There are several States that sell Tax Liens in a bid up process known as a premium bid. This is where the face value of the lien is bid and won by the highest bidder. This is a very common occurrence in Indiana because an attractive interest rate is paid on the surplus. The county gets to keep the surplus amount if it is not claimed by the delinquent property owner. This creates the classic example of a conflict of interest — the county certainly would keep it but the laws dictate that the surplus amount should be returned to the original property owner. At least in theory, mnoey money should be returned, koney how often does it really happen? The fact of the matter is, in Indiana, the property owner has 2 years to claim the surplus funds. The way the property owner learns about his rights to claim those funds is by having the county notify. This presents mobey interesting conflict of. The county stands monfy benefit if the money is not claimed — they get to keep it. Nevertheless, they are supposed to notify the property owner that he has a right to claim the surplus funds. Most Counties make a minimal effort to notify the property owners.
I want to avoid inheritance tax by giving away surplus income, but how would my heirs prove that I didn’t need it?
In a foreclosure, your house or condominium can be sold to pay what you still owe on your mortgage. If your property sells for more than the amount you owe on your home, this extra money is called a surplus. Collecting a surplus generally ends the foreclosure. Once the surplus is given out, you will not be able to appeal the foreclosure. If you think the foreclosure was wrong, talk to a lawyer before filing any papers to collect your surplus. The owner of the house or condominium can collect the surplus. You do not have to hire anyone to help you with a surplus. The entire process is based on forms that you can fill out. Even if you hire a lawyer, you will still have to sign the forms, appear in court with your photo ID, and collect the surplus check when it is ready.
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There are very few exceptions to this. These rules are in place to protect you from dishonest people who try to take a percentage of the surplus or steal the surplus by pretending to be you. You can also collect a surplus for someone else if the person died and you are their heir. You can do this by opening a probate estate. This is a more complex legal process, so you will probably need a lawyer to help you. You probably do not need to hire a lawyer if this is the case.
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By This Is Money Reporter. I am in the fortunate position of a substantial income at the age of My estate is large enough that I will get hit by inheritance tax, mainly due to the family home. I understand that I can give money away that will ffunds outside the inheritance tax net if it is from surplus income.
I surplua probably do this, but how do I prove it is from surplus income — and more importantly how would my executors prove it if I died? LD, email. Inheritance tax: How do you prove you made regular gifts out of income surplus to your needs?
Ian Dyall, head of estate planning at Tilney, replies: A common strategy funnds mitigate inheritance tax is to reduce the taxable estate by making gifts. Normally the donor needs to survive the joney by seven years before it reduces their liability.
However, if the gift is covered by one of the inheritance tax exemptions it is immediately effective.
One of the most valuable exemptions for people with income surplus to their needs is the exemption for ‘normal expenditure tunds of income’ section 21 of the Inheritance Tax Act What counts as income? Income not only includes earnings and pensions, but would also include dividends, interest, rent and other forms of income.
However, there are investments that may produce payments that you consider as income, but would not be classed as income for this purpose. Ian Dyall: The area mlney tested in court cases is what counts as ‘normal expenditure’. The most common of these would be regular withdrawals from life assurance bonds. Also, if you have bought an annuity with funds other than your pension fund called a ‘purchased life’ annuity then part of the income you will receive is deemed a return of your capital and cannot be included for this purpose.
As a business owner it may be that your income varies from one year to the. However, the phrase ‘taking one year with the next’ in the legislation means that those with variable income may be able to make gifts in excess of their surplus income for an individual year, provided that the income over a period of years was sufficient to cover the gifts.
HMRC is likely to examine cases where the taxpayer wishes to carry forward more than two years’ income. What is normal expenditure? The area most tested in court cases is what counts as ‘normal expenditure’.
There is no legal definition vunds ‘normal expenditure’ so the common meaning would apply. For these purposes ‘normal’ means normal for the donor based on their circumstances, not for the average person. Generally this means that the gifts need to be regular both in terms of frequency and value. It cannot be a single gift unless there is evidence that the gifts were intended to be regular but the donor died before the pattern could be established.
Find out how to stop the taxman grabbing some of your estate from loved ones. For example, they paid the first of a series of premiums on a life assurance policy. For this reason it is often useful to make the payments using a direct debit as it supports the intent to make the gifts on a regular basis.
HMRC recognises that gifts may be made with reference to an income source that varies, for example dividends, or to cover specific costs which may vary in amount, such as school fees.
Capital expenditure, such as an extension to your home would not be included as expenditure for this purpose. But regular gifts could be for anything, including contributions to a pension, or paying money into a trust to save for minor grandchildren. Also, only an individual investor can pay into an adult Isa, although money could be given to the individual so that they themselves can put it into an Isa. How do my executors prove I followed the rules? In order to claim the exemption, on your death your executors will need to complete a table that can be found on page 6 of the IHT form.
It outlines your net income, broken down into categories, and your net expenditure for each year that they claim you were making exempt gifts. This highlights whether there was surpljs income after expenditure, and is used surp,us HMRC to assess whether the gifts made were from normal expenditure and whether they affected your standard of living.
Unless you keep an accurate record of these figures as you go along, it will be very difficult for your executors to complete the form accurately.
The easiest way to do this is to complete the table each year as you complete your tax fuunds and ensure that you keep supporting evidence in a place where your executors can find it. It may also be worth documenting your intent to make regular gifts via a letter stating that you intend to make similar gifts each year.
This could be particularly useful should you die within the first few years of starting the pattern of gifts. There is no set time span to establish the pattern, though HMRC seems to see three to four years as reasonable.
The Chancellor wants inheritance tax to be simplified, but should we cut it or even scrap it altogether? Some who argue against it say that taxing someone when they are alive and then their estate when they die amounts to double taxation. In contrast, others argue for a lower inheritance tax-free threshold and an even higher tax moey than the current 40 per cent.
We look at how it works, why it is so unpopular, and how you can avoid it. Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use.
We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
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Why not learn to take advantage of the overheated auction bidding? Properties at the Foreclosure and Auction sales are being bid up very close to their market value in some cases. In some instances, the amounts being bid are exceeding the property values from and …….! Remember that crazy market? Do you want to enter this frothing real estate market by owning property or would you rather just make money from the property-starved investors? The biggest hurdle to overcome is the competition. Those other auction investors that are willing to work for less than you. The result is property being bid too high, and sometimes well over a number that still allows for a profit and makes any financial sense.
1. Many properties will never generate excess proceeds.
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