Tax & IHT guidance - Intelligent Money Private Clients
Discussion
Steve H said:
So it doesn’t stay within the SIPP wrapper when inherited then? I thought it was passed on under the same “terms”.
It is transferred into a SIPP in the name of the beneficiary.It is then just held in a separate pool within that SIPP with different conditions attached.
Kind of like part of your SIPP being crystallised & part not.
There's articles around about SIPP's becoming multi-generational pensions. They certainly seem to be a great IHT loophole which may get closed at some point.
I've just inherited part of one so have been reading up
Intelligent Money said:
rfisher said:
Carbon Sasquatch said:
There may also be an IHT claw back, like there is for gifts, if there is a large & late pension contribution ?
You mean the 7 year rule?It would be good to know if that's correct, or if you can dump a large amount into a SIPP and then die shortly afterwards without any specific penalty being incurred as a result.
It is likely to fall foul of the "gratuitous benefit" rule and in this case be assessed as an action taken solely to avoid IHT rather than to increase pension benefits. If this is the case it is added back into the estate.
From a pension perspective, a gratuitous benefit is viewed to take place when a transfer or payment is made resulting in greater death benefits being received by an individual who may not have previously received them if the transfer or payment had not occurred.
This is typically applied if the individual is ill at the time of the transfer/payment and then dies within 2 years of the transaction but these are general guidelines not hard set rules.
It means that HMRC have an opening that they could use to challenge the IHT position on the payment,
You would also struggle to find a provider that will accept the contribution, part of the trustees duties to monitor contributions and check that they do not exceed the annual allowance.
Cheers
Nik
Quick Question on Liquidating / Washing
I have a general investment account with HL and it's got about £20k of investment in one of their Funds (Mix of Special Situations and Balanced growth). It's been there for a while and doing ok, shown a growth of a couple of K in the last year but I'd like to drop it into my SIPP tax wrapper.
So, as I also have a SIPP with HL and I wanted to transfer half of the Stocks & Funds amount into the SIPP. Now, as I understand it I have to sell the Stocks & Shares holding first and then buy into the SIPP which as I understand it will crystallise the gain I made. All good so far, the gain goes into this years CGA which is good.
But, if I re-invested the cash I crystallise into my SIPP do I have to adhere to the 30-day period to avoid falling foul - it would be into a different fund (Rathbone) but is it substantively different?
Ta, chaps and really pleased with the performance of my PHE ISA so far - keep up the good work
I have a general investment account with HL and it's got about £20k of investment in one of their Funds (Mix of Special Situations and Balanced growth). It's been there for a while and doing ok, shown a growth of a couple of K in the last year but I'd like to drop it into my SIPP tax wrapper.
So, as I also have a SIPP with HL and I wanted to transfer half of the Stocks & Funds amount into the SIPP. Now, as I understand it I have to sell the Stocks & Shares holding first and then buy into the SIPP which as I understand it will crystallise the gain I made. All good so far, the gain goes into this years CGA which is good.
But, if I re-invested the cash I crystallise into my SIPP do I have to adhere to the 30-day period to avoid falling foul - it would be into a different fund (Rathbone) but is it substantively different?
Ta, chaps and really pleased with the performance of my PHE ISA so far - keep up the good work
MrOrange said:
Quick Question on Liquidating / Washing
I have a general investment account with HL and it's got about £20k of investment in one of their Funds (Mix of Special Situations and Balanced growth). It's been there for a while and doing ok, shown a growth of a couple of K in the last year but I'd like to drop it into my SIPP tax wrapper.
So, as I also have a SIPP with HL and I wanted to transfer half of the Stocks & Funds amount into the SIPP. Now, as I understand it I have to sell the Stocks & Shares holding first and then buy into the SIPP which as I understand it will crystallise the gain I made. All good so far, the gain goes into this years CGA which is good.
But, if I re-invested the cash I crystallise into my SIPP do I have to adhere to the 30-day period to avoid falling foul - it would be into a different fund (Rathbone) but is it substantively different?
Ta, chaps and really pleased with the performance of my PHE ISA so far - keep up the good work
Good afternoon sir! I have a general investment account with HL and it's got about £20k of investment in one of their Funds (Mix of Special Situations and Balanced growth). It's been there for a while and doing ok, shown a growth of a couple of K in the last year but I'd like to drop it into my SIPP tax wrapper.
