UK estate questions: trust, will etc

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Topic Author
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

UK estate questions: trust, will etc

Post by Wannaretireearly »

Hello,

Looking for advice for a UK family member.
Nothing is setup yet. Assets are a house bank/stock accounts etc.

We are in California and have no clue really.
Is there a govt website that has a guide on how to setup estates?

How do we pick a lawyer if needed & any guidance on getting this done?

Thanks.
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: UK estate questions: trust, will etc

Post by Valuethinker »

Wannaretireearly wrote: Wed May 24, 2023 12:30 am Hello,

Looking for advice for a UK family member.
Nothing is setup yet. Assets are a house bank/stock accounts etc.

We are in California and have no clue really.
Is there a govt website that has a guide on how to setup estates?

How do we pick a lawyer if needed & any guidance on getting this done?

Thanks.
Trusts are a specialised area.

There are opportunities to reduce/ avoid estate duty (40% on the estate above a certain level) but it needs specialised advice. Estate duty (inheritance tax) is on the estate, not on the recipients (so it will affect inheritors living in other countries).

I know of fairly expensive (but not Big 4) accountants if you PM me. They can probably also direct to solicitor (in fact, I know they can). Solicitors vary in competence & speed. You will need a solicitor to get the will done.

Then you need to appoint an executor-- named in the Will. Costs (and efficiency) vary widely. A country solicitor will be a lot cheaper than a London one. Figure it will probably cost £10k as a baseline (+20% VAT).

Property has to be sold and you are in the hands of whatever (real) estate agent you appoint. However fees are typically 1.5% so much less than North America. If the property needs a lot of work than you may wish to sell at auction - auction buyers do their survey etc as due diligence pre auction and pay the deposit on the day they win the auction. Thus you have greater certainty of sale (but the price may be lower).

Just one thing on estate duty. If you give to charity that part of the estate is not liable to estate tax. So a bit of planning around that is necessary.

And... there are a lot of schemes to reduce/ minimize estate duty (inheritance tax is the other colloquial term used). In my personal experience, they are not worth it. You wind up with illiquid situations that you cannot realise value from-- high fees, etc. It would have been better if the relation had just chucked it into an index fund, and let the estate pay the tax on the gains. "Financial Advisers" are very keen to sell estate tax reducing investments, because they pay high commission.

Unless you are talking millions in my view attempting to avoid estate tax is not worth the hassle.
cjking
Posts: 2039
Joined: Mon Jun 30, 2008 4:30 am

Re: UK estate questions: trust, will etc

Post by cjking »

Valuethinker wrote: Wed May 24, 2023 2:07 am Unless you are talking millions in my view attempting to avoid estate tax is not worth the hassle.
This is my conclusion as well. I have a spreadsheet that calculates what will be due if I die now, and it's a multiple of the sum total of tax I've paid in my whole life so far, i.e. up to early retirement age. I have plenty of incentive to mitigate it, but have no plans to do anything. If there were a good way to reduce it I would have found it.

Being sanguine is helped by the fact that the tax only works out at about 10% of everything my daughter will inherit. The contents of my pension and the first 500K of my home equity can be passed on without being subject to this tax.

This might raise the question whether it makes sense to try and reduce inheritance tax liability by favouring pension accounts for investment balances. It does, but only up to a point. For me, I've concluded that if I were to run down either my pension (tax-deferred) or non-pension (tax-free) account in order to preserve the other, it would bring no net benefit, marginal loss/gains in inheritance tax that would result are offset by marginal gains/losses in income tax liability. (In fact it is possible by favouring the pension too much to end up paying more tax overall, as some higher marginal rates of income tax are more than the rate of inheritance tax.)
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: UK estate questions: trust, will etc

Post by Valuethinker »

https://assets.publishing.service.gov.u ... 0-2022.pdf
https://www.gov.uk/probate-estate/reporting-the-estate
https://www.gov.uk/government/publicati ... turn-sa900

as a place to start.

