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IHT planning...what have you done?

Practical Issues
gryffron
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Re: IHT planning...what have you done?

#473539

Postby gryffron » January 16th, 2022, 3:37 pm

ursaminortaur wrote:That was what I thought but in a previous reply Gengulphus disagreed

Not saying he/you are wrong. It reads like that to me to.

But if the liability is theirs and you pay it, there is an additional bequest to the gift recipient, which is itself part of the taxable estate. So you pay IHT tax on the IHT tax!

And as scrumpyjack says. What if the recipient dies first?

What a mess!

:shock:

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Re: IHT planning...what have you done?

#473560

Postby Lootman » January 16th, 2022, 5:01 pm

scrumpyjack wrote:What is the position where the recipient predeceased the donor?

Or the recipient lives overseas, or cannot be found, or is flat broke?

There are a number of scenarios where hoping that a gift recipient will pay the IHT due will not be a sufficient collection strategy.

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Re: IHT planning...what have you done?

#473889

Postby Eboli » January 17th, 2022, 7:10 pm

Kantwebefriends mused

n his 1975 budget Denis Healey imposed a retrospective change on whatever IHT was called at the time. (Estate Duty, perhaps?)


Methinks Capital Transfer Tax.

Eb

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Re: IHT planning...what have you done?

#473890

Postby Eboli » January 17th, 2022, 7:24 pm

There seems to be a misunderstanding on PETs about the 7 year rule.

To be clear, just because there has been survival of a lifetime gift by 7 years does NOT make the PET free of IHT. That is because you work BACK from death (and not forward from the date of gift) and ask whether in that 7 year period there has been any reservation of benefit. Of course if the donor does not survive 7 years it is the shorter period from the date of death that matters.

So, for example A gifts B on 1 Jan 1999 an asset and dies in 2023 having reserved a benefit over the gifted property in 2019. The PET made in 1999 has become a chargeable transfer (because there is a reservation of benefit in the 7 years before death). It may then be that A gifted C a gift in 2020 below the then nil rate band expecting it to escape IHT. But what would happen is that the nil-rate band in 2023 would be reduced by the now failed 1999 PET at it's value (in diminution terms) in 2019 and only any excess set against the now failed PET in 2020.

Eb.

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Re: IHT planning...what have you done?

#473893

Postby MyNameIsUrl » January 17th, 2022, 7:40 pm

Eboli wrote:...So, for example A gifts B on 1 Jan 1999 an asset and dies in 2023 having reserved a benefit over the gifted property in 2019. The PET made in 1999 has become a chargeable transfer (because there is a reservation of benefit in the 7 years before death)...

If I'd made the gift on 1 Jan 1999 I would have expected to shred the records of that gift on 1 Jan 2006, having survived 7 years. The implication of the statement quoted seems to be that records must be kept for life, in case a reservation of benefit occurred at any date no matter how long after the gift was made.

If I'd made the gift of a house, I presume the reservation of benefit would be my living in it 20 years later, but if the gift was cash, it's hard to see how a reservation of benefit could arise many years later (even if the cash had been used by the recipient to buy a house).

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Re: IHT planning...what have you done?

#473930

Postby Lootman » January 17th, 2022, 9:53 pm

Eboli wrote:for example A gifts B on 1 Jan 1999 an asset and dies in 2023 having reserved a benefit over the gifted property in 2019. The PET made in 1999 has become a chargeable transfer (because there is a reservation of benefit in the 7 years before death). It may then be that A gifted C a gift in 2020 below the then nil rate band expecting it to escape IHT. But what would happen is that the nil-rate band in 2023 would be reduced by the now failed 1999 PET at it's value (in diminution terms) in 2019 and only any excess set against the now failed PET in 2020.

Surely you can only "reserve a benefit" at the point of making a gift, or within 7 years of making that gift.

So if A makes a gift to B in 1999 then it becomes exempt in 2006, and nothing that happens after that matters. At that point A could indeed benefit from the gift without any effect.

Isn't the pertinent example rather that A gifts (say, a house) to B in 1999 but continues to live (rent-free) in it until 2019. Then he loses all benefit but, because he dies in 2013, there was benefit in the 7 years prior to death?

