Inheritance Tax Planning

1connect

So you own your own home and want to give it to your children to give them the best chance in their life, fine so you do IHT planning and that’s it - job done , err well not quite, if you live to be a ripe age and say are the only surviving partner, and if you become unable to care for yourself, say you had Alzheimer’s or similar then should social services could step in and slap you in care for your own good, furthermore they can sell your house and use the proceeds to fund your care. so anyone wanting to avoid the ultimate in stealth taxation should be aware of this and plan accordingly, and in good time, this is achieved by giving the property to your children whilst you are still alive however it must be done 7 years prior to you going into a care situation. its an important point not to overlook.

john_42

Hi, can anyone help on this one.... My mother is passing on a piece of land to my brother, sister and myself that was left to her in my grand parents will this year, the land was valued in their estate at £40k the total value of the estate was 1.8 million.

We am planning to apply for planning permission for about 9 building plots on the field and we are concerned at the tax or inheritance implecations to us or my mother as the land was only valued at £40k. Assuming the plots would sell for about 100k each that would make the fiield worth 900k, does this mean we aould have to pay 40% inheritance on the difference between the origional valuation and the price we sell it for with planning permission?

The other option was to build three houses and myself and my brother and sister to live in them and sell at a later date.....what are the implecations of this?

Can anyone give me any advise or point me in the right direction as to the best way to avoid paying any extra inheritsnce tax or does anyone else have any experiance of this?

koru

JeanieR wrote:

My mother is a widow (my father died in mid-1980s) and owns a property worth £1.2M (in London). Many years ago (late 1980's) my brother and I were made joint tenants of the property. My mother has been living in the property on her own since my father died, using a couple of rooms in the property to run a business (letting holiday flats).

In the past she has paid us "rent" on the advice of a solicitor, once a year (not completely consistently every year) but perhaps not at the correct market value - she has just made a rough guesstimate.

Please can anyone advise in broad terms what we would be liable in terms of inheritance tax and CGT on the death of my mother. We would probably intend to rent out the house rather than sell it after that, so we would also need to know if CGT would be liable only if we sold the house. Also if there is anything we can do to minimise the IHT/CGT we would be grateful to know. If we need to get specalist advice, can anyone advise a good solicitor for this?

I am puzzled. If your mum owns the property and you are officially the tenants, why is she paying you rent? Ideally, she would have given you the property, so you are the owner. If the gift was more than 7 years ago, this would be outside the IHT net, subject to anti-avoidance rules.

If she still owns the property, then her estate would probably suffer nearly £400,000 of IHT, so I would suggest that you have a lot to lose if you don't get your IHT planning right. I would suggest that you get some legal advice, pronto. It might cost a bit, but if it could increase your inheritance by £400,000, I think it would be well worth it.

As for who to use, try looking for IHT specialists on the CIOT website, here:
http://www.tax.org.uk/showarticle.pl?id=160&n=350

koru

john_42 wrote:

Hi, can anyone help on this one.... My mother is passing on a piece of land to my brother, sister and myself that was left to her in my grand parents will this year, the land was valued in their estate at £40k the total value of the estate was 1.8 million.

We am planning to apply for planning permission for about 9 building plots on the field and we are concerned at the tax or inheritance implecations to us or my mother as the land was only valued at £40k. Assuming the plots would sell for about 100k each that would make the fiield worth 900k, does this mean we aould have to pay 40% inheritance on the difference between the origional valuation and the price we sell it for with planning permission?

The other option was to build three houses and myself and my brother and sister to live in them and sell at a later date.....what are the implecations of this?

Can anyone give me any advise or point me in the right direction as to the best way to avoid paying any extra inheritsnce tax or does anyone else have any experiance of this?

How was the £40k value arrived at? If there was the latent potential to apply for planning permission and have land worth £900,000, it sounds to me as if the value should have been higher.

Maybe it does not matter, because you are either looking at extra IHT or you are looking at capital gains tax on the gain. Either way, you are looking at a big wedge of tax, so get some proper advice, pronto. Don't rely on amateurs like me, when you might have £300-400,000 tax at stake.

john_42

The field was valued at 40k by an agent appointed by the solicitors of the will, it was valued as grazing land as at the time the field was used to as stabling for a horse. I have heard that if they valued the field incorectly and we get hit for tax at a later date we we can seek compensation as the field was incorrectly valued??

1connect

2 questions, advice welcomed.

1) If a married couple own 2 properties and they get divorced and decide to split amicably and take over 1 propery each , does this avoid CGT as each propety becomes the main residence for each person?
Is this a possible way of avoiding CGT on property 2.

2) If they want to buy a holiday home, but want to avoid CGT on this can they declare the home as the main residence of a their child who is 14 but fund it though a loan in their name anyway? (or do they have to wait until they are 18)

Are there any other ways of avoiding CGT on the second home and the 3rd property holiday home (which is not bought yet)

koru

1connect wrote:

2 questions, advice welcomed.

1) If a married couple own 2 properties and they get divorced and decide to split amicably and take over 1 propery each , does this avoid CGT as each propety becomes the main residence for each person?
Is this a possible way of avoiding CGT on property 2.

2) If they want to buy a holiday home, but want to avoid CGT on this can they declare the home as the main residence of a their child who is 14 but fund it though a loan in their name anyway? (or do they have to wait until they are 18)

Are there any other ways of avoiding CGT on the second home and the 3rd property holiday home (which is not bought yet)

Here's what I think (remember, this is amateur comment).

1) It would avoid CGT on any gains after the property became the main residence, but not prior.

2) Have a look on the HMRC website to check, but I doubt you get a Principal Private Residence exemption until you are 18. (Or maybe the gain is deemed to be the parent's.) I also doubt that you can just nominate which property is your PPR. If you principally reside in property 1, you probably can't claim that your PPR is the holiday home in which you spend a few weeks per year. But I am just guessing.

As for other ways to shelter the properties, find a good tax adviser. Unless it is a very cheap holiday home, CGT could be a very large sum of money, so it would be worth spending a few thousand to help avoid paying it.

scottishterrier

My widowed friend is approaching her 80th birthday and thinking that transferring ownership of the house which she and her son live in would help reduce IHT. I pointed out that she would have to survive 7 years after the transfer for it to be any use, this is from general knowledge watching programmes like "working lunch" etc. Is this the case, can anyone relate a similar situation? who has had advice on the matter? Her son is divorced with two sons living in another part of UK. She threatens that he musn't then go under a bus etc. to complicate matters before she dies!! Is she complicating matters? she is sure her estate will top £275,000.

inca1

I am a single mum with an estate in excess of £275K how can I protect my daughters inheritance - and avoid paying inheritance tax

sneekymum

Real Assets? or potential due to life insurance?