Your advice please

Mrs_pbradley936

I am thinking ahead now but it is about planning our finances in the event that one of us dies. The other would be very comfortable as far as finances are concerned but the survivor would be paying tax at a higher rate because the assets would be owned by one person only. Therefore would it be sensible, desirable, legal to transfer property (not family home) into the names of children or grandchildren?

I will outline my idea and perhaps someone can comment. We have
two flats currently bringing in £650 each per month they are not mortgaged. At the moment the money is paid into our joint account along with pensions etc and we have an accountant that fills in our tax details. We pay £200 every month by direct debit to the tax people and pay the remainder in January and July when we get a statement.

Could the survivor give/transfer/share this rental income? Obviously the recipient would be liable for their own increase in income tax. We will not be depriving ourselves of assets/capital because we each have a good pension as well as the family home and other assets. The idea is to reduce our own tax burden and benefit our family.

dunstonh

Therefore would it be sensible, desirable, legal to transfer property (not family home) into the names of children or grandchildren?

We dont know your scenario so cant say if its a good idea or not.

If you are happy to kiss goodbye to the property and any associated benefit that goes with it (such as rental income) then that isnt a problem. Why not think about adjusting the will to utilise your nil rate band on first death? Or is the net value of the estate on second death far greater than that?

jem16

dunstonh wrote: »

Why not think about adjusting the will to utilise your nil rate band on first death?

Would there be any point in doing that now with the IHT changes allowing the 2nd person to use all the unused IHT allowance of the 1st person?

Mrs_pbradley936

dunstonh wrote: »

We dont know your scenario so cant say if its a good idea or not.

If you are happy to kiss goodbye to the property and any associated benefit that goes with it (such as rental income) then that isnt a problem. Why not think about adjusting the will to utilise your nil rate band on first death? Or is the net value of the estate on second death far greater than that?

Yes the value of the Estate on the 2nd death would be high. So we could use the first half of the Inheritance Tax threshold on the death of the first person (£300K as of now). In other words sign a flat over to each son on the death of either of us. If by the time it happens the threshold has been used up we can still do that and so long as the survivor lives 7 years there is no tax. Am I right?

Do you have to put stipulations in your will for this? At the moment we have mirror wills leaving everything to each other. If I died could my husband give the flats away free of tax or should I say that in my will?

margaretclare

This is what you wrote in post # 1:

I am thinking ahead now but it is about planning our finances in the event that one of us dies. The other would be very comfortable as far as finances are concerned but the survivor would be paying tax at a higher rate because the assets would be owned by one person only.

So you were worried about the finances of whichever one of you survives the first to die. Fair enough, very understandable. But then you add:

Yes, the value of the Estate on the 2nd death would be high.

So you're not so much concerned about the finances of the survivor but of what happens after both of you are dead.

Quite honestly, why bother? So long as you've seen to it that whichever of you survives alone, has enough for the rest of his/her lifetime, you ain't going to be around, so what are you worried about?

jem16

Mrs_pbradley936 wrote: »

Do you have to put stipulations in your will for this? At the moment we have mirror wills leaving everything to each other. If I died could my husband give the flats away free of tax or should I say that in my will?

At the moment there are changes being made to the IHT rules. It will mean that if you die and leave everything to your husband then your husband will be able to use your nil rate band thus giving him £624,000 (your £312k and his £312k) of IHT threshold on his death. This works vice versa too. This will increase each year as it's 100% of the unused allowance and not whatever it was at the time of the 1st death.

Will this be enough? It goes up to £350k each in 2010, so £700k.

Mrs_pbradley936

margaretclare wrote: »

This is what you wrote in post # 1:



So you were worried about the finances of whichever one of you survives the first to die. Fair enough, very understandable. But then you add:



So you're not so much concerned about the finances of the survivor but of what happens after both of you are dead.

Quite honestly, why bother? So long as you've seen to it that whichever of you survives alone, has enough for the rest of his/her lifetime, you ain't going to be around, so what are you worried about?
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Well I wondered if all the assets being owned by one person and pushing them into the next tax bracket could be avoided by giving some of these assets away. That way the survivor is no worse off but any heirs would be better off. I had not thought about Inheritance Tax until I was asked about it. I had always assumed that once both of us were gone our heirs would have what we had not spent!

Mrs_pbradley936

jem16 wrote: »

At the moment there are changes being made to the IHT rules. It will mean that if you die and leave everything to your husband then your husband will be able to use your nil rate band thus giving him £624,000 (your £312k and his £312k) of IHT threshold on his death. This works vice versa too. This will increase each year as it's 100% of the unused allowance and not whatever it was at the time of the 1st death.

Will this be enough? It goes up to £350k each in 2010, so £700k.

The Inheritance Tax is really a digression because I just thought whoever was left anything would have to pay whatever was owing. My main concern was that the survivor would be paying tax as a single person on assets bringing in twice as much as they were when both had separate incomes and allowances. So if we could give away those flats and be no worse off but it would help our heirs we would consider it. I did not know if that was legal/feasible or if there were any potholes I should know about.

EdInvestor

An easier way to deal with the problem would be to sell one of the properties and invest the money in ways which produce tax free income or interest.For instance if you are basic rate taxpayers getting less than 22k a year income (each) then if you buy shares paying dividends, the divi income will be tax free. Equally interest on N&SI index linked certifiicates is tax free. You have an an annual 7,200 ISA allowance, into which the money can be fed over a period, and income from this will also be tax free.

Ask your accountant as there will probably be capital gains tax implications on selling the properties which might need to be sorted.

jem16

EdInvestor wrote: »

For instance if you are basic rate taxpayers getting less than 22k a year income (each) then if you buy shares paying dividends, the divi income will be tax free.

Dividend payments count as taxable income so it's not enough to say they will be tax free. The payments could push you over the £22k limit you talk about.

localhero

Hi Mrspbradley936,

There are 4 main issues for you to consider here.

1) IHT
2) CGT
3) The ability to retain control of your assets
4) safeguarding assets from care fees.

A possible solution is for you to update your Wills to incorporate all of the above considerations. What would be most suitable for you would be a 'flexible life interest trust' that allows you to maximise your IHT allowances, but provides flexibility to your trustees (who might be the surviving spouse/children) after the first spouse has died to start passing excess capital down to your beneficiaries.

This can be done in an IHT and CGT friendly way, whereas giving assets away now will cede control and create an immediate CGT charge.