The 7-year clocks starts ticking not necessarily at the point of the gift, but rather only when all benefit has gone, and then runs for 7 years.

MyNameIsUrl wrote:If I'd made the gift on 1 Jan 1999 I would have expected to shred the records of that gift on 1 Jan 2006, having survived 7 years. The implication of the statement quoted seems to be that records must be kept for life, in case a reservation of benefit occurred at any date no matter how long after the gift was made.

And moreover in the 3 times I have been an executor nobody ever asked me whether there had been ANY benefit from an item that had EVER been gifted. Only whether there had been benefit reserved for items gifted in the last 7 years.

So as a practical matter executors just do not operate on Eboli's assumption.

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Re: IHT planning...what have you done?

#474071

Postby RockRabbit » January 18th, 2022, 1:24 pm

Lootman wrote:The only issue I have with being even more generous than I have been is that I don't want my kids to have it too easy.

This is my worry as well in the sense that if they have a 'large' amount of money when they are young, it might discourage them from working etc or even worse, go off the rails completely like many a lottery winner.

My partial solution to this has been to ensure that as much money as possible goes into the kids' SIPPs and Lifetime ISAs. They can't touch the SIPP funds and the Lifetime ISAs are very inefficient if you draw funds early. However because the annual contributions to these tax wrappers are restricted, it is important to start early and contribute annually.

Otherwise as others have said - keep it simple, don't delay and keep good records.

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Re: IHT planning...what have you done?

#474083

Postby Lootman » January 18th, 2022, 2:04 pm

MyNameIsUrl wrote:
Eboli wrote:...So, for example A gifts B on 1 Jan 1999 an asset and dies in 2023 having reserved a benefit over the gifted property in 2019. The PET made in 1999 has become a chargeable transfer (because there is a reservation of benefit in the 7 years before death)...

If the gift was cash, it's hard to see how a reservation of benefit could arise many years later (even if the cash had been used by the recipient to buy a house).

In general I would agree although I can think of a couple of examples where the taxman might win the debate:

1) A gives B a sum of £100,000 and tells B that if at some later time A is short of money then he would like the money to be re-gifted back to him. The taxman would take the view that that was really a loan, even if no interest is paid, because the right to get the money back reserved a benefit i.e. the potential future use of those funds.

2) A gives B a sum of £100,000 so that B can buy a house to live in. At some later time B lets A live in that house. I think you and I take the view that if A only moves into B's house after 7 years then it is not a problem. But Eboli seems to think that it might be.

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Re: IHT planning...what have you done?

#474092

Postby scrumpyjack » January 18th, 2022, 2:14 pm

RockRabbit wrote:
Lootman wrote:The only issue I have with being even more generous than I have been is that I don't want my kids to have it too easy.

This is my worry as well in the sense that if they have a 'large' amount of money when they are young, it might discourage them from working etc or even worse, go off the rails completely like many a lottery winner.

My partial solution to this has been to ensure that as much money as possible goes into the kids' SIPPs and Lifetime ISAs. They can't touch the SIPP funds and the Lifetime ISAs are very inefficient if you draw funds early. However because the annual contributions to these tax wrappers are restricted, it is important to start early and contribute annually.

Otherwise as others have said - keep it simple, don't delay and keep good records.



I too agree with the point about making life too easy for the kids. But there are a lot of other issues. Concern that after receiving the money your offspring would blow it on something you totally disapprove of, or they get divorced and the other half swans off with half the assets. There are plenty more potential problems.

Also there is the point that on death the CGT slate is wiped clean. That may offset some of the real cost of the IHT charge.

Don't let the tax tail wag the inheritance planning dog!

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Re: IHT planning...what have you done?

#474100

Postby DrFfybes » January 18th, 2022, 2:26 pm

Lootman wrote:In general I would agree although I can think of a couple of examples where the taxman might win the debate:

1) A gives B a sum of £100,000 and tells B that if at some later time A is short of money then he would like the money to be re-gifted back to him. The taxman would take the view that that was really a loan, even if no interest is paid, because the right to get the money back reserved a benefit i.e. the potential future use of those funds..


