I am happy to be corrected on this - but i remember reading, years ago, that you had the option to pay any IHT due, whilst you were still alive, and the rate would be half of the IHT due after you had died.
I think this has been confused James… when you place investments into a discretionary trust they can be subject to a lifetime tax charge of 20% (half the rate charged upon death). This is only if the settlement (taking other discretionary trust settlements into account from previous 7 years) exceeds the nil rate band of £325,000. The trust would also then be subject to periodic charges every 10 years.
Hi Chris, My concern is that if you go on and on living beyond the life expectancy then you still have to keep up paying the premiums. What about care costs that are means tested? Means testing won’t make an allowance for the fact that you’re funding life assurance. You risk having to cancel and throw away all you’ve put into the policy. It seems a bit of a gamble in that you may die in a year, in which case your beneficiaries have won (financially at least) but if you keep going to say 95 then they lose because you’ve paid far more than the death benefit. Are you not better off gifting as much as you can, provided you stand a good chance of living 7 years still? Thanks
That depends. By the same logic, if you gift all your money away and live longer than expected you may need it. Also, the cost of life assurance will probably be eroded by inflation. Means tested care costs probably aren’t too much of a concern for people with significant IHT problems either, because they’re unlikely to qualify for them in the first place.
Great content. The part at the end sounded like you recommend using DGT income to pay WoL plans, but that income would be a return of capital and wouldn't count as a gift out regular expenditure. Perhaps I've misunderstood
DGT or loan trust could be used. The money withdrawn would be capital, but the main purpose is ensuring that the capital invested through the trust can still grow so the withdrawals don’t have to diminish the size of the legacy too much. Any growth achieved will sit outside of the estate for IHT purposes.
Yes, it isn’t still widely understood Mark. Even less understood is how the main residence relief tapers away to nothing when the total estate exceeds £2m.
A very interesting and balanced presentation, however, a word of caution from my personal experience. Having very recently seen the operation of one of these types of policies upon the second death ( my father), I would add an element of caution. Our experience with the provider chosen by my parents was less than impressive. In fact we are going through the formal complaints process and fully expect to have to pursue this through the FSA. Our experience was categorised by deliberate obfuscation regarding the amount of money payable ( we didn't have the originating paperwork for the policy upon the second death) The provider refused to supply a copy of the original paperwork to establish exactly how much should have been payable. It refused to payout the funds on the provision of the death certificates to the designated trustees in a reasonably timely fashion. My experience was that they deliberately made the process as slow and opaque as possible. Fast forward nearly two years of endless obstruction and covid related delays, and we received considerably less than the agreed sum. We have now discovered that the agreed sum was £10,000 more than the figure we understood was payable on second death. In total, we were sent roughly £25,000 less than the sum mentioned in the original documents. This is a vast oversimplification of the situation that has unfolded. I do not doubt another provider might be much better, but I will think very carefully before I use such a product to deal with my inevitable iht issues in the future. I might also add that if the assets that are in probate are property picking a realistic figure for house values when you pass away ( not necessarily the family home), it is surprisingly difficult. I personally work on housing doubling in price roughly every 15 to 20 years. Let's hope they sort out the indexation of the IHT nil rate bands. We can all travel in hope.
Great vid Chris. What I would worry about though is inflation. Scenario - I take out a £250k policy now to pay out on my death in 20 years time and let’s say that the inflation adjusted value of that policy is then £50k. The value of my assets and thus my IHT bill has increased because of the same inflation but this time rather than my IHT bill being £250k, it’s now £450k and so I have a £400k gap that is not covered? Have I missed something? Thanks.
Hi Paul. You’re correct to be concerned about that. It is possible to take out inflation linked policies, so the sum assured (and premium) increase. As well as taking out these policies though, it is often advisable to adopt other IHT strategies alongside to counter the above.
Hi there. Product related videos are something I tend to steer clear of, but the types of companies active in this space are the likes of Octopus, Charles Stanley and Brooks MacDonald to name a few, with their AIM Inheritance Tax Portfolio Services.
@@chrisbourne-retirementplanner Being able to pass £1m (as a couple) to your kids is generous. RNRB made up for the freeze. I actually think beyond those limits IHT is fair. Life enhancing wealth is good to pass on, life changing is a bit disgusting, and sums up why Europe is less dynamic than the US because most of our money is in the hands of dynasties....
Hi Iain… A. First death policy premiums are much higher B. The liability falls due on second death, so if a policy pays out on first death it could be a number of years before tax is due. Not only could the liability could change in that time, the money would have to sit in the beneficiary’s estate as a taxable asset.
The earlier you plan the easier it is to sort, but few people start before they have retired mainly because they still require full and complete flexibility to meet their own needs.
Hi. My understanding is that you are allowed to gift £3k per financial year IHT free and if you didn’t gift last year, you could gift last years and this year’s together. So what is to stop someone giving a huge gift and stating they are using their unused years dating back to their birth date?
