Inheritance Tax Webinar: watch on demand

Inheritance Tax Webinar: watch on-demand

TaxAssist Financial Services and TaxAssist Tax Consulting experts discuss who is affected by Inheritance Tax and how much it could cost your family, tools for estimating your liability and strategies for reducing or even eliminating inheritance tax. Plus how and why is pays to be organised years in advance.

If you missed our Inheritance Tax Webinar, it’s now available to watch on demand. The webinar features expert Tax and Financial Advisor panellists Diane Deller, Claire Ellis and Jonathan Cross.

Inheritance Tax Calculator

Looking to understand your potential inheritance tax liability for your family? Use our Inheritance Tax Calculator to calculate the value of your estate and the assets that would be subject to inheritance tax:  

Available on demand

Watch the complete webinar or watch the section or sections that interest you. The webinar has been broken down and the following topics are available to watch: 

• Introduction to TaxAssist Financial Services and TaxAssist Tax Consulting
• Who is affected by inheritance tax and how much will it cost your family?
• Estimating your liability using the free to access TaxAssist inheritance tax calculator
• Is inheritance tax an optional tax? Strategies to mitigate or eliminate your liability with and without gifting assets
• Inheritance tax - traps for the unwary and common misconceptions
• Why it pays to be organised and how TaxAssist can help you
• Question and Answers

Complete Inheritance Tax Webinar  

 

Introduction to TaxAssist Financial Services and TaxAssist Tax Consulting  

 

Who is affected by inheritance tax and how much will it cost your family?  

 

Estimating your liability with the TaxAssist inheritance tax calculator  

 

Is inheritance tax an optional tax? Strategies to mitigate or eliminate your liability with and without gifting assets  

 

Inheritance tax - traps for the unwary  

 

Why it pays to be organised with inheritance tax and how TaxAssist can help you  

 

Inheritance tax question and answers  

 

Inheritance Tax Webinar: Your questions answered 

The webinar included a question-and-answer session and we have answered all the questions below: 

Question: Can you explain how domicility works?

Answer: Your domicile of origin typically occurs and follows the domicile of your father. For example, if you were born in the UK and your father was also born in the UK, you will have a UK domicile. Your domicile status can change, if you were living overseas and were born overseas and you then came to the UK at a later stage or vice versa you can change your domicile of origin due to the deemed domicile rules. However, it is really difficult to displace  your domicile status from a UK domicile. HMRC likes to get their claws in and you have to prove that you've cut a lot of ties with your original country of domicile. For example, you don't retain any property in the UK, there's no family connections or assets or anything left in the country of origin it may be you can lose your UK domicile status. If you do return to the UK once you are no longer UK domiciled then you will a formerly domicile resident and there are very specific rules relating to time spent in the UK in these circumstances. 

Deemed domicile essentially is where you will be considered to have a UK domicile as you have been a resident in the UK for the past 15 years out of the last 20 tax years. So it's really important to be mindful of your movements between the UK and other countries and what the impact that has on domicile. The reason that's so important is that it can be the difference between only being subject to UK inheritance tax on your UK assets but it could change to being subject to UK inheritance tax on your worldwide assets if you are deemed or actually UK domicile. 

 

Question: What is a Loan Trust from an Inheritance Tax perspective? 

Answer: A Loan Trust puts any growth on your asset outside of your estate. It’s typically used by people who don’t really want to give the money away for many reasons; either they just don't want to do it because they think they might want to access the funds later or perhaps they want to set up an income stream. The investment made is a loan to the trust. As soon as this is set up any growth that then accrues is immediately outside of your estate for inheritance tax purposes. You can access the money at any time and what people tend to do is set up a withdrawal of maybe 4.5% pa of the investment amount. This reduces the amount of the loan owed by the trustees to them. On death, the remaining loan amount forms part of their estate & may be subject to IHT. They are very useful for people who are cautious or for people who are not sure if they will need to access the money in the future or who require a regular income.   

 

Question: Does cohabiting with a partner for 10 years equate to being married?

Answer: Unfortunately, it doesn't. As a result you won't be able to take advantage of the spousal exemptions unless you have a legal marriage or civil partnership in place. Unfortunately, some of the inheritance tax rules are still a bit antiquated and don't really reflect that things have moved on. This is why having a will in place which reflects who your beneficiaries or recipients are, is so important. The spousal exemption is only available to married spouses or civil partners.  

 

Question: Does the pension exclusion include AVC contributions through a company pension?  