Mum downsized in 2009. She gave the excess to me and my sister. We agreed "well, she can always ask for it back if she runs out of money". As it happens, she didn't run out of money, but did run out of free cash for care home fees as her flat didn't sell. Had she run ut of cash altogether, would our generosity have meant the 2009 gift was suddenly resered?

2) A gives B a sum of £100,000 so that B can buy a house to live in. At some later time B lets A live in that house. I think you and I take the view that if A only moves into B's house after 7 years then it is not a problem. But Eboli seems to think that it might be


Now that is much more useful. Parent downsizes, gives away cash, Child uses cash to upsize to a nicer house with annex for the teenage grandchild. 9 years later the grandchild has left (if you're lucky!) and the parent needs more care and wants to move into the annex, to which the answer is "Sorry, the tax man will want 40% of your gift back" :)

Paul

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Re: IHT planning...what have you done?

#474102

Postby scrumpyjack » January 18th, 2022, 2:36 pm

If the gift was made unconditionally with no commitments to what might happen in the future and no benefit was received in the 7 years, I can't see how anyone could argue that there had been a reservation of benefit. If there was any uncertainty, which I doubt, the parent could pay a market rent for their occupation of the annex 9 years on.

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Re: IHT planning...what have you done?

#474103

Postby Lootman » January 18th, 2022, 2:40 pm

DrFfybes wrote:
Lootman wrote:In general I would agree although I can think of a couple of examples where the taxman might win the debate:

1) A gives B a sum of £100,000 and tells B that if at some later time A is short of money then he would like the money to be re-gifted back to him. The taxman would take the view that that was really a loan, even if no interest is paid, because the right to get the money back reserved a benefit i.e. the potential future use of those funds..

Mum downsized in 2009. She gave the excess to me and my sister. We agreed "well, she can always ask for it back if she runs out of money". As it happens, she didn't run out of money, but did run out of free cash for care home fees as her flat didn't sell. Had she run ut of cash altogether, would our generosity have meant the 2009 gift was suddenly reserved?
2) A gives B a sum of £100,000 so that B can buy a house to live in. At some later time B lets A live in that house. I think you and I take the view that if A only moves into B's house after 7 years then it is not a problem. But Eboli seems to think that it might be

Now that is much more useful. Parent downsizes, gives away cash, Child uses cash to upsize to a nicer house with annex for the teenage grandchild. 9 years later the grandchild has left (if you're lucky!) and the parent needs more care and wants to move into the annex, to which the answer is "Sorry, the tax man will want 40% of your gift back" :)

Paul

In your second case then the problem could be resolved by granny paying a market rent for the housing.

The first case is trickier. To my mind it comes down to determining what was the agreement when the cash gift was originally made. Did A say "here's £100,000 but I might need it back one day" then that starts to look like a reservation of benefit. If instead B just thinks to himself "if mum ever is hard up then I can always help her out", then it's probably OK since A was not imposing any conditions.

I don't think making a cash gift means that the recipient can never be generous with you in the future. Only that that should not be a part of the original deal.

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Re: IHT planning...what have you done?

#474579

Postby MyNameIsUrl » January 19th, 2022, 9:01 pm

Lootman wrote:... To my mind it comes down to determining what was the agreement when the cash gift was originally made. Did A say "here's £100,000 but I might need it back one day" then that starts to look like a reservation of benefit. If instead B just thinks to himself "if mum ever is hard up then I can always help her out", then it's probably OK since A was not imposing any conditions.

I don't think making a cash gift means that the recipient can never be generous with you in the future. Only that that should not be a part of the original deal.
(my bold)

As Lootman alludes to, at the point the transfer is made, there is an agreement made. If the agreement is 'I will give you a house providing I can live in it whenever I want' then clearly that lasts indefinitely and the gift will never be exempt from IHT. But if the agreement is 'I will give you a house without any strings attached whatsoever' then it seems to me after 7 years have elapsed the gift is free from IHT, even if I move into it after 3 years, because that moving in becomes a new separate arrangement and I never 'reserved' the benefit for myself. So, providing an agreement is made and documented when a cash gift or any other gift is made that there is no reservation of benefit, that's the end of it and after 7 years I can shred all the documentation and no IHT can ever be due on that gift.