Hi I'm still unclear how you reached the 1m tax free threshold figure. Is it that the 2nd surviving spouse inherits 325k + 175k from the deceased. Plus her own, so she has a total of 1m tax free? I thought it was just 1 tax credit of 325k for one house? It doubles if you co-own it? The 175k revate applies roncash and other non residence assets I assume? Also are these WOL policies similar to many American advisors who say open one and "become your own bank" ? Many thanks in advance.
As no-one else has answered, I'll chip in. In your example you've got the allowances the wrong way around. The £325k is basic allowance (and does not relate to housing) so is per person. So for a couple it is £650k in total. The extra part is the £175k allowance (again per person) but for housing. It is also transferable to the surviving spouse so that when both have passed away it totals £1m; £325k + £325k + £175k + £175k = £1m
Hi Chris, we have a discretionary bond with loan trust for estate planning purposes. For money laundering reasons, these sort of trusts need to be registered with HMRC and there's a deadline of 1st September 22.. I've worked out that it is an 'Express Trust.' On completing the HMRC online form, they ask if you will pay tax on the trust during 2022/23 tax year. As it is deemed that tax has already been paid on the payment received from the bond and there's no more tax to pay. I assume the answer to this question is No. Is that correct? I look forward to hearing from you. Regards Shree '
One of the select few youtubers I watch and trust re finance
Thank you Florin I appreciate that!
Great advise - Proper life planning for you family once we are no longer here 👏👏👏👏
Thanks Robert glad it’s useful!
Great video and explained in plain english
Cheers Raymond that’s good to hear. I do try to keep things clear and straightforward.
Very well explained. Thanks
Thanks very much Margaret.
This is a great plan. Thanks
Thank you glad you think so 👍🏼
I am happy to be corrected on this - but i remember reading, years ago, that you had the option to pay any IHT due, whilst you were still alive, and the rate would be half of the IHT due after you had died.
Never heard of that!
@@phil1edinburgh I heard it years ago and it probably was "pub talk"
I think this has been confused James… when you place investments into a discretionary trust they can be subject to a lifetime tax charge of 20% (half the rate charged upon death). This is only if the settlement (taking other discretionary trust settlements into account from previous 7 years) exceeds the nil rate band of £325,000. The trust would also then be subject to periodic charges every 10 years.
@@chrisbourne-retirementplanner Thanks, knew you'd have the right answer. And also a BIG + for all the info you supply.
Hi Chris,
My concern is that if you go on and on living beyond the life expectancy then you still have to keep up paying the premiums. What about care costs that are means tested? Means testing won’t make an allowance for the fact that you’re funding life assurance. You risk having to cancel and throw away all you’ve put into the policy. It seems a bit of a gamble in that you may die in a year, in which case your beneficiaries have won (financially at least) but if you keep going to say 95 then they lose because you’ve paid far more than the death benefit. Are you not better off gifting as much as you can, provided you stand a good chance of living 7 years still?
Thanks
That depends. By the same logic, if you gift all your money away and live longer than expected you may need it. Also, the cost of life assurance will probably be eroded by inflation. Means tested care costs probably aren’t too much of a concern for people with significant IHT problems either, because they’re unlikely to qualify for them in the first place.
Great content. The part at the end sounded like you recommend using DGT income to pay WoL plans, but that income would be a return of capital and wouldn't count as a gift out regular expenditure. Perhaps I've misunderstood
Premiums would likely be covered by annual gift allowance
DGT or loan trust could be used. The money withdrawn would be capital, but the main purpose is ensuring that the capital invested through the trust can still grow so the withdrawals don’t have to diminish the size of the legacy too much. Any growth achieved will sit outside of the estate for IHT purposes.
Thanks for clarifying. Look forward to the next one
ty, surprising ho wmany people don't know about the £1m tax free on inheritance (in the circumstances that you cite)
Yes, it isn’t still widely understood Mark. Even less understood is how the main residence relief tapers away to nothing when the total estate exceeds £2m.
A very interesting and balanced presentation, however, a word of caution from my personal experience. Having very recently seen the operation of one of these types of policies upon the second death ( my father), I would add an element of caution.
Our experience with the provider chosen by my parents was less than impressive. In fact we are going through the formal complaints process and fully expect to have to pursue this through the FSA.
Our experience was categorised by deliberate obfuscation regarding the amount of money payable ( we didn't have the originating paperwork for the policy upon the second death)
The provider refused to supply a copy of the original paperwork to establish exactly how much should have been payable. It refused to payout the funds on the provision of the death certificates to the designated trustees in a reasonably timely fashion.
My experience was that they deliberately made the process as slow and opaque as possible.
