Inheritance Tax

blackshirtuk

Can any of you experts help me clarify a few things with regard to IHT?

As I understand the current threshold is £325000 per person (£650000 for a married couple)

also that a "business" can be transferred IHT free for certain businesses.

So if my house is worth £650K and we both die and all other assets tied up in a "business" there would be no IHT to pay.

Is my thinking correct and what exactly can be classed as a business in this example as i believe only certain business qualify but i can't find out which or what the business structure should be, LLP , limited etc

Any information gratefully received

Thanks

jimmo

http://www.hmrc.gov.uk/cto/customerguide/page16.htm#i

blackshirtuk

Thanks Jimmo

I was hoping for a little more detail, or interpretation as the HMRC don't give clear examples.

jimmo

I'm definitely no expert on Inheritance Tax but, perhaps because I am used to HMRC language on Income Tax and Capital Gains Tax, I thought that the explanations in that link I posted were pretty clear. So I am struggling to understand what you are looking for.
Do you care to give a bit more detail?

blackshirtuk

Thanks again Jimmo!

Questions are really about the business property definition.

eg I understand a newsagent occupying and owning a building would qualify

What about a company whose business was renting houses/commercial property but also owning the said properties. would this qualify and what form would this business have to take. partnership, LLP, ltd etc

How about a development company that buys propery does them up and resells, at point of death would the properties in the process of being done up qualify for BPR

What consists of a holding company? One that receives income from properties but doesn't actively manage them?

I know that this is a bit technical but I am trying to decide the best way forward with regard to IHT, hopefully something my children wont have to worry about for a good few years yet. I understand that this relief could be withdrawn at any time but am exploring all possibilities at the moment.

My father recently died and it has somewhat focussed my thoughts after having to send the taxman a rather large check on money my father had worked hard for and paid tax on already. If there is a way to legally avoid my children having to give away some of their futer to the taxman I waqnt to find it!!

jimmo

I really must emphasise that I claim no expertise in Inheritance Tax but as no-one else has joined in yet here are my thoughts.
If you look again at the link I posted as my first post look at:-
On what type of business can I not claim relief
You will not be able to claim relief if the business is engaged wholly or mainly in dealing in land or buildings.
That, to me, blocks all your ideas and it really would not matter what business format you used, sole business person, partnership or company but to address your specific points.
A company that owns and rents out property will actually own the properties in question, not you. So you would definitely not be able to claim business relief on properties you don't own. You will not be able to claim business relief on your shareholding because the company's business is wholly or mainly dealing in land or buildings.
A development company will again own the properties in question, not you. That company's business is again, dealing in land or buildings and your shareholding will not qualify.
A Holding company is basically a company which owns a number of other companies so that you might be the sole shareholder in Blackshirt Enterprises which owns Blackshirt Rentals and Blackshirt Developments.
If you wanted to claim business relief on your holding of Blackshirt Enterprises it would be necessary to look through the holding company to examine the group's activities and, your claim would fail again.

blackshirtuk

Thanks so much for your thoughts. They have helped me understand a little more clearly!

However, I guess i don't like the result! Why is a property busines classed seperately? (sorry not asking you in particular Jimmo just venting really)

ok , how about a hotel, company owns building and runs the business so should qualify. or am i lost again? B&B? Or is that letting?

jimmo

In my world of Income Tax and Capital Gains Tax they key phrases are “trading business” and “non-trading business”.
I find those much easier to understand than the Inheritance Tax wording but there are clearly similarities and differences.
In Income Tax property letting is non-trading but property development is trading.
However Hotels and B&Bs are trading a service to their guests including food, cleaning etc as well as temporary residence.
Also, legally, their clients occupy under licence, not under a tenancy or lease but whether, or how, that effects Inheritance Tax is beyond me.

blackshirtuk

Thanks agai Jimmo!!!

Your knowledge has been so beneficial to me!!!

I think I get it now! 1 final question, if i may?

If I understand correctly I could own a hotel and that would qualify, but if i owned a company that owned a share in several hotels that wouldn't qualify as the company is not trading anything.

Feel free to just give a Correct/incorrect answer as you have already given me so much help.

Thanks again.

jimmo

Whilst I think I know where you are coming from, when you start playing with red tape you really have to be precise in thoughts and language. Otherwise you will perish.
If you own and run a hotel you will certainly be regarded as trading for Income Tax purposes.
If you own a hotel and let it to an organisation which runs it as an hotel then you are not trading. You are letting property.
If you are the sole shareholder of the organisation which runs it as an hotel things might be very different.
I hope you have noticed that on this forum there are quite a number of regular posters who are accountants and IFAs who give very good advice. There is also a fairly regular influx of new professionals who specialise in boasting how wonderful they are and how rubbish HMRC is.
Nobody is joining in here.
In very basic terms taxation started off with simple rules and clever people finding ways around those rules. The rules were changed and even cleverer people found ways round them.
Nowadays people will only find ways around the rules if they are prepared to spend absolute fortunes on professional advice.