So, as I also have a SIPP with HL and I wanted to transfer half of the Stocks & Funds amount into the SIPP. Now, as I understand it I have to sell the Stocks & Shares holding first and then buy into the SIPP which as I understand it will crystallise the gain I made. All good so far, the gain goes into this years CGA which is good.
But, if I re-invested the cash I crystallise into my SIPP do I have to adhere to the 30-day period to avoid falling foul - it would be into a different fund (Rathbone) but is it substantively different?
Ta, chaps and really pleased with the performance of my PHE ISA so far - keep up the good work
The 30 day rule is only for money outside of a tax wrapper and if it’s back into the same investment, so in this instance, it's not an issue.
KR
Coops
I have a hopefully simple question .. If considering semi retirement and reducing personal tax band, would it be beneficial to do this at the end of a tax year rather than mid way through the tax year ? My thinking is yes, due to ease / speed of calculating any liability or refunds, or does it not matter ?
steven-0561 said:
I have a hopefully simple question .. If considering semi retirement and reducing personal tax band, would it be beneficial to do this at the end of a tax year rather than mid way through the tax year ? My thinking is yes, due to ease / speed of calculating any liability or refunds, or does it not matter ?
I don't think it makes a massive difference, unless you really *need* that refund "ASAP". In theory, I believe you can fill out an HMRC form (R38 ?) to request it at any time anyway.
For me, it would be more about your other "life plans" for the rest of that year. For example, if you were into skiing, then getting more time around Dec/Jan to allow some extra time on the slopes might be a defining factor.
FWIW, I left the day job last May....I will ultimately get some tax refund, but I figure it'll feel like a bonus whenever I get it sorted!
This is an income tax question relating to the effective 60% tax band between £100k-£125k.
Situation: A taxpayer who is able to control the level of their income from year to year and who has been suppressing gross income to £99,999 p.a. to avoid the 60% tax. The bulk of that gross income is earned income subject to PAYE.
As a result of inflation etc the taxpayer now wants to increase gross income to the equivalent of £125,000 p.a.
If the taxpayer arranges for their gross income to be £99,999 in year 1, £150,000 in year 2, £99,999 in year 3, £150,000 in year 4 and so on they will pay less tax than if they have a gross income of £125,000 each year. So far, so good.
BUT our friends at HMRC will be trying to impose PAYE codes that will go all over the place. For instance, in year 2 the taxpayer will be coded on the previous year's £150,000 and over taxed.
Is there any way to get around this PAYE problem?
Situation: A taxpayer who is able to control the level of their income from year to year and who has been suppressing gross income to £99,999 p.a. to avoid the 60% tax. The bulk of that gross income is earned income subject to PAYE.
As a result of inflation etc the taxpayer now wants to increase gross income to the equivalent of £125,000 p.a.
If the taxpayer arranges for their gross income to be £99,999 in year 1, £150,000 in year 2, £99,999 in year 3, £150,000 in year 4 and so on they will pay less tax than if they have a gross income of £125,000 each year. So far, so good.
BUT our friends at HMRC will be trying to impose PAYE codes that will go all over the place. For instance, in year 2 the taxpayer will be coded on the previous year's £150,000 and over taxed.
Is there any way to get around this PAYE problem?
Panamax said:
Does anybody actually know the answer to my question or does it have to live in the "too difficult" box?
The question isn't about calculating the tax liability, it's about how to make sense of the PAYE interaction with HMRC as things progress from year to year....
Just call them up (you may have to wait an hour or so depending on the time of day) and tell them what your income will be. They'll then adjust the tax code accordingly.The question isn't about calculating the tax liability, it's about how to make sense of the PAYE interaction with HMRC as things progress from year to year....
Panamax said:
supersport said:
It’s pretty simple to adjust your expected total income each year via your tax account.
That's interesting - I'll have a look at it. Thanks for the tip. This is the long and short of it. Your calculations are correct and your accountant (or yourself) can inform HMRC of the annual income changes to ensure your tax code remains correct in any given year.
