Arrangement fees, pensions and IHT conundrums

Broker fees, stamp duty, bid/offer, CGT etc make selling shares an unattractive option. But I get your point. Just thought it's unlikely peer2peer platforms charge as high an arrangement fee as main stream brokers/banks. Perhaps they all do.

Probably the cheapest way to fund the £130k would be to substitute £200k of your share portfolio with CFDs in the same equities, utilising the cheap funding rate inherent in CFDs.  The initial margin on individual equities varies, but 10% is fairly typical so replacing the £200k in equities sold will require an initial margin of say £20k.  This would leave £180k to fund your £130k tax bill and £50k to cover future variation margins (ie you would have enough liquidity to cover a 25% fall in equity values before being forced to close positions - should be ample for a 6 month period).

The funding cost charged on CFDs by most of the big platforms is libor +250bpts, so approximately 2.75% pa which will apply to the notional long balance of £200k.  You will also suffer a bid-ask spread from selling the equity, buying the CFD and reversing these transactions - say 1% plus stamp duty and commission on repurchasing the equities say another 1%.  So the total cost would be approximately £6,750 or 5% of the £130k used for a 6 month period.  

I'm assuming that your shares are not held in an ISA, if they are, it might be a bit more complicated, but you could flow the funds/transaction through a flexible ISA which would allow you to preserve your allowances providing the funds are returned to the ISA before the end of the tax year.

The fact that one has no possibility of paying IHT out of the inheritance seems bonkers (and something I had not foreseen for my friend) but those are the rules. Additionally, the government has increased probate fees from £165 to over 8k (!) (for estates of >£1m and over 20k for estates of >£2m) just now in the budget and everyone is rushing to get it done before end of April.

www.aol.co.uk/news/2017/03/10/tory-backbenchers-warn-over-death-tax-probate-fees-hike-announ/

Criminal in my opinion. Also such high rates on IHT itself...This is money on which income taxes have already been paid. (I will make sure my kids don't have to deal with this by making provisions.)

Anyway, I have decided to just lend him the money myself as I worry he might not have all the paperwork done before end of April with all the holidays etc. 

The fees are crazy and I hope peer2peer don't cream off similar amounts as I'd envisage this will make the borrowers/businesses put off from repaying and go into admin instead. I mean paying 10k even on 100k even before interest starts to accrue seems crazy to me. The rates themselves are already punitive (12%+).

Thanks for this. I hadn't realised that this was an option. It seems it is even possible to pay IHT out of the deceased estate, if I am reading it correctly? www.gov.uk/paying-inheritance-tax/deceaseds-bank-account

My friend told me that the assets were frozen until IHT is paid in full/probate is granted. Maybe his lawyers haven't informed him properly or maybe there is a catch?

I checked with my friend regarding paying out of the deceased estate: it seems you can only do that with money in the bank account. With houses, you can defer the payments, but not with investments (which can be sold). His deceased mother was in a care home and most of her assets were in investments. He did have very expensive lawyers to advise him so I'd expect they gave him best advice possible on how to get it done quickly. It seems because he has the ability to potentially borrow, that's the route apparently HMRC want him to go down. Special arrangements with HMRC can take a long time for probate to be granted. 
I don't know, he seems financially completely incapable (that's why I was helping him).
Anyway, I have made transfers to lend him the amount and put it down to a lesson. Tax planning is something that needs to be taken very seriously.

My friend's mother had both a will and he had power of attorney since she had bad dementia (except he lost a copy at some point and had to get another thing, something from the courts, I forgot the name for it but it was the same thing, except with much more paperwork). Even with this in place, it still seems a rather painful affair (high legal/finance fees, paperwork etc).

I haven't yet decided how to approach this when I get to his age. Will probably end up divesting myself in advance (if kids can be trusted; they are too small now to know yet..). Or set up a trust (but fees are high for trusts as well).

My friend doesn't have kids but he used Octopus Inheritance tax services to try and minimize his IHT bill (you invest in qualifying companies for a relatively crappy return, I think around 3%pa or so but the main benefit is that after 2 years, your IHT liability is then 0). Of course his mum didn't make it (with only a few months to go until 2 years would have been up). I managed the part of his investments that were below the IHT threshold and that made a 30% return, fortunately (not down to my skills, just markets have been good).

So he now has a pretty big IHT bill, crappy return from octopus (who charge regardless whether the investments do what they were supposed to do), huge legal/advisor fees and frozen assets in his mum's account, with horrendous fees to borrow to pay IHT bill (not doing this now).
You can't plan for everything...(though to be fair, he barely planned for anything but the octopus route was the only sensible option at the time).