Do you have a mortgage?

[bertieduff]

Spent all my money on firewater and fornication. 35, no pension, no mortgage, no particularly bothered. Life's too short.

Anyway, the way I've been driving since I got the elise, I figure it's all academic

[mckeann]

Spent all my money on firewater and fornication. 35, no pension, no mortgage, no particularly bothered. Life's too short.

Anyway, the way I've been driving since I got the elise, I figure it's all academic

DING

[robin]

Robin, ask the questions and the answers will commeth! I spend my life badgering the old folks about how best to get ahead, I think they wished i had done that sooner though!!!!

Dave

OK, well a pretty common scenario for a lot of us is that by the time death comes along we're married (or similar), own a house and have kids. So we need to make sure we cater for our other halves should we die first, and we also want to leave whatever is left to our kids sooner or later. In the meantime you want to live in your house.

If you do the obvious - both spouses leave everything to surviving spouse or to the kids (or their kids, or whatever other friends and family you want to favour) I think the transfer to the spouse is free (at least if you are married or equivalent legal status) but the transfer to the kids is far from free - if you own a house in or around Edinburgh you are pretty much guaranteed to trip the IHT limit, no?

So what schemes exist for the law abiding tax paying punter to avoid the IHT and still meet prime requirements (spouse first, kids second).

Cheers,
Robin

[mac]

Flog the house to the kids for a nominal fee before you peg it? Only works in the case of a demising death - sudden death kinda scuppers that.



Mac


(worth more dead than alive faction)

[ed]

I believe you can avoid paying IHT if you transfer ownership to a family member and then live for another 7 years after that?! Also i believe you can give £3k per child per year and also not pay IHT on that either. Im sure D etc will know of other ways...

[jj]

I dont know too much about it, but a way to do it is to transfer the house to a trust. The house is the owned by the trust and not by individual family members, so when they die, inheritance tax due as the deceased didnt own the house, the trust does, and the remaining faamily still lives in it.

Like I said, its what I picked up from my folks talking about it, I am sure someone will know more.

[Lazydonkey]

Not sure if the trust can own the house at the start? My old man is an accountant as has just spent a fair bit of time and money getting his stuff in order.

I was taken through this at crimbo by my old man (great fun i can tell you) and they are using the trust to ensure we don't get hit for inheritance tax twice.

So if my dad pops his clogs everything is transferred to a trust, the trustees of which are my mum, sis and me. Thus if / when my mum decides to join my old man on his cloud we don't have to pay the inheritance tax again.

Was a really fun lively christmas conversation i can tell you

[simon]

The thing that pisses me off about the housing market and mortgages is that it just seems so damn hard to get on the property ladder on your own.

This goes back to what Cal said though. When I bought my first place 4 years ago, it was a piece of p!ss affording it on my own and at the time I was earning a below average wage (tho probably about average for a graduate). Now it's much more difficult because house prices have risen in value so much.

[Rag_It]

I have asked the question and await suitably boring answer!

Dave

[rossybee]

Do you have a mortgage?

Nope

As Simon said, bought at the right time (Oct 99) my hoose near the top of Blackness Avenue, now worth possibly more that 3 times what I paid for it

SWMBO & I are thinking of upgrading, but of course, it's the same story further up the scale.....

[Sanjøy]

OK, well a pretty common scenario for a lot of us is that by the time death comes along we're married (or similar), own a house and have kids. So we need to make sure we cater for our other halves should we die first, and we also want to leave whatever is left to our kids sooner or later. In the meantime you want to live in your house.

http://www.ukpersonalloanstore.co.uk/ne ... tgage.html

The Kent Reliance Building Society has just launched a new mortgage service that allows parent to leave their home mortgage loans to their children to repay. Indeed, the home mortgage loan product being offered by the building society is structured in such a way that you could, conceivably, leave repayment of the principal sum of the home mortgage loan to your grandchildren, or any generation of your family that follows.

[robin]

... leave repayment of the principal sum of the home mortgage loan to your grandchildren, or any generation of your family that follows.

Interesting ...

The obvious flaw with that strategy is that if your present equity exceeds the IHT limit (285K at present) at death it will still attract IHT.

So if you owned a 400K house outright and just left it to kids in will, your estate would pay (approx) 40% of 115K.

Now you could mortgage 115K of the house so that the balance wouldn't attract IHT, but then what do you with the cash? You could gift it to the kids up front, but if you then live for another 20 years, you end up paying ~5% (or more) per year on 115K - after about 6-7 years you all together would have been better off leaving them to pay IHT. Meanwhile if the value of property continues to increase they still have to pay IHT on the increase.

I cannot see that there are many people in the UK that will benefit significantly from the IHT aspects of this scheme, though it will help those that cannot afford to repay their loans to keep the running until death or loss of income, whichever comes first!

Robin

[Rag_It]

Robin,

Pretty sure you have got to grips with it now, but the old mans response below!


As u say leaving house or anything inter spouse on death is IHT free. Normal
tax planning strategy is to leave your half share of house to spouse and
leave other estate to family up to the extent of the IHT free band
(currently £285K) so long as spouse does not need this to live on. To avoid
IHT on second death is more difficult and ideal is to gift inter vivos well
before (seven years) second death and have traded down in housing terms to
something modest so that the house doesn't take you way over the threshold.
You can only do that if you are well pensioned and therefore not having to
hold substantial income earning assets to generate income to live off.

For a fee either Mum or I would be happy to give advice to any of your
friends if they are doing some estate planning. Every situation must
be considered on it's own merits.

Dad

[robin]

Thanks - that was my understanding too - i.e. there are no clear-cut IHT avoidance schemes that don't involve proper gifting long in advance of death (i.e. where you really do transfer ownership, control and usage of the asset, rather than just pretending to do all that and then manage to live another 7 years).

Cheers,
Robin

[Sanjøy]

Did a lot of reading last summer about SIPPS as advised by the future father in law (writes for investor magazine). Quickly realised I am not in the position right now to do so.
Essentially it is a "wrapper" for a personal pension plan which you can putt property in to and hence negate taxation it.

http://www.pensionsorter.co.uk/getting_ ... nheritance

"Can it help me avoid inheritance tax?

The short answer is yes.

If a person dies before withdrawing assets from their fund, members of their family could be able to inherit without payment of inheritance tax.

Again, this is a potentially significant saving, although exactly how much remains a grey area because it is unclear how the Inland Revenue will treat such inheritances.

It might come down to a judgement by the Revenue of the 'intent' of the Sipp fund holder - if the Revenue judges that investment in a Sipp was designed to avoid inheritance tax, then it could decide to impose a levy itself.

The best idea for anyone considering using a Sipp to avoid inheritance tax is to take professional advice at the time that will take account of that person's individual circumstances."