There may be a bit of lag with the move down from £150k every 2nd year, but it will all balance out anyway, resulting in exactly what you have identified you can achieve.
Cheers
Julian
Now that savings rates are finally beginning to exist, I am going to be doing what I can to generate interest.
However, suddenly I have to consider the personal allowance which for me is £500.
I am PAYE on a salary.
How does income tax on interest above my personal allowance (but below £10k) work, since I don't complete a tax return?
I am liquid because I'm waiting to buy a house.
(Yes I will use my ISA allowance this year and in future...)
However, suddenly I have to consider the personal allowance which for me is £500.
I am PAYE on a salary.
How does income tax on interest above my personal allowance (but below £10k) work, since I don't complete a tax return?
I am liquid because I'm waiting to buy a house.
(Yes I will use my ISA allowance this year and in future...)
Panamax said:
Does anybody actually know the answer to my question or does it have to live in the "too difficult" box?
The question isn't about calculating the tax liability, it's about how to make sense of the PAYE interaction with HMRC as things progress from year to year....
It's a simple task to get your tax code altered. Follow this link https://www.gov.uk/check-income-tax-current-yearThe question isn't about calculating the tax liability, it's about how to make sense of the PAYE interaction with HMRC as things progress from year to year....
Update the "estimated income" section and 24 hours later your employer will receive a new tax code.
A question for Nik at Intelligent Money, apologies for the long windedness but I think that the more information you have the easier your job might be.
Background information, People.
Me: Retired, (still do a bit of Building Project Management for friends), aged 72, reasonably good health, hoping to make it to around 80. Wife: Retired aged 70, very good health with a long-life expectancy, will probably get to around 90 as her mother made 89 and grandmother 95.
One daughter, married, aged 41, works as a VA Flight Attendant.
Two grand-daughter’s, one aged nearly 11 & one aged 7.
Background information, Property.
My wife and I built and own our Penthouse flat outright,(a thread was in the Homes section3-4 years ago), value approx. 675k. We also own two rental flats outright with a combined value of approx. 425K.
I have a one third share in a 3 way family bare trust which I manage, this trust owns a small portfolio of rental flats and shops with a gross income of around 56K and a gross value of approx 800K less loans, (mainly to me) of approx 130K leaving a net value of approx 670K.
Background information, Financial.
My wife and I have a gross combined income of approx. 62K, comprising of both our govt pensions & my private pension, the income from our two rental flats as well as my share of the rental income, my trust management fees and the interest and loan repayments from the family bare trust. We currently have 100K invested in Premium Bonds and approx 50k in easy access bank accounts.
To make sure we have enough ready cash I have recently taken out a 25K bank loan at 3.9% to be repaid at £458.53 per month over the next five years, I also have approx 15K outstanding on two interest free credit cards to be repaid or rolled over in around 8/12 months.
The Deal.
My sister died last year, and her Son is the Executor of her Estate, which she left to be split five ways, one part to each of her four children and one part to be shared equally between her 14 grandchildren.
My Nephew has sensibly managed to get them all to agree to sell her one third share of the family bare trust to me for what I consider to be the reasonable sum of 110K, they have nowhere else to go with it under the terms of my father’s will and the income of around 10K per year once divided up would be of very little consequence to most of them.
The Plan.
To fund the purchase my wife and I had considered taking out a mortage on our Penthouse or on one of our rental flats but with the recent rise in interest rates we have decided to cash in our 100K Premium Bonds investment instead as the return from that is relatively small, the additional 10K and any fees will come from current accounts.
Our problem is how do we best set up this purchase with consideration to provide the best income for ourselves as well as to help alleviate future inheritance tax issues for our daughter and granddaughters, we have discussed this with our accountant and as I see it, we have several options.
The simple one is to just buy it in mine or my wifes name and let the inheritance tax become our daughter’s problem after we are both gone, we have a 100K last death insurance policy in place to help her with that.
Set up a trust and inject the money to buy it but our accountant advises that trusts are not something governments are very keen on and the amount we are talking about is relatively small for a trust with the costs involved, also it may not be very tax efficient in the short term.
Set up and loan the money to a Family Investment Company with myself and my wife as A shareholders and our daughter and granddaughters as B shareholders, my wife and I would have control and get most of the income back out by way of loan repayments/interest, the others would benefit long term from the value being fixed for inheritance tax purposes.
