Avoiding inheritance tax by holding on to property?

wigwig

Hi there,
We are currently awaiting division of my mums estate between 4 of us, its basically k350 money, and a farm plus land, worth poss K800+, my brother seems to be of the opinion that if we retained the property once probate is granted we can avoid alot of inheritance tax by one of us electing to make it our primary home for 2 years, then selling it? I have no idea if this is fact or fiction, seems rather simplistic?
We are all new to this so would be grateful of any advice re avoiding paying IHT which we have read is 40% on anything above k624 (parents total allowance). Can anyone point us in the right direction re laws around retention of property/IHT, any loopholes which might apply?
thankyou, wig

noh

It's fiction. There are no "loopholes".
IHT is due on the value of the estate. Broadly speaking that value is the value at date of death.
More info here http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate.htm

Nigel

dzug1

There is a thing called agricultural relief though

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/iht-reliefs/index.htm

I've only glanced at it but it might help

shaven-monkey

The only way to avoid inheritance tax in this way is 7 or more years before death of the estate owner.
Fortunately, the cash inherited will cover most of the IHT on the property if one of you does wish to live there.

May be better to consult a solicitor and / or accountant at this point than rely on "bloke down the pub" advice from people like me.

simpywimpy

Living in it as primary residence would only save on capital gains tax I believe. IHT is paid on the value at probate regardless of who it goes to after that.

markelock

do as shaven monkey days. at the values you are talking about, you would be absolutely insane not to seek professional advice, potentially saving tens or hundreds of thousands of pounds.

there was (I do not know if there still is) a rule, whereby if you have the property transferred into your name, and the transferee survies for 7 years, then IHT is not applicable to the value transferred.

I never did listen in probate.

wigwig

thanks guys, looks like the only way round IHT was pre will. Just one more thing, I know that the probate value re property is usually very conservative versus market value, do you pay the IHT on that value? or do you pay IHT on the price the property achieves when sold?
wig
ps will check out the agricultrual thing too

noh

The amount of IHT paid on the property will be adjusted to for the sale price acheived.

Nigel

wishy_3

Hello
I was in more or less the same situation about 4 years ago, a farm was left to 4 of us with land and other assets with the combined total (market value) of about 850k. At that time anything over 250k was liable to 40% tax, we started to apply for probate ourselves to save money as we wanted to keep the farm in the family, but quickly found out it was a complete mine field.
We approached a solicitor who specializes in probate to take over and he saved us a fortune. First of all he got the farm and land valued by a third party for as little as he could with good reasons to back him up, then he got a lot of tax relief on the land ( agricultural relief ), this is what you should look into.
There was lots of other things he set against the tax and at the end our tax bill was around 10k, I could'nt believe it,and as a result of this I was able to buy out the rest of the family and keep the farm and had no come back from the inland revenue. I dont recall him mentioning living in it for two years and selling it, never heard that one before but laws are changing all the time.
My advice to you would be to seek experts in probate Its worth every penny, hope this helps