10% Rule, am i missing something

[Daydream believer]

That's good, Your son will be taking you as long as you want to go sailing. On the original thread, will the liferaft service and new Code Zero take you over the 10%?

I think that the new engine took me well over it in 2023 but the wife paid for it, so do I do not count that?
Generally I am running at 26% of the base cost, when I bought it new in 2003 If one took the cost of a current model Hanse 31 then we would be back to nearer 10% as my boat new was circa £55K in 2003. I bought it when the £ was high against the euro & negotiated a decent discount. It goes up & down but I do like decent sails, new ropes, rigging etc. & have changed my electronics 3-4 times. This LR is the second & is inc. But I keep a very accurate spreadsheet of every job I do & the cost.It is something of a hangover from my work. It also includes marina fees when I go elsewhere, as well as sundry items like clothing, club fees etc even tips.. It does not inc food & drink when away, which I offset against generall living expense. It does include some small running expenses for our launch- insurance & mooring fees-, which is pretty low & is shared with a friend.

If I sell the boat I will have a full list of the works done & when, along with invoices for the major parts, for any new owner.

 

[SaltyC]

Yup you'll still get the bills - especially if your kids are involved - but just transfer 100% of the asset, preferably with signed and dated evidence of transfer .

Once any asset/pile of cash/whatever has been out of your ownership for 7 years it's no longer considered part of your estate and as such there's no longer any IHT liability.

Only 9 months to go!!

 

[Snowgoose-1]

The trouble is that one day you are going to have to stop. That may be nothing to do with money. What will you do then?

I have a 100' rear garden that resembles a meadow . I plan to learn how to be gardener . Greenhouse the lot.

Still steady on my feet though so more nautical mileage to go yet. Still get a buzz under sail.

As they say, happiness is internal rather than external.
.

 

[Daydream believer]

Only 9 months to go!!

But HMRC will want details of any transfer when made & will be looking for any intermediate share that they can take on gifts

 

[Tranona]

I’m always confused by IHT.....don’t couples leave their entire estate to their spouse?

If only it were that simple. passing from partner to partner only delays the payment to when the survivor goes. The 7 day rule though applies to individuals so if giving away a couple has to gamble on who will survive the longer after the gift - and the gift must come from funds which clearly belong to the person gifting.

 

[ducked]

Often instructive to consider limit cases.

My boat, abandoned for about 5 years, was advertised as free.
10% of free is nothing
Clearly it will not cost nothing to put back into service or to run.

 

[Gurrig]

You won't count the cost when you are dead

 

[Bouba]

You won't count the cost when you are dead

Although the boat will continue to accrue costs even after you die

 

[Daydream believer]

You won't count the cost when you are dead

Who said anything about dying?

 

[SaltyC]

But HMRC will want details of any transfer when made & will be looking for any intermediate share that they can take on gifts

Registered as owners from purchase

 

[Sailing steve]

I’m always confused by IHT.....don’t couples leave their entire estate to their spouse?

If only it were that simple. passing from partner to partner only delays the payment to when the survivor goes. The 7 day rule though applies to individuals so if giving away a couple has to gamble on who will survive the longer after the gift - and the gift must come from funds which clearly belong to the person gifting.

I think you mean 7 years not 7 days. That works on a sliding scale called taper relief which applies IHT to a gift - if applicable in the first place - at 100% in the first three years which then drops down to 0% after a full seven years have passed.

Gifts from capital up to £3k per year per person are exempt and so are gifts of any amount made from surplus income provided those gifts don't compromise the givers standard of living and the giver can clearly demonstrate that's where the gifts came from.

I believe IHT allowances work like this.

If the first partner leaves their estate entirely to the second partner then their IHT allowance is considered unused and on the second partner's death the first partners unused allowance can be added to the second partners.

Currently the IHT allowance per person is £325k, so on the second death there is a potential total allowance of £650k on the estate.

If the first partner uses some of their allowance with gifts outside the partnership the value of those gifts is removed from their allowance expressed as a percentage of the allowance and the remainder can then be applied as that percentage of whatever the allowance is on the second death.

There is also a further allowance on the principal residence left in an estate of £175k meaning up to £825k of an estate could be potentially exempt from IHT liability.

I understand any assets in Trusts or life policies are exempt too.

 

[Stemar]

Someone I knew died recently. His boat is on a mooring and hadn't moved for nearly 20 years except for the time it almost sank, but he was always going to fix it up and use it again. If he'd sold the boat years ago, he would have got something for it, but in its present state, the best those now lumbered with it could hope is to put it on eBay for £1 and hope they find a mug an optimist.

I hope I'm smart enough to sell our boat before I, and therefore it, deteriorate too much.

 

[Daydream believer]

Yup you'll still get the bills - especially if your kids are involved - but just transfer 100% of the asset, preferably with signed and dated evidence of transfer .