I have also considered also transferring my share of the trust to the FIC right now but that would incur a large CG tax bill so I will leave it to my wife, she then should be able to transfer it in after I die with no CG tax.
My long-term plan is that after my wife and I are both gone our daughter can borrow against the two thirds of the family property owned by the FIC to buy the share of the trust owned by my other nephew.
The Family Investment Company is our accountants preferred option and I see no other realistic alternative, but my wife is not entirely convinced and would like to hear another unbiased opinion along with suggestions for any other options.
As always pistonheads is the font of all knowledge and you guys seem to know what you’re talking about so here I am. Please note that I would be happy to pay for a more private thorough assessment and detailed advice if required.
Background information, People.
Me: Retired, (still do a bit of Building Project Management for friends), aged 72, reasonably good health, hoping to make it to around 80. Wife: Retired aged 70, very good health with a long-life expectancy, will probably get to around 90 as her mother made 89 and grandmother 95.
One daughter, married, aged 41, works as a VA Flight Attendant.
Two grand-daughter’s, one aged nearly 11 & one aged 7.
Background information, Property.
My wife and I built and own our Penthouse flat outright,(a thread was in the Homes section3-4 years ago), value approx. 675k. We also own two rental flats outright with a combined value of approx. 425K.
I have a one third share in a 3 way family bare trust which I manage, this trust owns a small portfolio of rental flats and shops with a gross income of around 56K and a gross value of approx 800K less loans, (mainly to me) of approx 130K leaving a net value of approx 670K.
Background information, Financial.
My wife and I have a gross combined income of approx. 62K, comprising of both our govt pensions & my private pension, the income from our two rental flats as well as my share of the rental income, my trust management fees and the interest and loan repayments from the family bare trust. We currently have 100K invested in Premium Bonds and approx 50k in easy access bank accounts.
To make sure we have enough ready cash I have recently taken out a 25K bank loan at 3.9% to be repaid at £458.53 per month over the next five years, I also have approx 15K outstanding on two interest free credit cards to be repaid or rolled over in around 8/12 months.
The Deal.
My sister died last year, and her Son is the Executor of her Estate, which she left to be split five ways, one part to each of her four children and one part to be shared equally between her 14 grandchildren.
My Nephew has sensibly managed to get them all to agree to sell her one third share of the family bare trust to me for what I consider to be the reasonable sum of 110K, they have nowhere else to go with it under the terms of my father’s will and the income of around 10K per year once divided up would be of very little consequence to most of them.
The Plan.
To fund the purchase my wife and I had considered taking out a mortage on our Penthouse or on one of our rental flats but with the recent rise in interest rates we have decided to cash in our 100K Premium Bonds investment instead as the return from that is relatively small, the additional 10K and any fees will come from current accounts.
Our problem is how do we best set up this purchase with consideration to provide the best income for ourselves as well as to help alleviate future inheritance tax issues for our daughter and granddaughters, we have discussed this with our accountant and as I see it, we have several options.
The simple one is to just buy it in mine or my wifes name and let the inheritance tax become our daughter’s problem after we are both gone, we have a 100K last death insurance policy in place to help her with that.
Set up a trust and inject the money to buy it but our accountant advises that trusts are not something governments are very keen on and the amount we are talking about is relatively small for a trust with the costs involved, also it may not be very tax efficient in the short term.
Set up and loan the money to a Family Investment Company with myself and my wife as A shareholders and our daughter and granddaughters as B shareholders, my wife and I would have control and get most of the income back out by way of loan repayments/interest, the others would benefit long term from the value being fixed for inheritance tax purposes.
I have also considered also transferring my share of the trust to the FIC right now but that would incur a large CG tax bill so I will leave it to my wife, she then should be able to transfer it in after I die with no CG tax.
My long-term plan is that after my wife and I are both gone our daughter can borrow against the two thirds of the family property owned by the FIC to buy the share of the trust owned by my other nephew.
The Family Investment Company is our accountants preferred option and I see no other realistic alternative, but my wife is not entirely convinced and would like to hear another unbiased opinion along with suggestions for any other options.
