Children and Inheritance Tax?

Micah · 12-09-2006, 03:06pm

Anyone know what the rules are?

I have had a will drawn up which will tie all my assets (our house, savings etc.) up in trust to care for C until she reaches 25.

There is a clause which states DH is entitled to live in the house rent free as long as he wishes. He can sell up and buy another property if he wishes, but the capital must remain in C's name.

It has just occurred to me that the house is over the inheritance bracket, so there will be 40% tax on anything above this (which will work out as quite alot), and will scupper my plans to leave the house mortgage free for DH and C.

If she is underage when she inherits will the tax still be applicable? Should I take financial advice from someone?

aaargghh...I thought I had my head round this...

**Strawberry Bivi** · 12-09-2006, 05:23pm

Yes, even if she is underage the tax will still be payable. You can get round this (sort of) by taking out a life assurance policy written in trust so that she, not your estate, is the beneficiary. That way you can pay the tax bill should it arise.

You need to take advice as the trust situation is up in the air at the moment too.

I think this situation is morally wrong, when people try to provide for their children to stop them becoming a burden on the state and are penalised for doing so. I don't think inheritance tax should be payable on the average 3-bed semi, which it is in many areas at the moment. A house is not "wealth" it is somewhere to live for most ordinary people.

Micah · 13-09-2006, 09:27am

Cheers for that, the whole IH tax lark hadn't even occurred to me- I thought I was being really clever getting everything organised will wise

.

Should I see a financial advisor or go back to the solicitor who wrote the will?

I have two life insurance policies... one to pay off the mortgage, which DH is the beneficiary, so no IH tax, although we have an agreement that this will be used to pay off the mortgage if anything happens to me so will go straight back into C's name, iyswim. I have another tied up with an endowment policy which is so old I had no dependants at the time, so will presumably be paid to my estate and be subject to IH tax? Without tax it may be enough to pay the IH tax on the house.

Will IH tax be my estate minus the mortgage? If so that may bring us just under for now, but I will need to look into it fairly soon. I don't want them having to sell the house to pay IH tax!

Thanks again!

**Velvet Chain** · 13-09-2006, 10:11am

I'm sorry Micah I can't answer your questions - I just wanted to say that it is about time they really increased the threshold for inheritance tax - house prices are so high now, nearly everybody is over the threshold with house prices only let alone life insurance.

I hope you find a way around it Micah.

VC

**Strawberry Bivi** · 13-09-2006, 12:04pm

You need to see a solicitor, preferably one who specialises in tax planning, especially if you want to do a trust for your current child and future as yet non-existent children because Gordon Brown has just made this a lot more complicated/impossible.

The tax will be payable on your estate minus outstanding mortgage and other liabilities.

**sandypaws** · 13-09-2006, 08:45pm

I had a discussion with our probate Solicitor today on this topic basically you should be able to put the house into a broad discretionary trust which should mean that inheritance tax isn't payable.

You will have to pay for the tax advice and probably will need the will re written but it will be worth it for peace of mind.

With regards to any life insurance policies if you contact the insurer they should be able to send you a form to complete to leave the money in trust for your LO.