Inheritance urgent help

steffg60

Hi guys

My partner’s parents have finally realised that they have to do something regarding inheritance tax.
They have 10 properties all in my mother in laws sole name of which all properties are rented out.
The properties were bought some 20 years ago.
They would now like to retire and leave the running of the properties to me and my partner and also pass them over to us to avoid inheritance tax. However they would still like a small income from the rent income.
What is the best way to approach this avoiding CGT and inheritance tax in the future. Would they have to pay CGT if they gifted all properties to my partner?

Many Thanks in advance

TBeckett100

they could gift the lot and hopefully live 7 years, this is called a potentially exempt transfer, after 4 years the IHT liability decreases and at the end of year 7 it is gone.

they could also raise mortgages on them, invest the money in trust and or gift to create debts on the estate. as a financial adviser I would recommend you seek legal opinion and speak to an adviser as well.

CLAPTON

Gifting you or your partner the properties is a disposal for CGT purposes.
They will be able to reduce the CGT using indexation and taper relieve and her CGT yearly allowance. Look at the HMRC site for details.
She can further reduce / eliminate CGT by transferring first to her husband then to you (using his CGT yearly allownace) and also to perhaps pass them to you over a number of years rather than all at once.
If they retain an interest by receiveing rent then it would be deemed as retaining beneficial interest and so would not be effective for IHT purposes.
But alot depends upopn how much you are talking about .. if its 10 properties its probably worth getting professional advice.

steffg60

so if they gift will we have to pay capital gains tax

TBeckett100

not sure, but there is the old stamp duty

with the property market at a high, surely a good time to sell and invest the money in property funds and stocks and shares to build a portfolio which can generate an income and be within a trust

steffg60

would never sell the properties they all bring in a very good income plus there are no morgages on them.
If they are gifted why would be pay stamp duty.

JoeK_3

CLAPTON'S advice seems good to me on capital gains tax and T Beckett 100 on inheritance tax.

Joek

dunstonh

Gifted would certainly be hit with a CGT liability and even with relief, 20 years worth of growth would see 40% on a fair chunk of it.

would never sell the properties they all bring in a very good income plus there are no morgages on them.

Which almost certainly means they are providing a very low income after income tax. Probably a lot less than having the money in a savings account, let alone conventional investments arranged on a more tax efficient method (which can still include property, albeit indirect).

martinrdg1

Gifting means CGT payable. I think u should definately get professional advise. Is your mother in law a member of the NLA? as they have contacts. Is the property in a a company? Depending on age she could gift over a period. Problem is over 20 years she is likely showing a massive gain. Another problem is if she does not live 7 years u get hit for 40% IHT as well as the CGT you have just paid! My friend is selling his portfolio and then going offshore for 5 years - he is still allowed back each year for about 90 days a year - a bit extreme though!

Willman_Rodders

Reading these threads triggers a number of points. Without more information there is always a risk of poor advice being offered but the suggestions from Clapton and Beckett appears good.

Avoiding Inheritance Tax is inceasingly more difficult; whatever loophole is devised today (by some person far brainier than me) is closed tomorrow. Specifically you must watch out for 'gifts with reservation' rules - your parents-in-law could fall foul of this if they retain any income from any gifted property. also Pre-Owned Asset Tax introduced in 2006.

In my business - will writing - we have seen many of the former 'IHT acceptable double trusts' now being found unaceptable, with people now in a worse position that if they had used standard, accepted methods. Chancellor Brown has also imposed taxes on previously non-taxed trusts.

As stated earlier (in previous threads) your parents-in-law could also end up being taxed twice; selling the properties now (so the funds could be reinvested or gifted away to you and your partner) would trigger a CGT liability now and potentially be caught again by IHT if death occurs within 7 years.

As an investment business there is no business property relief available.

Whatever they decide I would urge them (your parents) to ensure they have tax efficient wills in place. By using Nil-rate Band discretionary trusts each parent can at least dispose of £300,000 (tax year 2007-8) free of IHT, and thus save £120,000 of tax. (Most married couples have their wills giving everything to their surviving spouse, and then passed down to their children; they thus fail to make full use of their individial allowance).

Further, they should consider equalizing their estates. i.e. each parent has 5 properties in their own name. Thus when they start to gift their respective estates to you whilst alive they can make use of their own individual allowances, rather than just your mother in laws. Again though you will need to consider the costs of transfer of title ownership. Transfers between spouses is both CGT and IHT free (thought the CHT liability is transfered to the new spouse.).

The solution is not simple. Total avoidance of IHT is difficult but allowances are available and over a period of time can accumulate. e.g. 15 years x 3,000 annual allowance = £45,000.

I would reiterate what has already been stated; please take professional advice (and obtain quotes from various sources; fees differ hugely as does the level of advice), and start the process today; the longer your parents-in-law leave it the less options you will have.