As always pistonheads is the font of all knowledge and you guys seem to know what you’re talking about so here I am. Please note that I would be happy to pay for a more private thorough assessment and detailed advice if required.
TeeRev said:
A question for Nik at Intelligent Money, apologies for the long windedness but I think that the more information you have the easier your job might be.
Background information, People.
Me: Retired, (still do a bit of Building Project Management for friends), aged 72, reasonably good health, hoping to make it to around 80. Wife: Retired aged 70, very good health with a long-life expectancy, will probably get to around 90 as her mother made 89 and grandmother 95.
One daughter, married, aged 41, works as a VA Flight Attendant.
Two grand-daughter’s, one aged nearly 11 & one aged 7.
Background information, Property.
My wife and I built and own our Penthouse flat outright,(a thread was in the Homes section3-4 years ago), value approx. 675k. We also own two rental flats outright with a combined value of approx. 425K.
I have a one third share in a 3 way family bare trust which I manage, this trust owns a small portfolio of rental flats and shops with a gross income of around 56K and a gross value of approx 800K less loans, (mainly to me) of approx 130K leaving a net value of approx 670K.
Background information, Financial.
My wife and I have a gross combined income of approx. 62K, comprising of both our govt pensions & my private pension, the income from our two rental flats as well as my share of the rental income, my trust management fees and the interest and loan repayments from the family bare trust. We currently have 100K invested in Premium Bonds and approx 50k in easy access bank accounts.
To make sure we have enough ready cash I have recently taken out a 25K bank loan at 3.9% to be repaid at £458.53 per month over the next five years, I also have approx 15K outstanding on two interest free credit cards to be repaid or rolled over in around 8/12 months.
The Deal.
My sister died last year, and her Son is the Executor of her Estate, which she left to be split five ways, one part to each of her four children and one part to be shared equally between her 14 grandchildren.
My Nephew has sensibly managed to get them all to agree to sell her one third share of the family bare trust to me for what I consider to be the reasonable sum of 110K, they have nowhere else to go with it under the terms of my father’s will and the income of around 10K per year once divided up would be of very little consequence to most of them.
The Plan.
To fund the purchase my wife and I had considered taking out a mortage on our Penthouse or on one of our rental flats but with the recent rise in interest rates we have decided to cash in our 100K Premium Bonds investment instead as the return from that is relatively small, the additional 10K and any fees will come from current accounts.
Our problem is how do we best set up this purchase with consideration to provide the best income for ourselves as well as to help alleviate future inheritance tax issues for our daughter and granddaughters, we have discussed this with our accountant and as I see it, we have several options.
The simple one is to just buy it in mine or my wifes name and let the inheritance tax become our daughter’s problem after we are both gone, we have a 100K last death insurance policy in place to help her with that.
Set up a trust and inject the money to buy it but our accountant advises that trusts are not something governments are very keen on and the amount we are talking about is relatively small for a trust with the costs involved, also it may not be very tax efficient in the short term.
Set up and loan the money to a Family Investment Company with myself and my wife as A shareholders and our daughter and granddaughters as B shareholders, my wife and I would have control and get most of the income back out by way of loan repayments/interest, the others would benefit long term from the value being fixed for inheritance tax purposes.
I have also considered also transferring my share of the trust to the FIC right now but that would incur a large CG tax bill so I will leave it to my wife, she then should be able to transfer it in after I die with no CG tax.
My long-term plan is that after my wife and I are both gone our daughter can borrow against the two thirds of the family property owned by the FIC to buy the share of the trust owned by my other nephew.
The Family Investment Company is our accountants preferred option and I see no other realistic alternative, but my wife is not entirely convinced and would like to hear another unbiased opinion along with suggestions for any other options.
As always pistonheads is the font of all knowledge and you guys seem to know what you’re talking about so here I am. Please note that I would be happy to pay for a more private thorough assessment and detailed advice if required.
Hi TeeRevBackground information, People.
Me: Retired, (still do a bit of Building Project Management for friends), aged 72, reasonably good health, hoping to make it to around 80. Wife: Retired aged 70, very good health with a long-life expectancy, will probably get to around 90 as her mother made 89 and grandmother 95.
One daughter, married, aged 41, works as a VA Flight Attendant.
Two grand-daughter’s, one aged nearly 11 & one aged 7.