Once any asset/pile of cash/whatever has been out of your ownership for 7 years it's no longer considered part of your estate and as such there's no longer any IHT liability.

But will you not have to prove that they paid all the bills, marina, insurance etc etc

 

[Tranona]

I think you mean 7 years not 7 days. That works on a sliding scale called taper relief which applies IHT to a gift - if applicable in the first place - at 100% in the first three years which then drops down to 0% after a full seven years have passed.

Gifts from capital up to £3k per year per person are exempt and so are gifts of any amount made from surplus income provided those gifts don't compromise the givers standard of living and the giver can clearly demonstrate that's where the gifts came from.

I believe IHT allowances work like this.

If the first partner leaves their estate entirely to the second partner then their IHT allowance is considered unused and on the second partner's death the first partners unused allowance can be added to the second partners.

Currently the IHT allowance per person is £325k, so on the second death there is a potential total allowance of £650k on the estate.

If the first partner uses some of their allowance with gifts outside the partnership the value of those gifts is removed from their allowance expressed as a percentage of the allowance and the remainder can then be applied as that percentage of whatever the allowance is on the second death.

There is also a further allowance on the principal residence left in an estate of £175k meaning up to £825k of an estate could be potentially exempt from IHT liability.

I understand any assets in Trusts or life policies are exempt too.

Yes, 7 years.

I know how it works and we are using the the annual limits in anticipation of the new rules actually coming.. Both parties get the residence relief so the total is £1m. There are other exemptions, for example gifts to charity. Trusts are not as easy as they sound. First you have to survive 7 years but more importantly they have a cost to set up and manage so really only useful if your estate is potentially worth well over the notional £1m.

As I suggested the challenge is trying to predict what the survivor's estate might be worth given the uncertainty about future care costs on the one hand (easy to get though £100k in 2-3 years), value of property and investments and possible future changes in rules.

 

[Bouba]

If we can’t argue to the taxman that a boat is a liability not an asset then we haven’t been following the forum closely

 

[Sailing steve]

But will you not have to prove that they paid all the bills, marina, insurance etc etc

I don't think so.

Provided you'd made a gift of the boat itself "without reservation" it wouldn't matter who paid the ongoing bills, either you could do so yourself or give money to the kids so they could pay them.

Either way paying those boat bills is no different to helping out with mortgage payments or school fees or treating everybody to a family holiday or paying for sports or music tuition for the grandkids. Providing of course those payments come from your income and not out of your capital.

It's your income after all and it's up to you how you spend it. The only IHT liability that occurs would be if you gave the boat or anything else for that matter away or made cash gifts from capital and snuffed it before seven years were up.

 

[SaltyC]

I don't think so.

Provided you'd made a gift of the boat itself "without reservation" it wouldn't matter who paid the ongoing bills, either you could do so yourself or give money to the kids so they could pay them.

Either way paying those boat bills is no different to helping out with mortgage payments or school fees or treating everybody to a family holiday or paying for sports or music tuition for the grandkids. Providing of course those payments come from your income and not out of your capital.

It's your income after all and it's up to you how you spend it. The only IHT liability that occurs would be if you gave the boat or anything else for that matter away or made cash gifts from capital and snuffed it before seven years were up.

Navigating IHT is like sailing uncharted waters, there are 'rocks' everywhere.

My understanding is, taper relief ONLY applies to gifts over £325k - your allowance. Up to the 7 years smaller gifts IF you pass away before 10 years are subtracted from you allowance (£325k). Heads HMRC win, tails you lose.

 

[lustyd]

The two aren't related. Taper relief is applied and then the remaining total is assessed for tax and allowance. HMRC are extremely simple with how they operate, and very open to discussing and explaining.

 

[Sailing steve]

Navigating IHT is like sailing uncharted waters, there are 'rocks' everywhere.

My understanding is, taper relief ONLY applies to gifts over £325k - your allowance.

I believe taper relief applies to any gift no matter what the value.

After all, if it didn't then you could give away multiple amounts of £324999 without incurring any IHT liability.

But yes, rocks everywhere - so best get advice from an expert and not somebody on the internet.

 

[Egret]

YouGov says only about 4% of people have to pay inheritance tax so probably academic for most of us.

- back to the 10% - cost of running a boat more related to where you are and mooring costs - Our change to a boat worth 5x as much made very little difference to running costs as moorings and yard fees are by length so only a bit more. Lift in-out and engine servicing similar price.

Will be similar for the OP's options - running costs won't necessarily be directly proportional to boat purchase costs. Skipperfelice worked out some typical costs.

10% probably a good start - but size and value of boat that the 10% applies to probably depends on whether you are paying £500 or £10.000 per year for mooring and winter storage - so for a high value boat may be a lower proportion but there will also be more depreciation.