Inheritence tax driving me mad

cococoladebt

I am trying to understand inheritance tax ("IT"), so when the right time comes, my family and I can plan for it. Below figures are to keep things simple and off course a solicitors advice will be sought when required.

I understand the property inherited from my parents will be free from IT, if they live longer than 7 years. Fine.

The property we as a family live in is worth £700k, when my parents are deceased, IT tax will be paid less their joint allowance which is £650k. So, 20k is paid (700k-650k*0.40). Fine. But what happens if the children continue to live in the property? Do we find £20k to pay in one lump sum or can the tax be paid monthly for say 10 years etc?

Is IT paid on properties held in a private limited company, which is used for business purposes i.e. rental income, and my parents are directors/shareholders? Say, total assets less liabilities is £3 million. Do we pay £1.2 million in IT? Sell off property and pay the tax man? What if, the children become shareholders and directors?

It's rather scary how much the government takes in taxes, when you are alive and dead. :eek:

jennifernil

http://www.hmrc.gov.uk/inheritancetax/paying-iht/yearly-instalments/index.htm


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

jimmo

Whilst I claim no expertise in Inheritance Tax I think you have got a couple of things wrong.
First you refer to Inheritance Tax as "IT".
It is probably fair to say that those of us who claim to know a thing or two about taxation regard "IT" as Income Tax. We refer to Inheritance Tax as "IHT".
Second if you inherit something you become the owner when the current owner dies.
So, by definition, the person you inherit from cannot survive a day, never mind 7 years after you inherit.
Your parents could gift the family home to the children now but if they continue to live there it will be a gift with reservation and still form part of their estate for IHT purposes regardless of the normal 7 year limit on gifts
I really have no idea whether you can pay IHT in instalments
As regards properties held in a private limited company IHT is based on what the deceased owned at the date of death. If the deceased owned shares in a limited company and the limited company owned a number of properties the value of the deceased's shares is very likely to represent the value of the properties owned and IHT will be chargeable.
That is a relatively simple explanation but, quite frankly if your parents own property worth £3m you are wasting your time on a forum. Professional tax planning is an absolute must.

John_Pierpoint

There is scope to give the family home to the children if the said offspring live there, presumably as their principle private residence.

This thread gives the idea a good work-over:
https://forums.moneysavingexpert.com/discussion/3395994

Payments on real estate can be spread over a number of years, provided the property is not sold of course; however interest will be charged on the outstanding amount each year.

antrobus

cococoladebt wrote: »

I understand the property inherited from my parents will be free from IT, if they live longer than 7 years. Fine.

As has been previously touched upon, presumably what you mean is that a property gifted by your parents would be free from IHT if they survive at least 7 years.

cococoladebt wrote: »

The property we as a family live in is worth £700k, when my parents are deceased, IT tax will be paid less their joint allowance which is £650k. So, 20k is paid (700k-650k*0.40). Fine. But what happens if the children continue to live in the property?

Nothing happens if the children continue to live in the property.

cococoladebt wrote: »

Do we find £20k to pay in one lump sum or can the tax be paid monthly for say 10 years etc?

Yes, you can pay IHT in installments over 10 years in respect of certain assets. Property is one of them. But only if you don't sell the asset, and HMRC do charge interest on the unpaid balance.

cococoladebt wrote: »

Is IT paid on properties held in a private limited company, which is used for business purposes i.e. rental income, and my parents are directors/shareholders? Say, total assets less liabilities is £3 million. Do we pay £1.2 million in IT? Sell off property and pay the tax man?

Effectively, yes.

cococoladebt wrote: »

What if, the children become shareholders and directors?

Well yes that's what the Grosvenors do; they roll the ownership of their private property company down the generations, in order to keep it out of IHT calculations. But as the man said, once you start playing that game 'Professional tax planning is an absolute must'; that's what the Grosvenors do.

cococoladebt wrote: »

It's rather scary how much the government takes in taxes, when you are alive and dead.

Actually given the current state of affairs, it's scary how little the government takes in taxes, whether you are alive and dead

lordbase

I agree with what Antrobus has said - if there's £3m in property in the company take some professional tax advice.

Just to add to that - if the property(ies) involved are offices or factories for trading companies it may be that they could be subject to IHT reliefs and not taxable.

If they are rental properties (commercial or residential) it's a different matter and you should be looking at ways of mitigating any IHT issues, either by passing the assets to the next generation, into trust or using IHT mitigation planning.

In relation to the Grosvenors, they probably have some hefty planning in place and I wouldn't be surprised if the shares were held outside of the estates in family trusts (probably offshore) to protect them from IHT, CGT and IT.

Drop me a PM if you want to discuss the IHT issue in a bit more detail.

Anthony