Background information, Property.
My wife and I built and own our Penthouse flat outright,(a thread was in the Homes section3-4 years ago), value approx. 675k. We also own two rental flats outright with a combined value of approx. 425K.
I have a one third share in a 3 way family bare trust which I manage, this trust owns a small portfolio of rental flats and shops with a gross income of around 56K and a gross value of approx 800K less loans, (mainly to me) of approx 130K leaving a net value of approx 670K.
Background information, Financial.
My wife and I have a gross combined income of approx. 62K, comprising of both our govt pensions & my private pension, the income from our two rental flats as well as my share of the rental income, my trust management fees and the interest and loan repayments from the family bare trust. We currently have 100K invested in Premium Bonds and approx 50k in easy access bank accounts.
To make sure we have enough ready cash I have recently taken out a 25K bank loan at 3.9% to be repaid at £458.53 per month over the next five years, I also have approx 15K outstanding on two interest free credit cards to be repaid or rolled over in around 8/12 months.
The Deal.
My sister died last year, and her Son is the Executor of her Estate, which she left to be split five ways, one part to each of her four children and one part to be shared equally between her 14 grandchildren.
My Nephew has sensibly managed to get them all to agree to sell her one third share of the family bare trust to me for what I consider to be the reasonable sum of 110K, they have nowhere else to go with it under the terms of my father’s will and the income of around 10K per year once divided up would be of very little consequence to most of them.
The Plan.
To fund the purchase my wife and I had considered taking out a mortage on our Penthouse or on one of our rental flats but with the recent rise in interest rates we have decided to cash in our 100K Premium Bonds investment instead as the return from that is relatively small, the additional 10K and any fees will come from current accounts.
Our problem is how do we best set up this purchase with consideration to provide the best income for ourselves as well as to help alleviate future inheritance tax issues for our daughter and granddaughters, we have discussed this with our accountant and as I see it, we have several options.
The simple one is to just buy it in mine or my wifes name and let the inheritance tax become our daughter’s problem after we are both gone, we have a 100K last death insurance policy in place to help her with that.
Set up a trust and inject the money to buy it but our accountant advises that trusts are not something governments are very keen on and the amount we are talking about is relatively small for a trust with the costs involved, also it may not be very tax efficient in the short term.
Set up and loan the money to a Family Investment Company with myself and my wife as A shareholders and our daughter and granddaughters as B shareholders, my wife and I would have control and get most of the income back out by way of loan repayments/interest, the others would benefit long term from the value being fixed for inheritance tax purposes.
I have also considered also transferring my share of the trust to the FIC right now but that would incur a large CG tax bill so I will leave it to my wife, she then should be able to transfer it in after I die with no CG tax.
My long-term plan is that after my wife and I are both gone our daughter can borrow against the two thirds of the family property owned by the FIC to buy the share of the trust owned by my other nephew.
The Family Investment Company is our accountants preferred option and I see no other realistic alternative, but my wife is not entirely convinced and would like to hear another unbiased opinion along with suggestions for any other options.
As always pistonheads is the font of all knowledge and you guys seem to know what you’re talking about so here I am. Please note that I would be happy to pay for a more private thorough assessment and detailed advice if required.
There are a lot of moving parts in this and as with many tax planning issues there are no right and wrong answers and it is about the comprise that works best for you.
To avoid a very long post trying to cover all bases drop me a pm at nik.burrows@intelligentmoney.com and I'll be happy to pick it up with you.
Cheers
Nik
Another IHT question to ponder;
Mr Blobby downsizes his house and is left with £1mill in his current account.
He buys a Ferrari for £1mill and then (at some point) transfers ownership to his daughter.
She sells the car and uses the money to buy a house and a Ford Fiesta (future classic).
Should Mr Blobby, or his daughter Belinda, expect a knock on the door from HMRC / BiB anytime soon?
Mr Blobby downsizes his house and is left with £1mill in his current account.
He buys a Ferrari for £1mill and then (at some point) transfers ownership to his daughter.
She sells the car and uses the money to buy a house and a Ford Fiesta (future classic).
Should Mr Blobby, or his daughter Belinda, expect a knock on the door from HMRC / BiB anytime soon?
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