Inheritance Tax Planning

[RememberDecember]

I have recently started managing my parents finances via POA and was shocked by the amounts, spread over multiple, multiple accounts. I am consolidating, and mindful that I should look at investing on their behalf in a more efficient way to maximise returns if they need care ( v likely).

Alongside this, I am aware that there will be a considerable amount of IHT to pay (currently they would be over the limit for residence relief). Has anyone else been in this situation? Obviously my first (financial) concern is ensuring their care is funded but it seems remiss not to look at the full picture when they are adamant they want to leave money to their family but have taken no steps to plan this tax efficiently.

i have had 2 calls with a financial adviser that was recommended, but haven’t found her much use tbh, she has so far just given me options I have largely already googled, but no firm advice on what is best suited in this situation. She is commission based and clearly chasing a sale, but short on details. I am open to paying for advice, perhaps I need a different service eg a financial planner? I’d rather just pay an upfront fee for advice than %commission that I don’t feel might promote the best investment decisions.

Has anyone found useful professional advice in this situation?

Anything you do now that moves any significant money/asset from them to you/a trust to try to reduce the IHT liability could be seen as deprivation of assets, since you’ve said that at this point it’s likely that they’ll need care.
If we’re talking about a very large estate with lots of money, it comes to it, spend the money/sell other assets before selling the house - for a maximum IHT exemption, you want them to still own it when they die. Obviously if care costs reduce the estate too much anyway it becomes moot, but if there’ll be a lot left, you want to hold onto the £350k of exemption for the house, plus the £650k nil rate amount for the rest of the estate. If you sell the house, you’ll only have £650k exemption. So if the final estate is going to be, say, £900k, you want that to include the house. If the final estate is going to be £500k, it doesn’t matter as it’s exempt anyway.

Re the investment, it sounds like you want a low risk option that doesn’t tie the money down for X number of years. You want it accessible and not at risk.

Remember the FSCS protection is £85k per banking group, there may be a good reason they have multiple accounts. Also the 7 year gifts rule, gifts given 7 years before death are IHT exempt and there is taper relief after the first few years. They may want to consider gifting money now if they can afford to, keeping a reasonable amount for living and potential care home fees. And as you suggest make sure funds are at least in the best fixed rate accounts you can find, many may have matured and dropped into low rate maturity type accounts if they haven't been keeping on top of things. Probably a bit late to be putting funds into what are considered long term S&S savings.

@ShesTheAlbatross that is a very good point re leaving the sale of the house as the last asset, if it comes to that, thank you.

re deprivation of assets and gifting, I’m fully expecting they will fund all care needed.

I have been consolidating under the HL active savings umbrella, whilst keeping at under 85k per account. I don’t really want to be putting in fixed term accounts too much, aware that NS&I is the only one where a larger amount is protected but has only 3.3% interest which is barely above inflation.

Re gifting, I understand it is only amounts over 325k that are subject to taper relief, unfortunately.

Obviously my first (financial) concern is ensuring their care is funded but it seems remiss not to look at the full picture when they are adamant they want to leave money to their family but have taken no steps to plan this tax efficiently.

They can leave 1m before any tax is due can't they?

You cannot make the same gifts under a PoA as an individual might make under inheritance tax planning. See https://www.withersworldwide.com/en-gb/insight/read/making-gifts-under-a-lasting-power-of-attorney-in-the-uk

Have your parents lost capacity or are you using the PoA to help manage finances? If the latter then some IHT planning may still be done if your parents are willing to engage with the process.

She cannot be charging commission on investment advice. Investment companies are not allowed to pay commission to advisers, since 2013. Find a proper adviser, who will charge you a fee...

I'm POA for my DF.

I've made sure no savings are at risk.
I've used ISAs annually.
I've locked money away for better rates but ...I have ensured I have the ability to pay care home fees as they fall due, shoudl they fall due. So some is in instant access, most in annual maturities spread throughout the year, and two in 3 year accounts.

I've not taken advice as the cost would be high and I can't put anything in a risky investment so their wings would be clipped.

I don't need any IHT advice.

I am using the POA to help manage their finances. They are willing to engage in the process to some extent, although I don’t know how you go about proving they still have capacity. They are willing to meet any adviser and sign any investments or gifts they agree to in their name rather than me authorising it under POA.

@Navigatinglife100 yes, this is similar, although having waited for lots of accounts to mature I’m loathe to restart more fixed term accounts!

@LordEmsworth i am not really sure what I am looking for as regards proper financial advice, as in what format that could take. When I say paying commission, it is clear that the investment company (SJP…) takes a %upfront fee and %ongoing commission on the products they sell, and that is how they make their money. It therefore feels like it is very much in their interests to sell those products, rather than recommend things like gifting that don’t generate an (ongoing) income.

