inheritance tax help please

puffle1

Hi,if anyone could help I would appreciate it.

My parents are trying to sort out inheritance tax implications at the moment and would like some advice on how to proceed.

Bit of background,they are both in their early 60's + due to my dad having a good job abroad have built up a small porfollio of rental properties.
They have 5 rental properties worth approx £830,000 which are all rented out bringing them in an income of @£3200(which tax is paid on)a month,all in mams name,they also have the house they live in(mortgage free + in both names) worth @£150,000,so a total of @ £980,000 in properties.
They also have about £100,000 in savings + £35,000 in isas + my dad is still working on a good wage so savings increase monthly,

We understand that individual inheritance tax is £325,000 but the exemption doubles in respect of married couples to £650,000 on the second death,

In regards to wills at the moment whatever they have is left to each other then onwards down to myself + my brother equally(there are also 2 grandchildren).
As there is @£365,000 at the moment on which to pay inheritance tax + that increases every month with my fathers wages + rental income we are trying to understand if there are any ways to lessen inhertance tax,

Thanks for any help you can give.

CLAPTON

easiest way to to give some of the properties away and live 7 years

noh

Yep they need to start spending.

puffle1

They thought of that but they bought the houses so that they would have an income when my father retires.(which will be v soon).
thanks

kidmugsy

So they need to give away roughly £330 in property. First, have your mother transfer a property worth approx £165 to your father. He then gifts it to a discretionary trust set up with himself and your mother as trustees, the beneficiaries to include his widow, his children, their spouses and children etc. Then when your father dies your mother still has access to the income from that property, at the trustees' discretion. (2) Your mother does the mirror image thing.

If each survives 7 years, you've achieved what you wanted. Meantime the Trustees either accumulate the rent in the trusts (tho' the tax rates are wince-making) or distribute it to grandchildren or whatever.

The house that's tricky to deal with is the house they inhabit so mentally put that aside.

You'll need a lawyer to set up the trusts: if you find a suitable specialist (try STEP) he may be able to refine this idea (or even suggest an alternative).

Another view is that if your parents want income in retirement they should just sell some properties and buy Purchased Life Annuities. The capital immediately leaves their estates and they each have an income for the rest of their lives.