Iht Tax

by Pension Forecast

William asks…

Are there any ways that I can claim back some IHT tax which I have had to pay on my late Fathers estate?

I have had to pay out quite a few thousand pounds on his estate and think it is so unfair paying this money back to the Government

Pension Forecast answers:

Sorry – no way to claim it back!

Linda asks…

My grandparents want to give us their assets (more than £700.000) -what to do to avoid IHT??

What to do to avoid IHT (Inheritance tax)- my parents want to give me and my brother more than £700.000 in assets and cash.

Pension Forecast answers:

Assuming that your parents are domiciled and resident in the UK (which you would know if they were not) than all gifts to you will be potentailly excempt transfers.

If they gift you assets/cash and then survive for 7 years there will be no IHT. The IHT will be reduced on a sliding scale if they survive for between 3 and 7 years.

Transfers to all trusts are now chargeable lifetime transfers (from March 2006) and will give rise to an immediate charge of IHT at half the full death rate. If the donor then dies within 7 years there may be a further charge but as above taper relief may apply.

There is a yearly annual exception of £3k but this is minor compared to the amounts that you are talking about.

Also remember that depending on the asset that you are to receive there may be capital gains tax to pay (not on cash, primary residence, cars, wasting chattels and other small exemptions) this can be held over though gift relief. This means that your parents would not pay the tax but when you come to dispose of the asset you would pay capital gain tax on the whole gain starting from when your parents aquired the asset.

John asks…

Is it possible to avoid CGT by buying a 2nd property in the name of my baby?

I’m thinking of buying a 2nd property. I’m told that Capital Gains Tax (CGT) and Inheritance Tax (IHT) might bite upon eventual transfer or sale. Obviously, I’d like to avoid this if possible.

3 questions:

1. If i haven’t yet bought the property is there a way i can legitimately avoid CGT upon eventual sale of the 2nd property that is too be purchased?

2. If that property is to be bought abroad, does it effect anything?

3. I have a 4 month old baby. Is there aything preventing me buying a UK property in the baby’s name? Does the answer differ if the 2nd property to be bought is abroad?

4. If the 2nd property has already been bought, can it be transferred into the name of the baby without attracting CGT or other Tax implications?

Pension Forecast answers:

Gosh, a number of questions all wrapped together.

1. It is very difficult to avoid CGT altogether. But there are a number of reliefs that may mitigate the problem. It helps if it is, at some time, your main residence. Then the principal private residence relief applies to the period of residence plus the last three years in any case. If it is let then lettings relief could further reduce the liability. Taper relief will also apply and increases with the length of time the property is owned.

2. If you are domiciled and resident in the UK then you will still be taxed in the UK on any gains. Double taxation relief will usually apply so you will not be worse off than if the property was in this country but you can neot be better off.

3. Not sure on this one. If you invest cash in the name of your daughter then any interest earned would be assessed on you. I suspect the same will apply to income from property.

4. (I thought you said there were three questions?) This transfer would be between “connected persons” and would be deemed to have been carried out at market value. This may give rise to a capital gain.

Betty asks…

In his Pre-Budget Statement, A. Darling re-packaged the existing IHT thresholds. Was anyone fooled by this?

A combined £600,000 IHT threshold for husband and wife or civil partners was already possible by effective tax planning.
There is no tax change there, only a punishment to those who paid for complex wills to be drawn up, which excluded me.
It seems to me that IHT is a regressive tax, rigourously collected, at a time when relatives are still grieving.
Surely, it is more civilised to levy and collect taxes from the living, allowing the more responsible, who prefer to save and provide for their offspring rather spend the kid’s inheritance, the opportunity to do so. The tax uptake can be the same, but the latter option is inately more progressive.
Further, many individuals feel discriminated against by the existing IHT regulations. What about single people?
What about the increasing numbers of couples who decide to co-habit, and choose not to marry? What about individuals who were married and are now divorced? What about couples currently married who subsequently divorce?

Pension Forecast answers:


James asks…

My father wants to transfer the house (he lives in) to his 2 daughters. What are the tax implications of this?

My mother passed away 3 years ago and my father is thinking of re-marrying. However before he does this he wants to transfer the house that he currently lives in (and lived in with my mother) for over 25 years to my sister and I to avoid any claim on it from his new wife. He will still live there once he is married. The house is worth £300k (the mortgage has been fully paid by my parents) so we will not have to pay IHT however are there other tax implications for us once he has transferred the property? If he decides not to transfer the property is there anything that can be done now to prevent his new spouse from getting anything once he passes ? ie putting some kind of clause in the will. What is the best option?

Pension Forecast answers:

We can’t be sure what will happen to the property market in years to come, or what IHT measures the Government will introduce, so you have to be aware of IHT implications. There is also possible Capital Gains Tax if in the future you and your sister need to sell the house, as it won’t be your main residence. Don’t buy for a nominal sum, you could be clobbered for CGT.
If your Father wants to make the house over to you, to avoid IHT complications, he would have to pay you an economic rent if he plans to continue to live there, otherwise the house value would revert to his estate.
He should bear in mind that there could be a family fall out, or you or your sister could get divorced, thus he could lose his home.
Both my Granddfather and Mother left our family properties to their spouses, but with a life interest only, the properties thus entailed to the next generation. This creates a Trust. I have done one, so that when I die, the property goes straight to my daughter, bypassing my husband. I think your Father should see a financial advisor, a specialist. Not one of these who set up with few qualifications, and can only tell you the law as it stands between spouses, but someone who can advise ways to avoid tax, or another claim on the estate. It is expensive, but worth it.

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