Answer: Yes it does. The important thing to remember around any pension is that you  should put a nomination around it. The nomination is an indication to the pension company of who you would like to receive the pension. Typically people will put down their spouse or partner. It's also a good idea to include children even if you only include them at 1% that gives the company more options in terms of how the actual benefits are taken.   

 

Question: How likely are there to be significant changes to inheritance tax rules in the future either phasing out or scrapping or going the other way where pensions are no longer outside your estate 

Answer: Inheritance tax raises a very small percentage of tax in terms of the whole take to the Treasury. So in one sense it's not that important for government funding.  On the other hand, tax is always deeply political and so there will undoubtedly be consideration given to the way that it affects our behaviour. You only have to look at the car and fuel benefit rules to see how the changes there significantly advance the “green agenda”. There is a lot of talk of inheritance tax being abolished and in certain areas of the political spectrum that may be a very popular move.  But that will have a big impact on behaviour, and no government will be able to remove inheritance tax without putting something in its place.  Therefore, no party will unilaterally vote to remove IHT just because that will give the party a great result politically by improving the outcome for a particular sector of the population. We've had an estate tax in various guises for a long time and because the alternative is a wealth tax which is what a lot of our European neighbours have, we would need a whole new set of rules which it may be difficult to implement with any speed. 

It seems unlikely that pension funds will be brought back into the net for inheritance tax. There was a significant relaxation of the rules for income tax earlier this year and the lifetime allowance has been scrapped. This is because the government felt that allowance was discouraging people from working because they couldn’t invest tax-efficiently into pensions.  The allowance impacted the very high earners in the country and was perceived to cause a significant loss of highly skilled individuals such as consultants in the NHS.  The idea of removing the allowance was to try to retain all those individuals in the work environment.   It is worth noting that if you die after age 75, there is no inheritance tax for policies written in trust, but your beneficiaries may have to pay income tax at their marginal rate of tax.

In all likelihood, we will have a general election at some point in 2024.  We will get a better idea of the direction of travel once the various parties publish their election manifestos. 

 

Question:  Is a life insurance policy obtained through a limited company exempt from inheritance tax? 

Answer: It is compulsory to put an inheritance policy of this type under trust so yes, it is exempt from inheritance tax.  

 

Question: Do you have any comments on the use of joint accounts for managing parents' bills, investments and savings? The joint account has increased in size in recent years due to investments maturing and also due to higher interest rates on various savings accounts. There is no power of attorney in place. 

Answer:  I think what question is relating to is perhaps assisting parents to make sure that they're keeping on top of everything and sorting payments cover bills. It’s a really tricky one to answer outright without understanding a bit more but essentially if a grown-up child was added to an account and if they had access to those funds and it is possible this would be seen as a gift for IHT. It's something that would really need to be sort of considered and actually having a power of attorney in place maybe more appropriate. It is probably worth getting both tax and legal advice on. If a savings account was made into joint names and you had access to those savings then it would be seen as a gift, so that would need to be carefully considered not to trigger any inheritance tax liability at a later stage. 

 

Question: Would re-mortgaging and releasing funds to children be a viable strategy if the assets were tied up in an investment company?  

Answer: If it’s a straightforward buy-to-let in and individuals name then that is potentially a solution but we would need to understand more about the family situation and other assets simply because there may be more appropriate things to do before we looked at this solution. Also you need to be mindful of interest rates and finding a lender. 

 

Question: if you move abroad but one of your adult children remains in the UK but you move all your assets out of the UK is this sufficient to break UK domicile status? 

Answer: A domicile of origin is really difficult to shake off. A lot would need to be considered to prove that you’re not spending time in the UK and that you don’t intend to return to the UK. There are a lot of aspects to think about. We have seen examples where individuals move to Australia, and cut all ties with the UK but then due to circumstances they return to the UK for a couple of months. Those individuals who return fall under the formerly domiciled resident rules. In short, it is possible to move abroad leaving an adult child remaining in the UK and not be considered UK domicile but being mindful that it is really difficult to displace a domicile of origin. So careful planning and understanding would be necessary. We would recommend getting some advice.  

We often see this issue in relation to tax planning. Individuals will ask about saving tax but ultimately you have to think about what is best for you as an individual in the broader sense. You might have settled assets in a tax structure in the Cayman Islands for instance, but unless you want to live in the Cayman Islands for the rest of your life then it is very likely there will be a UK tax cost if the funds are repatriated.  For instance, if you have adult children but no family support network in the foreign jurisdiction, will you want to remain abroad if you become seriously ill?   

