a few thousand, and ongoing fees 50 to 100 basis points depending on size/ complexity. Hopefully you can get mates rates

So, yes, you can save half the IHT tax, but at the cost of needing to find the cash now, rather than on death of surviving parent.

[Jockman]

jonamv8 said:

Taken from gov.uk:

Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Example
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000). ?

40% of £175k seems to be a lot more than I thought the trust fees would be.

The threshold isn't £325,000 from what you are saying.

It's £425,000. Soon to rise to £500,000. Each.

[jonamv8]

Jockman said:

jonamv8 said:

Taken from gov.uk:

Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Example
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000). ?

40% of £175k seems to be a lot more than I thought the trust fees would be.

The threshold isn't £325,000 from what you are saying.

It's £425,000. Soon to rise to £500,000. Each.

Thanks for the info. In that case we are more than adequately covered from what I understand my parents assets to be. I shall double check this with an IFA so I can certain I have completed my DD and inform my parents.

Appreciate the help people

[Jockman]

jonamv8 said:

Jockman said:

jonamv8 said:

Taken from gov.uk:

Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Example
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000). ?

40% of £175k seems to be a lot more than I thought the trust fees would be.

The threshold isn't £325,000 from what you are saying.

It's £425,000. Soon to rise to £500,000. Each.

Thanks for the info. In that case we are more than adequately covered from what I understand my parents assets to be. I shall double check this with an IFA so I can certain I have completed my DD and inform my parents.

Appreciate the help people

The HMRC page you highlighted above was the Overview.

You just needed to click on to the second section.

https://www.gov.uk/inheritance-tax

[jonamv8]

anonymous said:

[redacted]

Thank you DaimlerV8 - this is exactly the type of scenario that I was looking to obtain examples of. Many thanks for your input

[Robertj21a]

Slightly off topic, but not much.

At their age I'd also be looking at whether a Power of Attorney might be helpful (everyone leaves them too late!).

[98elise]

Robertj21a said:

Slightly off topic, but not much.

At their age I'd also be looking at whether a Power of Attorney might be helpful (everyone leaves them too late!).

Absolutely. MIL had dementia and was in a home, and FIL was old but pretty much had his marbles. He refused to give us power of attorney, then died on us leaving MIL in a home and no way to pay the bills.

There is a lot of paperwork to be done to become a deputy (the alternative) if there is no power of attorney.

It's not something you want to be trying to sort out when you're trying to deal with a death.