Note. Scotland has a different legal system than England & Wales, and a different way of doing property transactions. Northern Ireland is probably different again (not sure)? So anything I say really only applies to E&W -- although Estate Tax is common to all of them.
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: UK estate questions: trust, will etc

Post by DJN »

Hi,
I have some experience as an "expat" with regards to estate tax or inheritance tax in the UK.
There are a few basic questions that you need to answer to allow anyone to help:
Is the subject a UK domiciled person?
Are they resident for tax purposes in the UK?
etc etc
Best thing is to go to the source in the first instance and start reading before you start paying for advice:
https://www.gov.uk/inheritance-tax
good luck!
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: UK estate questions: trust, will etc

Post by Valuethinker »

cjking wrote: Wed May 24, 2023 3:01 am
Valuethinker wrote: Wed May 24, 2023 2:07 am Unless you are talking millions in my view attempting to avoid estate tax is not worth the hassle.
This is my conclusion as well. I have a spreadsheet that calculates what will be due if I die now, and it's a multiple of the sum total of tax I've paid in my whole life so far, i.e. up to early retirement age. I have plenty of incentive to mitigate it, but have no plans to do anything. If there were a good way to reduce it I would have found it.

Being sanguine is helped by the fact that the tax only works out at about 10% of everything my daughter will inherit. The contents of my pension and the first 500K of my home equity can be passed on without being subject to this tax.

This might raise the question whether it makes sense to try and reduce inheritance tax liability by favouring pension accounts for investment balances. It does, but only up to a point. For me, I've concluded that if I were to run down either my pension (tax-deferred) or non-pension (tax-free) account in order to preserve the other, it would bring no net benefit, marginal loss/gains in inheritance tax that would result are offset by marginal gains/losses in income tax liability. (In fact it is possible by favouring the pension too much to end up paying more tax overall, as some higher marginal rates of income tax are more than the rate of inheritance tax.)
Yes. And although the Lifetime Allowance (LTA) has been abolished by the Chancellor, there's every chance that a new Chancellor, from a different party, will change the arrangements again.

I was crashing up against the LTA & did not foresee that it would be abolished. But I think more pension tampering is very much in prospect. It's an absolutely huge expenditure by the Exchequer, the vast majority of which falls on the most highly compensated employees -- ie people who pay Higher Rate tax or top rates of tax. Something like £28bn pa of subsidies, over half to Higher Rate or above taxpayers?
Topic Author
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

Re: UK estate questions: trust, will etc

Post by Wannaretireearly »

Valuethinker wrote: Wed May 24, 2023 3:07 am https://assets.publishing.service.gov.u ... 0-2022.pdf
https://www.gov.uk/probate-estate/reporting-the-estate
https://www.gov.uk/government/publicati ... turn-sa900

as a place to start.

Note. Scotland has a different legal system than England & Wales, and a different way of doing property transactions. Northern Ireland is probably different again (not sure)? So anything I say really only applies to E&W -- although Estate Tax is common to all of them.
Excellent, thank you so much Valuethinker!
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
Topic Author
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

Re: UK estate questions: trust, will etc

Post by Wannaretireearly »

DJN wrote: Wed May 24, 2023 3:09 am Hi,
I have some experience as an "expat" with regards to estate tax or inheritance tax in the UK.
There are a few basic questions that you need to answer to allow anyone to help:
Is the subject a UK domiciled person?
Are they resident for tax purposes in the UK?
etc etc
Best thing is to go to the source in the first instance and start reading before you start paying for advice:
https://www.gov.uk/inheritance-tax
good luck!
DJN
Thank you!! This is the start we need.
Yes, the person who needs to set this up is UK domiciled and UK resident full time. The only slight (?) complication is one of the beneficiaries is US domiciled.
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: UK estate questions: trust, will etc

Post by Valuethinker »