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Re: IHT planning...what have you done?

#474583

Postby genou » January 19th, 2022, 9:30 pm

MyNameIsUrl wrote:... if the agreement is 'I will give you a house without any strings attached whatsoever' then it seems to me after 7 years have elapsed the gift is free from IHT, even if I move into it after 3 years, because that moving in becomes a new separate arrangement and I never 'reserved' the benefit for myself. So, providing an agreement is made and documented when a cash gift or any other gift is made that there is no reservation of benefit, that's the end of it and after 7 years I can shred all the documentation and no IHT can ever be due on that gift.


I think you may well be right on IHT, but at the point you move back in to the house, I reckon you get clattered by the POAT rules, at which point you may want to elect for it to be a GWROB if you can, as it could easily be less tax.

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Re: IHT planning...what have you done?

#474585

Postby Lootman » January 19th, 2022, 9:37 pm

genou wrote:
MyNameIsUrl wrote:... if the agreement is 'I will give you a house without any strings attached whatsoever' then it seems to me after 7 years have elapsed the gift is free from IHT, even if I move into it after 3 years, because that moving in becomes a new separate arrangement and I never 'reserved' the benefit for myself. So, providing an agreement is made and documented when a cash gift or any other gift is made that there is no reservation of benefit, that's the end of it and after 7 years I can shred all the documentation and no IHT can ever be due on that gift.

I think you may well be right on IHT, but at the point you move back in to the house, I reckon you get clattered by the POAT rules, at which point you may want to elect for it to be a GWROB if you can, as it could easily be less tax.

If no executors are reporting this then in practice nobody is going to get "clattered" by anything. The matter quite simply never gets presented for consideration because executors ignore any asset transfer more than 7 years old.

MyNameIsUrl is surely correct. What matters is not so much what happens but what was intended and agreed at the point of the transfer.

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Re: IHT planning...what have you done?

#474588

Postby genou » January 19th, 2022, 9:42 pm

Lootman wrote:
genou wrote:
MyNameIsUrl wrote:... if the agreement is 'I will give you a house without any strings attached whatsoever' then it seems to me after 7 years have elapsed the gift is free from IHT, even if I move into it after 3 years, because that moving in becomes a new separate arrangement and I never 'reserved' the benefit for myself. So, providing an agreement is made and documented when a cash gift or any other gift is made that there is no reservation of benefit, that's the end of it and after 7 years I can shred all the documentation and no IHT can ever be due on that gift.

I think you may well be right on IHT, but at the point you move back in to the house, I reckon you get clattered by the POAT rules, at which point you may want to elect for it to be a GWROB if you can, as it could easily be less tax.

If no executors are reporting this then in practice nobody is going to get "clattered" by anything. The matter quite simply never gets presented for consideration because executors ignore any asset transfer more than 7 years old.

MyNameIsUrl is surely correct. What matters is not so much what happens but what was intended and agreed at the point of the transfer.


What executors? When the donor moves back in the house, the POAT rules catch them while they are alive, and it's an expensive tax. Of course they can try to not pay the tax by not fessing up what they are doing, but that's a bush we pissed on already here, so I'm not going there.

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Re: IHT planning...what have you done?

#474745

Postby Lootman » January 20th, 2022, 1:55 pm

genou wrote:
Lootman wrote:
genou wrote:
MyNameIsUrl wrote:... if the agreement is 'I will give you a house without any strings attached whatsoever' then it seems to me after 7 years have elapsed the gift is free from IHT, even if I move into it after 3 years, because that moving in becomes a new separate arrangement and I never 'reserved' the benefit for myself. So, providing an agreement is made and documented when a cash gift or any other gift is made that there is no reservation of benefit, that's the end of it and after 7 years I can shred all the documentation and no IHT can ever be due on that gift.