Tax planning in isolation can come up with some great solutions but we always need to be wary of letting the tax tail wag the dog. Ultimately, we all want to live comfortable lives as long as we can with as little stress as possible and remain in touch with loved ones, which has to be considered as part of an overall plan. 

 

Question: A couple who have been together for 30 years but are not married with assets of over a million pounds, should they get married. 

Answer: Yes getting married for tax purposes is often a good idea and you can have a lovely day out. 

 

Question: Would a loan agreement between parent and child be deemed to be a reservation of benefits? 

Answer: The IHT position will depend on the circumstances. For example, if parent provided a loan to a child to help them with buying a house it depend whether or not that loan is repayable upon demand. It will potentially have an impact because the loan will be taken into account as an asset for the parents when they die. 

From a gift for a reservation of benefit perspective it would only be relevant if the parent gave the grown-up child some money (the loan) and that child then used those funds to buy something say a property for that parent to ultimately live in.  

It can be complex but how the gift of reservation of benefit rules work they would be relevant in those circumstances. We would need to have a clearer understanding about what the loan is, what the intentions of the loan are and what it's been spent on. We would then be able to consider the inheritance tax position for both the parent but also how it could potentially impact the child receiving the loan.  

 

Question: I am a british citizen of foreign origin living overseas and made a will to pass UK assets to foreign wife.....how this is viewed for inheritance tax purposes?

Answer: The location of the asset will depend on the UK IHT position. If you are not UK domiciled or deemed domiciled but have UK assets these will be subject to UK IHT in the event of your death. Each individual, whether UK domiciled or not will be entitled to the nil rate band currently £325,000. Assets passing to spouses are generally covered by the spousal exemption. However, this can be restricted to £325,000 if the spouses have differing domicile statuses. For example one spouse is UK domiciled and the other is not.  

 

Question: How does being married alter the inheritance tax paid? 

Answer: On the death of the first spouse, any assets passing to the surviving spouse will generally be covered by the spousal exemption. In addition, the first spouse’s nil rate band and residence nil rate band can be transferred to the surviving spouse if the conditions are satisfied creating a possible £1million tax-free estate. Without a marriage or civil partnership the spousal exemption will not be available and neither are the options to transfer the nil rate bands.  

 

Question: What are the typical costs of engaging your expertise …both at the start and on an ongoing basis? 

Answer: For both TaxAssist Financial Services and Tax Consulting the initial consultation is free.  

TaxAssist Tax Consulting 

For work by TaxAssist Tax Consulting, the charge is calculated on an hourly basis at rates up to £250 per hour. A formal proposal is always issued after an initial scoping call.  The current minimum fee for inheritance tax planning advice is £1,440 plus VAT. 

 

TaxAssist Financial Services  

Engaging TaxAssist Financial Services for advice on Inheritance Tax mitigation comes with varying costs depending on the nature of the services provided, the size of your investments or transfers, and whether you opt for ongoing advice. Here's a breakdown of the typical costs: 

Whole of life Insurance:  

No fees  

  

Initial Advice Fees: 

For investments or transfers up to £500,000, we charge a fee of 2.85%. 

For amounts between £500,000 and £1,000,000, the fee is reduced to 1.95%. 

For investments exceeding £1,000,000, the fee is further reduced to 1%. 

Please note that these fees apply to the initial advisory process, which includes assessing your financial situation, researching and recommending strategies specifically aligned to your objectives, and potentially coordinating investment transfers. This covers dealing with all your old providers and having multiple meetings with you and your family as required.  

For clients who prefer monthly contributions, we charge a minimum fee of £1,250 plus 2.85% of the first year's contributions. 

Ongoing Advice Fees: 

Ongoing advice fees are charged annually, typically spread out monthly. 

The standard charge is 0.87% of your total investments, but we offer reductions for larger investments, such as those exceeding £1,000,000. 

It's important to emphasize that these fees cover the cost of continued support and periodic reviews to ensure that your financial strategies remain aligned with your goals and market conditions. 

  

To put these fees in context, it's worth noting that the value added by an Independent Financial Advisor (IFA) is estimated to be around 4% per annum based on numerous studies. This value encompasses various components, including assisting with the right investment strategies, guiding client behaviours, and helping to prevent costly financial errors. 

  

Please bear in mind that every client's situation is unique, and the specific fees may vary depending on individual circumstances. Our goal is to provide you with expert financial advice and support tailored to your needs while ensuring transparency in our fee structure. We are committed to helping you achieve your financial objectives in the most cost-effective manner possible.