Inheritance Tax

kuksman

Hi
My friend's father has a massive property that they are trying to avoid inheritance tax on and my friend was told to open a limited company in his name and have the property transfered thereby avoiding inheritance tax. is this correct because i have a feeling they would still be paying some sort of taxes on this?

exil

Capital gains tax, and possibly IHT as well if dad passes away within 7 years. Sorry, there's something else - could be held to have deprived himself of capital if he needs to go into residential care later on, and wants the Local Authority to pay for it.

kuksman

Thanks very much for that, so what would be the best advice to give my friend to minimise tax.

pchelpman

Let's get this straight.

If the asset triggering IHT is the the residential property in which the owner lives there are NO easy fixes. I agree with exil .... the idea posed in post 1 to this thread is utter nonsense. Not only are there troubles as exil outlines but there are heaps of others. Just don't do it.

My advice is to go to a tax qualifed professional and get specific tailor-made advice for your situation.

A member of either/both the CIOT or ATT should be able to help you. Links here....

CIOT > http://www.tax.org.uk/

ATT > http://www.att.org.uk/

Hope you find an answer.

kuksman

Thanks very much, please tell me if this is right, the residential property is at around £650,000 and registered on just the dad's name. I was thinking the property could be put on both parents name so there would be two inheritance nil band rate to use. Also what if a charity organisation is set up and the property is transfered to it.

reddevilled

kuksman wrote:

Thanks very much, please tell me if this is right, the residential property is at around £650,000 and registered on just the dad's name. I was thinking the property could be put on both parents name so there would be two inheritance nil band rate to use. Also what if a charity organisation is set up and the property is transfered to it.

Sounds to me like you've been listening too much to people down the pub! If your mate's dad is serious about some tax avoidance strategies tell him to shell out the money on some professional advice from a CTA qualified.

There are a number of ways around paying IHT in this situation but they are both far too lengthy and risky (if people don't follow the exact advice) to post on a message board!

margaretclare

kuksman wrote:

Thanks very much, please tell me if this is right, the residential property is at around £650,000 and registered on just the dad's name. I was thinking the property could be put on both parents name so there would be two inheritance nil band rate to use. Also what if a charity organisation is set up and the property is transfered to it.

The idea of putting the house into both names as 'tenants in common' helps with inheritance tax.

Transferring it to a charity would come under the heading of 'deprivation of assets' as previously explained.

The house can't be used to fund care home fees as long as one of the spouses is still living there.

I am a bit gobsmacked by this question. Dad has a property worth £650K and he doesn't want to use this huge amount to fund care home fees (should these become necessary)? So he wants to get rid of it all and let the fees be paid by the state - the taxpayer, that's you and me? Just tell me - why my taxes should go towards this???

Aunty Margaret

margaretclare

Paul_Varjak wrote:

To be fair, the OP makes no mention of avoiding care fees - just avoiding IHT.

You're right, Paul. Care fees were mentioned in exil's post, not the OP's.

Well, surely there are experts who have IHT planning at their fingertips. But as has been said, you have to 'shell out' to get expert advice tailored to the client's own situation. There seems to be a lot of nonsense talked - setting up a charity or a limited company. You really do need the experts and you need to be willing to pay to save money ultimately!

Aunty Margaret

deekmcc

If he puts house in both his & wifes name then no IHT would be payable on first death but it would be on second death.

No sure fire way to avoid IHT although he could gift house to someone but this runs at a sliding scale of tax payable up to 7 years , my advice is to take out a Whole of Life policy for the amount of IHT which would become payable on death , this avoids beneficieries of paying the tax but the taxman still gets his dough.

Make sure you take independant financial advice & best speaking to tax specialist to make sure you get proper advice.

Don't take my word for it as every individuals needs are different so better getting specialist independant advice but hope this helps.

elliebean_2

Please think carefully before giving away your property. Apart from having to live another 7 years in order to avoid inheritance tax, gifting the house to someone has other pitfalls if you continue to live in it. In this instance it isn't a "gift" in the true sense of the word unless you pay a reasonable rent. Another obvious pitfall is losing control of your home, and what if you fall out with the person you've given it to? Also, if the person you give it to becomes involved in divorce or bankruptcy, your house could be considered one of their assets in any legal proceedings. If the person you gift it to dies before you, it will be treated as part of their estate and go to their beneficiaries, either by Will or the laws of intestacy.

On the other hand, if he transferred the property into his and his wife's names as tenants in common they could then set up Nil Rate Band Discretionary Trusts with IOU provision in their Wills as discussed here

This could save a potential £220,000 in inheritance tax. But they must seek professional advice as it is very complex to draft.

HTH

margaretclare

This whole IHT thing comes up time and again, and a lot of it can be based on 'talk down the pub'.

Have a look at this if you're really serious about wanting to find out:

http://www.ybs.co.uk/savings/retirement_choices/inheritance_tax.jsp

Thank God it's not something I have to worry about!!

Aunty Margaret