Fast forward nearly two years of endless obstruction and covid related delays, and we received considerably less than the agreed sum. We have now discovered that the agreed sum was £10,000 more than the figure we understood was payable on second death. In total, we were sent roughly £25,000 less than the sum mentioned in the original documents.
This is a vast oversimplification of the situation that has unfolded. I do not doubt another provider might be much better, but I will think very carefully before I use such a product to deal with my inevitable iht issues in the future.
I might also add that if the assets that are in probate are property picking a realistic figure for house values when you pass away ( not necessarily the family home), it is surprisingly difficult. I personally work on housing doubling in price roughly every 15 to 20 years. Let's hope they sort out the indexation of the IHT nil rate bands. We can all travel in hope.
Great vid Chris. What I would worry about though is inflation. Scenario - I take out a £250k policy now to pay out on my death in 20 years time and let’s say that the inflation adjusted value of that policy is then £50k. The value of my assets and thus my IHT bill has increased because of the same inflation but this time rather than my IHT bill being £250k, it’s now £450k and so I have a £400k gap that is not covered? Have I missed something? Thanks.
Hi Paul. You’re correct to be concerned about that. It is possible to take out inflation linked policies, so the sum assured (and premium) increase. As well as taking out these policies though, it is often advisable to adopt other IHT strategies alongside to counter the above.
@@chrisbourne-retirementplanner thanks Chris, that’s the bit I was missing! 👍
Hi is it possible for you to cover ISA freindly investments to avoid IHT Aims shares and funds
Hi there. Product related videos are something I tend to steer clear of, but the types of companies active in this space are the likes of Octopus, Charles Stanley and Brooks MacDonald to name a few, with their AIM Inheritance Tax Portfolio Services.
Is the payout from the life assurance from the trust fund liable to income tax by any chance?
It should meet qualifying rules, so no, it wouldn’t be.
Would you believe that in Italy spouses and children only pay 3% inheritance tax? That sounds better than paying 40%
A crazy difference Mike! The freezing of the nil rate band for such a long time is the biggest stealth tax in the UK I think.
@@chrisbourne-retirementplanner Being able to pass £1m (as a couple) to your kids is generous. RNRB made up for the freeze. I actually think beyond those limits IHT is fair. Life enhancing wealth is good to pass on, life changing is a bit disgusting, and sums up why Europe is less dynamic than the US because most of our money is in the hands of dynasties....
Why second death and not first? If it’s first death then you don’t have to pay the premiums anymore and the sum assured is in the trust?
Hi Iain…
A. First death policy premiums are much higher
B. The liability falls due on second death, so if a policy pays out on first death it could be a number of years before tax is due. Not only could the liability could change in that time, the money would have to sit in the beneficiary’s estate as a taxable asset.
What age should you start planning for IHT
The earlier you plan the easier it is to sort, but few people start before they have retired mainly because they still require full and complete flexibility to meet their own needs.
Hi. My understanding is that you are allowed to gift £3k per financial year IHT free and if you didn’t gift last year, you could gift last years and this year’s together. So what is to stop someone giving a huge gift and stating they are using their unused years dating back to their birth date?
You can only carry forward a maximum of one year. £6k is therefore the individual limit.
@@chrisbourne-retirementplanner thanks. Much appreciated
Buy gold and tell no one about it, pass it on to your people as you see fit. Out of the system is where you need to be.
Hi I'm still unclear how you reached the 1m tax free threshold figure.
Is it that the 2nd surviving spouse inherits 325k + 175k from the deceased. Plus her own, so she has a total of 1m tax free? I thought it was just 1 tax credit of 325k for one house? It doubles if you co-own it? The 175k revate applies roncash and other non residence assets I assume? Also are these WOL policies similar to many American advisors who say open one and "become your own bank" ? Many thanks in advance.
As no-one else has answered, I'll chip in. In your example you've got the allowances the wrong way around. The £325k is basic allowance (and does not relate to housing) so is per person. So for a couple it is £650k in total. The extra part is the £175k allowance (again per person) but for housing. It is also transferable to the surviving spouse so that when both have passed away it totals £1m; £325k + £325k + £175k + £175k = £1m
@@hywelthomas1623 Thx mate 🙂👍
Hi can we touch with you
Hi Chris, we have a discretionary bond with loan trust for estate planning purposes. For money laundering reasons, these sort of trusts need to be registered with HMRC and there's a deadline of 1st September 22..
I've worked out that it is an 'Express Trust.' On completing the HMRC online form, they ask if you will pay tax on the trust during 2022/23 tax year. As it is deemed that tax has already been paid on the payment received from the bond and there's no more tax to pay. I assume the answer to this question is No. Is that
correct? I look forward to hearing from you. Regards Shree
'
From what you’ve described Shree and if the only asset of the trust is the bond, you will be correct.
@@chrisbourne-retirementplannerYes the only asset is the bond. Many thanks for your quick reply Chris.