I think you may well be right on IHT, but at the point you move back in to the house, I reckon you get clattered by the POAT rules, at which point you may want to elect for it to be a GWROB if you can, as it could easily be less tax.

If no executors are reporting this then in practice nobody is going to get "clattered" by anything. The matter quite simply never gets presented for consideration because executors ignore any asset transfer more than 7 years old.

MyNameIsUrl is surely correct. What matters is not so much what happens but what was intended and agreed at the point of the transfer.

What executors? When the donor moves back in the house, the POAT rules catch them while they are alive, and it's an expensive tax. Of course they can try to not pay the tax by not fessing up what they are doing, but that's a bush we pissed on already here, so I'm not going there.

POAT is a different topic but there would still need to be a declaration of that and so the practical issue is the same as we have all been saying to you here - who would think to do that 20 or 30 years after the gift? And when all the documentation is long gone?

And if POAT really applied like that then the 7-year rule would be moot, and we know it isn't.

If that were a common problem then it would be fairly simple for B to sell the gifted property, buy another one and then have A move into that new house a decade later. And it is moot for cash gifts - there is a POAT exclusion for outright cash gifts made at least seven years before the relevant person first occupied the property.

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Re: IHT planning...what have you done?

#474751

Postby RockRabbit » January 20th, 2022, 2:04 pm

For those poor souls (like me) who had to look up what POAT means, here is a concise guide - well worth a read.

https://www.stoneking.co.uk/literature/ ... assets-tax

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Re: IHT planning...what have you done?

#474782

Postby genou » January 20th, 2022, 3:42 pm

Lootman wrote:POAT is a different topic but there would still need to be a declaration of that and so the practical issue is the same as we have all been saying to you here - who would think to do that 20 or 30 years after the gift? And when all the documentation is long gone?

And if POAT really applied like that then the 7-year rule would be moot, and we know it isn't.


I don't know what you mean by this. This is how POAT works. It is designed to catch attempts to get round GWROB rules, to which no 7 year time limit applies.

Lootman wrote:If that were a common problem then it would be fairly simple for B to sell the gifted property, buy another one and then have A move into that new house a decade later. And it is moot for cash gifts - there is a POAT exclusion for outright cash gifts made at least seven years before the relevant person first occupied the property.




You don't seem to be grasping that POAT involves an immediate charge. There is no gap of 30 years. What I find galling is that on all legal issues, your standard advice is "do what is convenient and as long as you don't get caught it'll be fine", which you appear to regard as a "practical" approach.

I am defeated by the practicality of A gives B a house, B sells it and buys a new one for A to live in, but there we go. The post I replied to made no mention of cash gifts, so I did not address that.

I am a fool for coming back, I don't intend to comment further.

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Re: IHT planning...what have you done?

#474786

Postby Dod101 » January 20th, 2022, 4:01 pm

genou wrote:
MyNameIsUrl wrote:... if the agreement is 'I will give you a house without any strings attached whatsoever' then it seems to me after 7 years have elapsed the gift is free from IHT, even if I move into it after 3 years, because that moving in becomes a new separate arrangement and I never 'reserved' the benefit for myself. So, providing an agreement is made and documented when a cash gift or any other gift is made that there is no reservation of benefit, that's the end of it and after 7 years I can shred all the documentation and no IHT can ever be due on that gift.


I think you may well be right on IHT, but at the point you move back in to the house, I reckon you get clattered by the POAT rules, at which point you may want to elect for it to be a GWROB if you can, as it could easily be less tax.


Everyone is getting a bit rattled but personally I doubt very much that the POAT rules apply in this sort of case. The gift is well passed the 7 year period and therefore that transaction is dead and buried. If the owner of the house then offers Mum accommodation at a much later date that is out of the goodness of his/her heart and he/she can do so or not; there has been no reservation of benefit or attempt to use a 'scheme' to avoid IHT. I simply do not believe the POAT rules apply. I would be a bit nervous about Lootman's case of moving in after three years, notwithstanding that there has been no formal reservation of benefit. If HMRC got to know about (and why would they?) they might well have some probing questions although logically as Lootman says they are two separate and distinct transactions. It is how to prove it that matters.

Dod


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