Inheritance tax question
Inheritance tax question
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philv

Original Poster:

5,395 posts

244 months

Monday 16th March 2015
quotequote all
Hi

If i died leaving an estate, after debts paid, of 500k.

If there were 2 beneficiaries in my will.

1) my partner
2) my child to go into trust till 18

Would inheritance tax be due on the 500k before split between the 2 beneficiaries?

Or is tax calculated on the 250k each of them receive? (s0 no tax in this case as 250 less than the inheritance tax allowance of approx 320k).

Cheers

Gargamel

16,392 posts

291 months

Monday 16th March 2015
quotequote all

£500k benefits

less £325k

40% tax on remaining 175k

Split of assets is irrelevant.


Zigster

2,004 posts

174 months

Monday 16th March 2015
quotequote all
That's right - the tax is on the estate not on the person receiving the legacy.

walm

10,644 posts

232 months

Monday 16th March 2015
quotequote all
I disagree with the above posters.
Civil partners and spouses can inherit 100% IHT free.

Not sure what that means exactly when you split the estate.

Gargamel

16,392 posts

291 months

Monday 16th March 2015
quotequote all
walm said:
I disagree with the above posters.
Civil partners and spouses can inherit 100% IHT free.

Not sure what that means exactly when you split the estate.
There isn't enough detail in the OP to say.

Yes if he were married then he could transfer 50% of the estate to his wife at 0% IHT.

The remaining £250,000 would then be under the £325,000 so also free of IHT.

However - the OP says Partner, so it is unclear whether they are married, Civil or anything else.


walm

10,644 posts

232 months

Monday 16th March 2015
quotequote all
Gargamel said:
walm said:
I disagree with the above posters.
Civil partners and spouses can inherit 100% IHT free.

Not sure what that means exactly when you split the estate.
There isn't enough detail in the OP to say.

Yes if he were married then he could transfer 50% of the estate to his wife at 0% IHT.

The remaining £250,000 would then be under the £325,000 so also free of IHT.

However - the OP says Partner, so it is unclear whether they are married, Civil or anything else.
Agreed it is unclear - sorry I should have clarified.
It's either 0% taxed or what you wrote originally depending on the partnership situation.

Justayellowbadge

37,057 posts

272 months

Monday 16th March 2015
quotequote all
Gargamel said:
walm said:
I disagree with the above posters.
Civil partners and spouses can inherit 100% IHT free.

Not sure what that means exactly when you split the estate.
There isn't enough detail in the OP to say.

Yes if he were married then he could transfer 50% of the estate to his wife at 0% IHT.

The remaining £250,000 would then be under the £325,000 so also free of IHT.

However - the OP says Partner, so it is unclear whether they are married, Civil or anything else.
This.

If married, the most efficient thing would be to split the estate 325 to the child and 175 to the partner, to maximise current and future allowances.

philv

Original Poster:

5,395 posts

244 months

Monday 16th March 2015
quotequote all
Thanks for the replies.

Partner - long term girlfriend living in same house.

I was under tne impression that there is no such thing in law as a civil partner?
So if unmarried, she would pay tax on her part if above 325?

Thats a bit hard on unmarried long term partners - any way around this?

Gargamel

16,392 posts

291 months

Monday 16th March 2015
quotequote all
philv said:
Thanks for the replies.

Partner - long term girlfriend living in same house.

I was under tne impression that there is no such thing in law as a civil partner?
So if unmarried, she would pay tax on her part if above 325?

Thats a bit hard on unmarried long term partners - any way around this?
Yeah - get married ...

Don't think about who is getting the money. The tax is on your estate overall. So anything above £325k is taxed a 40% and then after that it is distributed.

Do you own the house as tenants in common, then that could reduce the IHT bill. (if you own it 100% then it will go 100% into your estate)

If you are looking at some planning, then best to speak to a Specialist Solicitor

philv

Original Poster:

5,395 posts

244 months

Monday 16th March 2015
quotequote all
One last question.

I read that it is possible to put lie assurance policy into a trust so that it does not become part of my estate.

Howether,

part of the life assurance is for mortgage purposes. But not all.

Is it still possible to put into trust or partially into trust?

Ginge R

4,761 posts

249 months

Monday 16th March 2015
quotequote all
To counter the impact of IHT, unless you place your cover into trust, you're only going to add to the problem, not relieve it. So, yes - it's imperitive that you place the policy into trust. In respect of what the proceeds pay, there's two ways of looking at it.

