Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

grey_gym_sock

if 1 of a married couple dies, leaving everything to the survivor, then a double IHT exemption can be claimed when the survivor eventually dies. e.g. currently 2 x £325k. (you also do get the advantage of any increases in the IHT allowance between the 2 deaths.)

if not everything is left to the survivor, then only a percentage of the second IHT exemption can be claimed for the survivor's estate.

so far as IHT goes, leaving everything to a spouse is therefore not such a bad idea. (so far as avoiding paying residential care costs is concerned, it's less effective.)

if it is decided (for any reason) that the shares in a joint tenancy would be better left somewhere other than to the other joint tenants, then this can be achieved by
(1) converting the joint tenancy to a tenancy in common, held in equal proportions - this step is not a disposal for CGT purposes;
(2) then each tenant in common is free to leave their share to whomever they want in their will.

the flat is probably not your PPR while you aren't living there. (though there are some exceptions to that, which i don't know about in detail.) it doesn't matter that you don't own any other properties - you may own only 1 property but not benefit from any PPR exemption.

any gifts of (shares in a) property will be treated as having the market value for CGT purposes. leaving shares in a will may be more effective, because there is no CGT on death (only, perhaps, IHT), and the base cost for CGT is then reset to the market value at death.

John_Pierpoint

Spend £3 now on-line to find out if the flat is indeed a joint-tenancy, I would have expected it to be tenants-in-common.

The valuation of each parents share in the flat is a bit complex as they cannot actually sell 25% of a flat.The flat is most probably leasehold.
Who is the ground landlord and how long has the lease to run?
What is the record of ground rent and maintenance costs ?
Presumably it is not ex local authority, still with lots of subsidised tenants?

getmore4less

ouibay1 wrote: »

What is our current position regarding IHT when the inevitable happens to dad or mum? The way I understand it is that on my Dad’s passing (or Mum’s) then his share of the flat (¼ = 150k) would pass equally to my mum, my brother and me as Joint Tenants. Would Dad’s ¼ share in the flat count towards his estate for IHT purposes or would it be disregarded as we own the flat as Joint tenants? Also his half of the house (1/2 share = 450k) would pass to his spouse, my mum, which would not be subject to IHT either.

holly_hobby wrote: »

If you are joint tenants yes it will be excluded from his estate and pass to the survivors - if its held as tenants in common the value of his share will be inc in his estate.

Even as joint tenants the value is included in the estate for IHT calculations..

The 1/4 share would have 2/3 non exempt and come off the transferable nil rate band 1/3 of the 1/4 share would have spouse exemption.

holly_hobby

Yes GGS thats correct - there would still be spousal exemption on tsf.

H x

ouibay1

Thank you for all your replies, especially your comprehensive evaluation Holly Hobby.

There seems to be disagreement on the question of whether my dad’s share in the flat will be counted towards his estate for IHT purposes or not. HH you said that

Quote:
Originally Posted by holly hobby
If you are joint tenants yes it will be excluded from his estate and pass to the survivors - if its held as tenants in common the value of his share will be inc in his estate.

But GM4L advised:
"Even as joint tenants the value is included in the estate for IHT calculations..

The 1/4 share would have 2/3 non exempt and come off the transferable nil rate band 1/3 of the 1/4 share would have spouse exemption."

Obviously if the flat does count towards dad’s IHT estate then a transfer now would probably be the best option.

To clarify current situation, the ownership is set as Joint owners not Tenants-in-common. I filled in the original transfer form myself.

To answer a few queries from JP:
The flat is indeed leasehold but it has a very long lease: circa 999 years give or take.
It is not ex-local-authority and the ground rent and maintenance costs have been paid by me over the recent years.

One other question springs to mind. What if I was to ‘buy out' my mum, dad brother now for less than market rate? How much lower than market rate could a property be sold to a ‘connected person’ before a transfer was deemed a gift by HMRC (and ‘market value’ be used)? Ie could I buy it for 550k without it being treated as a gift? 500K? 450K? This way the CGT payable would be minimised?