Wannaretireearly wrote: Wed May 24, 2023 10:41 am
DJN wrote: Wed May 24, 2023 3:09 am Hi,
I have some experience as an "expat" with regards to estate tax or inheritance tax in the UK.
There are a few basic questions that you need to answer to allow anyone to help:
Is the subject a UK domiciled person?
Are they resident for tax purposes in the UK?
etc etc
Best thing is to go to the source in the first instance and start reading before you start paying for advice:
https://www.gov.uk/inheritance-tax
good luck!
DJN
Thank you!! This is the start we need.
Yes, the person who needs to set this up is UK domiciled and UK resident full time. The only slight (?) complication is one of the beneficiaries is US domiciled.
In a similar situation (person lived in Canada not USA) there were no issues. Other than a bit of finagling to verify bank accounts and to do the international money transfer (much easier than my friend who had a local bank in the Midwest trying to wire him his inheritance -- that money got well lost for a while) there were not any other issues.

Probably there is a requirement for proof of identification of the beneficiary - ie notarisation of a passport copy or something like that (I don't remember, exactly).

Estate duty is paid by the estate before any disbursements to beneficiaries. So the residency of the beneficiary is not usually a big issue (someone in the chain will have to do money laundering checks on the money - but I assume that's done at the bank used by the estate in England).

Note that you have to estimate the value of any unsold property when you file for estate tax. Then, if the property is subsequently sold at a different value, you pay more tax (so you can't just underestimate the value), or you can reclaim tax (this takes forever, it seems - waits of over a year in some cases).

Again, unless there is a lot of money on the table, I doubt a trust would be worth it. But you need advice on that. Pay the tax, and move on. It is possible to give money to a beneficiary in advance of death, and as long as the person so doing lives another 7 years, there's no clawback. That much I do remember.
Topic Author
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

Re: UK estate questions: trust, will etc

Post by Wannaretireearly »

Valuethinker wrote: Wed May 24, 2023 11:58 am
Wannaretireearly wrote: Wed May 24, 2023 10:41 am
DJN wrote: Wed May 24, 2023 3:09 am Hi,
I have some experience as an "expat" with regards to estate tax or inheritance tax in the UK.
There are a few basic questions that you need to answer to allow anyone to help:
Is the subject a UK domiciled person?
Are they resident for tax purposes in the UK?
etc etc
Best thing is to go to the source in the first instance and start reading before you start paying for advice:
https://www.gov.uk/inheritance-tax
good luck!
DJN
Thank you!! This is the start we need.
Yes, the person who needs to set this up is UK domiciled and UK resident full time. The only slight (?) complication is one of the beneficiaries is US domiciled.
In a similar situation (person lived in Canada not USA) there were no issues. Other than a bit of finagling to verify bank accounts and to do the international money transfer (much easier than my friend who had a local bank in the Midwest trying to wire him his inheritance -- that money got well lost for a while) there were not any other issues.

Probably there is a requirement for proof of identification of the beneficiary - ie notarisation of a passport copy or something like that (I don't remember, exactly).

Estate duty is paid by the estate before any disbursements to beneficiaries. So the residency of the beneficiary is not usually a big issue (someone in the chain will have to do money laundering checks on the money - but I assume that's done at the bank used by the estate in England).

Note that you have to estimate the value of any unsold property when you file for estate tax. Then, if the property is subsequently sold at a different value, you pay more tax (so you can't just underestimate the value), or you can reclaim tax (this takes forever, it seems - waits of over a year in some cases).

Again, unless there is a lot of money on the table, I doubt a trust would be worth it. But you need advice on that. Pay the tax, and move on. It is possible to give money to a beneficiary in advance of death, and as long as the person so doing lives another 7 years, there's no clawback. That much I do remember.
Thank you for your help Valuethinker. You have such great knowledge and advice on these international topics.

I’ll take a couple of baby steps with my family member and ask questions here again as needed. Step 1 will probably be finding a solicitor that can work with family member. That will be a challenge in itself. I’ll PM if more appropriate too. I really appreciate your offers to help!! 🙏
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
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