Firstly, if the proceeds are going to pay for the house, then the house isn't fully owned and therefore, the liability is accordingly less. Have you taken that into account when valuing your estate? In other words, have you factored in the balance of the mortgage, and not the market valuation?

Secondly, there is no compulsion for your beneficiaries to stay in the house of course. You might stipulate as part of the trust deed that you would like the trustees to use the money to pay off the mortgage and to ensure continuity for your family there.

Finally, if you intend dying soon, or if you want to start gifting your estate in order to absolve yourself of IHT under the seven year rule, ask your adviser for details of a Gift Inter Vivos insurance policy instead of 'just' a normal term policy.

But above all, take proper advice that relates to you and your exact circumstances. This is only a messageboard and there's no way anyone can offer you the service you and your family undoubtably need and deserve, on the back of an online chinwag.

Tumbler

1,432 posts

196 months

Monday 16th March 2015
quotequote all
I believe there is currently a test case being brought to allow hetrosexual couples to enter in to a civil partnership, which I believe would change the Inheritance tax position.


http://www.theguardian.com/lifeandstyle/2014/dec/0...

Edited by Tumbler on Monday 16th March 20:35

Claudia Skies

1,098 posts

146 months

Monday 16th March 2015
quotequote all
I don't think that will make any difference. Marriage and civil partnerships are already treated the same for IHT purposes.

philv

Original Poster:

5,395 posts

244 months

Monday 16th March 2015
quotequote all
I have been reading up on trusts.

Basically i want to leave everything to my partner and daughter.

But if my girkfriend runs off the next day etc i probably wouldn't want her inntne trust anymore.

So i see tnere is such a thing as a discretionary trust.
So i setup tne trust with the potential beneficiieries.
Then i write a letter of wishes on how i would like tne trust to be run and who should get what.

But -
The trustees have discretion as tne letter of wisges is not binding.


In this case, how can i be sure that the money goes to the people i want it to?

And can i add a new person at a later date (change of partner etc)?


Claudia Skies

1,098 posts

146 months

Monday 16th March 2015
quotequote all
There's a very basic question right up front. Who are the Trustees of this Trust going to be?

Closely followed by,
(i) How much is it going to cost to run the Trust? and
(ii) At what age will the kids have access to the money themselves?

Tumbler

1,432 posts

196 months

Monday 16th March 2015
quotequote all
Claudia Skies said:
I don't think that will make any difference. Marriage and civil partnerships are already treated the same for IHT purposes.
To be clear, the change would be that as a hetrosexual couple you could enter in to a civil partnership as opposed to a marriage, which would improve/ maximise your IHT position.

walm

10,644 posts

232 months

Tuesday 17th March 2015
quotequote all
Rumours of a raised limit to £1m for the budget on Wednesday just FYI.

anonymous-user

84 months

Tuesday 17th March 2015
quotequote all
philv said:
I have been reading up on trusts.

Basically i want to leave everything to my partner and daughter.

But if my girkfriend runs off the next day etc i probably wouldn't want her inntne trust anymore.

So i see tnere is such a thing as a discretionary trust.
So i setup tne trust with the potential beneficiieries.
Then i write a letter of wishes on how i would like tne trust to be run and who should get what.

But -
The trustees have discretion as tne letter of wisges is not binding.


In this case, how can i be sure that the money goes to the people i want it to?

And can i add a new person at a later date (change of partner etc)?
You can never be sure.

You can change right up until you die - just make sure the trustees are aware of the changes.

What do you mean by 'run off'? Do you mean from your child? Or are you expecting your g/f to be chaste for the rest of her natural life if you pop off?



philv

Original Poster:

5,395 posts

244 months

Tuesday 17th March 2015
quotequote all
Claudia Skies said:
There's a very basic question right up front. Who are the Trustees of this Trust going to be?

Closely followed by,
(i) How much is it going to cost to run the Trust? and
(ii) At what age will the kids have access to the money themselves?
One child at 18 or after depending on my demise.
Cost of running trust - good point.
Trustees - 2 close friends i would inagine or sister.

philv

Original Poster:

5,395 posts

244 months

Tuesday 17th March 2015
quotequote all
desolate said:
You can never be sure.

You can change right up until you die - just make sure the trustees are aware of the changes.

What do you mean by 'run off'? Do you mean from your child? Or are you expecting your g/f to be chaste for the rest of her natural life if you pop off?
If she leaves me tne day after i put life assurance in a ftrust, i won't want her to benefit by my death.
So i would want to remove her from it.