@RememberDecember

Yes it feels like a full time job at times!

SJP?! Avoid like the plague!

Regardless, in 2012 the FCA banned commssion on investment products (specifically). Whatever she is talking about, cannot be something where she is paid commission by an investment firm. It may be an ongoing charge; or a commission on another product (like insurance) - but commission from an investment provider has been banned for over a decade. For exactly the reasons you state.

Your post is a bit confused - your title focuses on IHT but then you talk about investing savings, those are two different things. For IHT, you have basically 2 options - placing into trust, or life insurance. (Assuming that gifting wont cover it). You do want a financial adviser, but one who believes that the cost for their services will save you more than the tax - that's the issue, if you're paying several grand for advice, you need to know that it will lead to a financial benefit.

www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/a-guide-to-inheritance-tax
www.moneysavingexpert.com/family/inheritance-tax-planning-iht/#nogifttax

@LordEmsworth it may be an ongoing charge that was being alluded to rather than commission, but either way it seems to fulfil a similar purpose.

The comments on investing savings was in response to the feedback on why they might have several accounts (although not requiring as many as they did initially have!). I am conscious that my first responsibility is ensuring their assets are safeguarded and accessible for their needs, but also wary that as things stand they will be paying significant IHT that could have been substantially reduced if they had done some planning.

Thanks for the links, as suggested in the article, I am still musing on whether I really need a financial adviser/solicitor/tax accountant for the IHT advice.

A POA bounds you to act in their best interest. Reducing IHT is not in their interest so unless there is another justifiable motivation for any action to reduce the IHT bill you are on shaky ground. This can be frustrating, especially if you know that’s what your parents would have wanted, but unfortunately, the fact they haven’t done it means that legally that ship has sailed.

You do not need to hold on to the property until they die to claim the residence nil rate band. There is a ‘downsizing addition’ that covers previous properties owned after 2015. https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Commission and ongoing fees are honestly very different.

Commission is something the product provider pays to the adviser. That has the potential to influence their advice, they might choose a dog shit product that pays good commission.

A fee is something you pay to the adviser. The product might still be dog shit, but they haven't been influenced by how much money they get out of recommending it.

Anyway. The question is ultimately whether an adviser can save/make you (your parents) more than you (they) pay in fees. That's the bit you need to work out...

If your parents are still of sound mind (it sounds like they are) then I would take them to a solicitor or accountant for some IHT advice. These professionals are much better qualified to help in this situation than a financial adviser.

I would be wary of making investment decisions at this point, especially as it sounds as if there are other family members involved. If you decide (even with your parent’s agreement) to take their safe savings and put in investments and there is a significant stock market crash, they could lose a large amount of money and not have time enough left to recoup the loss. You may then find yourself in the position of being blamed by your family for the decision.
We have gone along the line of keeping money in similar arrangements to what parents had decided themselves but looking for best rates etc.

You sound clued up op but just want to check you’re aware the nil rate band is doubled so IHT only if the residence is worth more than £1m (Unless things have changed/ are going to change in this respect, I’m not aware).

POA is for their benefit not yours so any decisions you make must first benefit them and if that has a happy outcome for IHT then that’s a fringe benefit, it should not be driving decisions (or only taken into account if there’s a neutral impact to your parents).

If they have a house worth over £1m then I’m inclined to say that yes, they should simply pay the IHT. The wealth generated by the investment in that property has likely not been fully taxed and it’s a £1m tax-free which doesn’t seem unreasonable.

I think this is the crux, I’m not sure who to speak to in this situation, a solicitor, accountant, financial adviser or financial planner!

@Icanttakethisanymore dies me having the financial POA prevent them from making IRT planning mitigations, surely not?

Employ a tax accountant for you all to consult on exactly your parents' position.

You need to find one of these professionals that specialises in IHT. There are plenty around. Normally a small local accountancy practice will have a suitable partner. This was my field before retirement so I am biased, but I don't really trust financial advisers! After seeing an accountant to get a better understanding of their potential tax issues, you may also need a solicitor to re-draft wills, but I would see an accountant first.

A few things to consider:

• Asset deprivation does not apply when making gifts for inheritance tax.
• Downsizing does not apply as they will take account of the more expensive house if it is sold to purchase a cheaper home.
• Remember to use exemptions like annual gift allowance £3,000 each and can use previous year if not utilised. Out of income exemption is important too if they do not spend all their income. Can also give as many £250 gifts to different people.