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

annlondon

I have 3 grandchildren and want to buy a flat each for them (they are 3 5 13) but will I will need the rental income. Is there any way to set up a trust so they i=herit tax free but where I can retain the income.

JonVUK

I can't find the answer to this anywhere so hopefully someone can help.

A married couple make a substantial gift, from a joint account, to one of their children. One of the couple then dies within 7 years.
Is inheritance tax (on the gift) payable on the first death or is it only due when second account holder dies?
Also does it make a difference who signed the cheque?

Before you ask, all the deceased assets have passed to the surviving partner and the estate is over £325,000.

Jon

Keep_pedalling

JonVUK wrote: »

I can't find the answer to this anywhere so hopefully someone can help.

A married couple make a substantial gift, from a joint account, to one of their children. One of the couple then dies within 7 years.
Is inheritance tax (on the gift) payable on the first death or is it only due when second account holder dies?
Also does it make a difference who signed the cheque?

Before you ask, all the deceased assets have passed to the surviving partner and the estate is over £325,000.

Jon

Who signed the cheque is irrelivent it was a joint gift, therefore half of it would have come from the deceased, and any amount above his annual allowance will have to be declared on IHT400.

How much is "substantial" ? Unless the gift was over his nil rate band then there will be no IHT to pay, it will simple reduce the amount of his nil rate band that can be transferred to his wife.

xylophone

I have 3 grandchildren and want to buy a flat each for them (they are 3 5 13) but will I will need the rental income. Is there any way to set up a trust so they i=herit tax free but where I can retain the income.

You need to take professional advice from a solicitor expert in wills and trusts and from a tax accountant expert in the taxation of trusts.

If you set up a Trust to hold the properties and are not excluded from benefit, then the Trust would be settlor interested - there are specific rules relating to IHT, CGT and income tax on such trusts.

You could buy three properties and set up as a landlord - you would need to be fully familiar with the relevant regulations regarding your responsibilities and tax obligations.

The properties could be left to the grandchildren in your will but would be subject to IHT depending on the total value of your estate.

Keep_pedalling

annlondon wrote: »

I have 3 grandchildren and want to buy a flat each for them (they are 3 5 13) but will I will need the rental income. Is there any way to set up a trust so they i=herit tax free but where I can retain the income.

Not sure this is the best way plan your GCs inheritance. What happens if more come along?

Savvy_Sue

Keep_pedalling wrote: »

Not sure this is the best way plan your GCs inheritance. What happens if more come along?

Or one flat is worth three times one of the others, for some reason ...

peterpeter24

Ok- Great forum-

Im hoping Local Hero is still around - but if not any experts there- feel free to help.

Current Situation

Father died 17 years ago

Main property my mother lives in worth approx £500k
three Rental properties in London worth approx £2.75m
(one is £1.2m / one £750k/ one £950k)
3 children (myself my siblings)
One of the rentals jointly owned by brother and mum (£950k)

Parents worked very hard for years to build this portfolio
Obviously we are concerned we are going to get hammered by IHT.

a few questions- and real apologies if they are ignorant- this is a subject so full of contradictory advice

1) If my mother simply gifts all 3 properties to us right now in all our names equally,
will we have to pay Stamp on them right now?

Im assuming CGT would need to be paid when we chose to sell at a much later date?

obviously if she passes away before 7 years is up, we will have to pay some IHT.- after that Im assuming nothing is due.

2) If she gifts them to us, obviously what happens to her income- she lives off the rental?- Of course we would have to receive the rental income and pay tax on it - but assuming that she is still managing the properties - we can pay her a fee to do this? (which of course will be subject to tax)

3) Trusts- Lots of people have been talking about this- but the question again is if we setup a trust
again- would Stamp be due at all? would CGT due at all as the properties are going into a company?

4) Limited companies- (is this done as part of a trust?_) again same thing
would stamp be due/ would CGT be due at all?
anyone ever done this?

4) are there any excellent Solicitors or experts in the SE who can do this at a reasonable cost? I have heard some stories about people being completely ripped off for something that should not be that complex

many thanks for any help

JT

Keep_pedalling

Your mum would have to pay CGT when she gifted the property, and if she continued to benefit from the properties then they would never fall out of her estate.

To be honest you mother should be taking paid for professional advice with an estate this size.

Daniel54

peterpeter24 wrote: »

1) If my mother simply gifts all 3 properties to us right now in all our names equally,
will we have to pay Stamp on them right now?

Im assuming CGT would need to be paid when we chose to sell at a much later date?

/QUOTE]

SDLT is not your problem,as it is payable on the consideration .If a property is gifted and therefore no payment made,then no SDLT is due

However CGT is due at the point of disposal,irrespective of whether the property is sold ,gifted or otherwise transferred.CGT is not payable on death , but of course IHT is.

https://www.gov.uk/capital-gains-tax/overview

If any of the rental properties were once your mother's primary residence then she is entitled to some CGT reliefs for the period of residency.

There are also specific tax charges for different kinds of trust and also if your mother continued to directly or indirectly benefit from assets given away .

This is a complex area where suitable professional advice can avoid costly mistakes.Your mother might wish to consult with a STEP solicitor and/or with an IFA qualified in estate planning

http://www.step.org/about-us

https://www.unbiased.co.uk

euronorris

As the rent is a big source of income for her also, you need to be wary of this being viewed as deprivation of capital and income, should she need care in the future and be subject to a financial assessment by the local authority. Unlikely if she were to go into a home (as home would then be sold), but she may only need a carer visiting her home instead.

Qualified advice is required here and she may wish to consider other options for IHT planning (of which there are many).