Again, any advice greatly appreciated.

holly_hobby

refer post 706

1/3 of dads share (ie that effectively passing to Mum), would not be included in his estate.

The remaining 2/3 of his share, would effectively go to you and bro, as spousal exemption doesn't apply to that portion, and the residual value would be included in the valuation of his net estate as a PET and subject to PET regs (IF he retains no financial or beneficial interest post tsf).

ouibay1 wrote: »

One other question springs to mind. What if I was to ‘buy out' my mum, dad brother now for less than market rate? How much lower than market rate could a property be sold to a ‘connected person’ before a transfer was deemed a gift by HMRC (and ‘market value’ be used)? Ie could I buy it for 550k without it being treated as a gift? 500K? 450K? This way the CGT payable would be minimised? [/SIZE][/FONT]

Again, any advice greatly appreciated.

CGT between connected persons is always based on market value, so they can sell it you for under value or indeed just give it to you .... but this makes no difference at all to the CGT computation, which remains the difference between acquision price/value and MARKET VALUE on disposal/tsf (less permitted reliefs/exemptions etc) for connected persons.

If sold at under value or gifted, then this is also a PET for IHT purposes.

As the flat is lease hold, even if there is no consideration exchanged for pch, there will be SDLT considerations. http://www.hmrc.gov.uk/sdlt/calculate/leasehold.htm

I do suggest that you engage your own tax practitioner on this to help with understanding, proper estate and tax planning and relevant tax mitigation exercises as reqd.

Hope this helps

Holly

opeterson

Hi All,

My father has recently passed leaving a reasonable chunk to his family. ( est £500,000 )

The way his will is set out that his daughter and I have been given an amount up to the value of the IHT threshold ( £325,000 ?? ).
The remainder of his estate will be left to his wife ( not divorced but seperated )
As a family we have discussed what we would like to happen but as with many of these things have limited knowledge in terms of what we can or can't do and how much of it is out of our hands.

The estate is split into investments £350,000 ish and his property rough value £150,000.

Can my sister and I split the amount between ourselves up to the value of the IHT threshold as we see fit ? eg she gets £200,000 and i get £125,000 . Would there be any implications ?

Secondly my mother owns her property ( i have no property but my sister does )

Would we be forced to sell his place as part of the estate ? Could our mother sign her property over to me and move into my fathers house? What would be the implications?

Thanks in advance

O

Mojisola

opeterson wrote: »

My father has recently passed leaving a reasonable chunk to his family. ( est £500,000 )

The way his will is set out that his daughter and I have been given an amount up to the value of the IHT threshold ( £325,000 ?? ).
The remainder of his estate will be left to his wife ( not divorced but seperated )

As a family we have discussed what we would like to happen but as with many of these things have limited knowledge in terms of what we can or can't do and how much of it is out of our hands.

The estate is split into investments £350,000 ish and his property rough value £150,000.

Can my sister and I split the amount between ourselves up to the value of the IHT threshold as we see fit ? eg she gets £200,000 and i get £125,000 . Would there be any implications ?

Secondly my mother owns her property ( i have no property but my sister does )

Would we be forced to sell his place as part of the estate ? Could our mother sign her property over to me and move into my fathers house? What would be the implications?

Is your mother and his wife the same person?

opeterson

Hi Mojisola yeah my mum is his wife ( they are seperated )

Mojisola

opeterson wrote: »

Hi Mojisola yeah my mum is his wife ( they are seperated )

Because they are still married, there won't be any IHT on anything passed to your mother from your father - which is basically just his house? Unless the will says it has to be sold, your mother can do what she wants with it, again based on the assumption that there isn't a mortgage on it.

There won't be any IHT to pay on the £325,000 given to you and your sister. You two can do a deed of variation to split the money between you in whatever ratio suits you both.

These are rough guidelines - if there are any clauses in the will that specify exactly how things must be done, those would over-ride the "normal" situation.