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Inheritance tax(16 Posts)
Is anyone able to offer me some basic advice before I book an appointment with a solicitor as I would like to at least consider some options before this.
I am unmarried but cohabit with the father of my 3 children, we both have wills leaving to each other and if we both die then to the children.
I want to try to reduce IHT if I were to die. I have no expectation of doing so soon but want to plan just in case. My children and partner would have to sell the house we all currently live in or sell our BTL portfolio and my partners house (which is now a BTL in his sole name) to pay the IHT.
Our family home is worth about £1m and is mortgage free and is in my name only. I had cleared the mortgage before I met my partner and before the children were born so I had expected that he would have no claim on this property if we were to split as we are unmarried but am aware that he may well have claim now as the rulings have changed. The BTL properties are in joint names with my partner and all have mortgages but there is about £250k equity overall between us in total. My partners previous house has about £180k equity in his name only, remainder on BTL mortgage.
I appreciate that getting married would eliminate the IHT liability if I were to die and it would only be payable if both my partner and I died but we have no plans to marry. Any suggestions welcome.
I'm a lawyer with a freelance will writing business, and often advise on IHT minimisation.
These are the basic ways in which you can reduce your liability:
1. Get married. I know that you've considered this already, but it is the most obvious way of reducing your liability. At the moment you have an individual IHT threshold of £325k. Everything over that (ignoring death in service benefit and any other money held in separate trusts) is liable to IHT at 40%. If you marry then you and your husband would have a joint threshold of £650k, and there'd be no bill on the first death. Although prenups are not binding on courts yet, following recent case law in which the Supreme Court upheld a prenup, it looks likely that they will have more muscle within the foreseeable future.
2. Potentially Exempt Transfers (PETs) - unlimited gifts during your lifetime, as long as you survive for 7 years after making the gift and it's documented, then no tax is payable on that sum. If you die within the 7 years then tax is applied on a sliding scale.
3. Regular gifts to your children - you can give £3k in any one tax year. If you didn't make gifts last year then you can double up this tax year.
4. Although you obv. don't have grandchildren, you can gift them £250 per year tax free and give £5k to your children when they marry as a wedding gift.
5. Tax efficient trusts - these can be extremely complex and I suggest that you take the advice of an independent financial advisor or accountant rather than a HIgh Street Solicitor.
If you'd like more info, I have a paid for Small Business Ad on the Classified section of Mumsnet. The title is Will Writer Recommended by Mumsnetters.
"I had expected that he would have no claim on this property if we were to split as we are unmarried but am aware that he may well have claim now as the rulings have changed"
The rulings haven't changed for unmarried couples. It's still your house and he hasn't a claim against it unless he's put money into it.
OP are you in Scotland? If so Collaborate is wrong - the law has changed in respect of unmarried couples.
Adding to mumblechum's list another option is life insurance written in trust to cover IHT.
piebaldpony: I'm interested to hear that the law may be different in Scotland. In what way has it changed?
I think piebaldpony is perhaps referring to a Scottish Law Commission report on succession which is currently under consideration. At the moment under the Family Law (Scotland) Act 2006 a surviving cohabitant may make a claim if the deceased dies intestate but there no protection for them when the deceased dies testate and hasn't made any provision.
The recommendation is that s29 of the Act is replaced providing succession rights for cohabitants so that surviving cohabitants can't be disinherited. As far as I'm aware a consultation exercise is on going or has recently ended and there has been no change to the law yet.
STIDW I think a surviving cohabitant can make a claim on a testate estate if no provsion has been made for them under the will. May have to raise a court action to actually get anything but I'm sure there is provision in legislation allowing for such a claim.
Thanks for all the advice. Just to clarify I dont actually have any money at all that is not tied up in property and I dont go out to work or have any plans to return to paid work therefore there is no option to gift anything to anyone.
My 3 children are all aged under 6 and I probably wouldnt chose to gift to them even if I did have the money as am not hopeful that they will be good with money if they take after all the rest of the family.
My partner has paid all bills on my house for the last 6 years so whilst there is no mortgage there might perhaps be a claim as running costs are very high and there could be significant maintenance in the future such as re-roofing as it is a period property although not as yet. I am in England.
Therefore from mumblechum1's options it would appear that option 5 is the only possibility as my partner is very anti marriage and I would never try to push someone. Especially as the only reason why I see a reason to do so would be to prevent IHT and the expense of creating a trust!
Or perhaps the life insurance option to pay the tax might be better as presumably I would not need to find a lump sum needed to create a trust just monthly payments.
Any thoughts anyone on the pros and cons of trust versus insurance?
Property can be left in trust and if you do have money to give the children when they are older it can be invested in pensions or gilts so they can't blow it all.
You really do need legal advice about trusts and the tax position to make an informed decision. Having spoken to my solicitor I opted for simple term insurance with the intention of making PETs before the term ends when I reach 72. For someone much younger that perhaps wouldn't be cost effective.
piebaldpony, the statute dealing with cohabitant rights in Scotland is the Law (Scotland) Act 2006. Under s29 a surviving cohabitant may apply for provision on intestacy but there is currently no provision when the deceased dies testate.
If I can't convince you the Scottish Commissions report published in 2009 recommends on page 69;
"37. (1) Section 29 of the Family Law (Scotland) Act 2006 should be repealed and replaced by a new statutory regime providing succession rights for cohabitants.
(2) The new statutory regime should apply to testate as well as intestate estates"
The Scottish Government asked for written comments on it's consultation paper to be submitted before 23 May 2011. See [www.scotland.gov.uk/Topics/Justice/law/damages/succession here]] the date and a link to the Scottish Law Commission's report;
Grr, I'll try again. The first hyperlink is to the Family Law (Scotland) Act 2006.
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