Advice - Minimising IHT

[PinkDalek]

Yes but for those that are already considering the (say) 7%, increasing it to the required 10% is beneficial (as your scenarios show). That was the point I'm trying to make. Obviously from 0% increased to 10% absolutely has the impact you mentioned earlier.

[scotia]

Dod - thanks for the info on a lower tax rate associated with charitable giving

Better that than buy AIM shares just for the sake of saving IHT I think.

But I'll still (in addition) have fun with the AIM share rollercoaster!

[Bink333]

Would appreciate comments on my strategy to minimise IHT.
Recently retired from work as company director, having sold business. Aged 65, married with 3 children in their twenties who are the 3 beneficiaries in our wills. No mortgage. Have built up SIPP steadily over last few years to benefit from tax benefits. Financial summary as follows:
- Main house £450k
- Holiday home £450k
- ISAs for self and wife £340k
- Misc savings accounts £350k ISAs include high yield shares plus various bonds.
- Pension pot £1.15mm (Have IP 2016 to this value. Couldn’t get FP2016 as was still paying into pension. Doh!)

IHT Status:
Together assets add to £1.6mm for self and wife. Deducting £1.0mm for 2020 allowance gives a potential IHT exposure of £240k, provided rules don't change again.

Strategy
1) Continuing to enjoy life as much as possible with travel, social, etc.
2) Gifting funds (PETs) each year to children out of normal income.
3) Do not intend to crystallise SIPP (£450k) in order to keep out of estate unless need funds for care.

Note that recently carried out retrospective review of PETs to children to be able to demonstrate amounts were within normal expenditure. Compiled detailed spreadsheet complying with gov requirements. (IHTM14231). With hindsight should have done this a lot earlier as took almost a week of effort. Note that most of gifts were made over 7 years ago, so hopefully there’s not much potential liability should wife and I get hit by a bus next week.

Have crystallised 4 DB pensions that produce £40k gross income per year, which is more than ample. At 66% LTA, though as mentioned above don’t intend to crystallise SIPP so not planning to exceed LTA (IP2016 of £1.15mm).

Specific questions:
- Considered getting life insurance for say £100k. Have estimate of £125 per month for joint policy with wife. Do people feel this is beneficial?
- Considered buying £100k of AIM stocks. Optimus ISA seems the most likely platform for this though high dealing costs (2%). Or should I just buy individual AIM shares provided meet criterion. Understand just need to hold for 2 years before exempt from IHT. Any thoughts?
- Are there any other suggestions for mitigating IHT?

Hi cleanpair

Life cover is the simplest solution, if you can afford the monthly outlay for whole of life cover at guaranteed rates (ie non-escalating), on a joint life second death basis for you and your wife, providing cover for approx £250k (as your anticipated IHT bill on second death assuming that your estate does not increase in value) this should ensure that the IHT bill on your estate can be paid without the beneficiaries having to sell or borrow anything to do that. The life cover must be placed in trust with your children as beneficiaries. The trust should avoid additional trust-tax issues under current rules applicable to life assurance plans.

The option to transfer the ISA part of your portfolio to an AIM ISA manager like Octopus (I assume you meant them) could be potentially remove these holdings from your taxable estate after 2 years of ownership, but it does create a counter-intuitive position (increasing portfolio risk at the very point in life that most folk would look to reduce risk in order to focus upon steady income stream).

Octopus and others (DYOR) do offer other business relief propositions that are non -ISA'ble where you buy shares in a limited company that generates approx 3% income net of charges per annum as a dividend yield. After two years this would (under present rules) provide business property relief against IHT. I'd suggest that DYOR perhaps should include taking advice from an IFA who is familiar with this type of investment (especially if you can avoid paying for that advice - most IFAs will provide introductory meetings without a fee).

Other solutions might include selling your principal private residence to downsize (or move into the holiday home) and gifting the remainder of the proceeds to your children now, in order to start the 7 year gift rule (to IHT exemption on gifts) ticking. I'd avoid placing anything in trust for them within directly invested holdings as the taxation of trusts is an expensive hobby for capital lump sums held in trust these days, although you can potentially defer taxation and instructing the trustees to assign this deferred tax along with the investment to beneficiaries at a later date, by utilising insurance company investment bonds (utilising life assurance tax rules) which have such facility.

Please also be mindful of the 'gift with reservation' rules.

[PinkDalek]

The option to transfer the ISA part of your portfolio to an AIM ISA manager like Octopus (I assume you meant them) could be potentially remove these holdings from your taxable estate after 2 years of ownership, ...

On the 2 year holding aspect the OP does include:

Recently retired from work as company director, having sold business.

and

Considered buying £100k of AIM stocks. ... Understand just need to hold for 2 years before exempt from IHT.

One thing I don't think has been mentioned is the recent sale of the business. Depending on what this entailed, it may be that the business (or part of the business) qualified for IHT Business Relief in its own right. If that is the case, the OP may be able to re-invest in qualifying AIM or other unquoted shares well within the 2 years such that the reinvested part immediately continues to qualify for IHT Business Relief (without having to wait another 2 years).

I hope that brief thought makes some sense!

[taken2often]

Sounds as though you have made a start on the problems of wealth in retirement. I did the same a few years ago. Had the notional death willed out all the forms and prepared 7 years of records. As it turned out I have kept records of my expenditure for years weekly, monthly and yearly. Being single the amount of IHT due is horrendous. I have switched from saving mode to spending mode. Every pound spent is a 40p saving. I now throw away bars of soap that still have a third left.

As to pensions it may be your company pension may take you through the Life Time Allowance, so tax on the SIpp then, check this out.

If still paying 40% tax when retired. Then the brutal advice is to divorce split the pension and other assets and remarry two years later, risky (She may not marry you again) but effective. You can still live in the same house of course but split the title. Need a lawyer for this.

Bob

[Bouleversee]

If you are in good health, you still have time on your hands. I think it is quite likely that the law will change re IHT in the near future (see preceding thread), not necessarily for the better, however. I agree that PET gifts which would enable children to buy/improve their own properties would be the simplest and probably the best option. Don't forget bare trust gifts when you have grandchildren. Don't be in a hurry to downsize; keep that one up your sleeve for a bit later. Enjoy life while you are fit enough to do so.