Land - Efficient Tax Planning - Gift/Trust etc

ZingyOcean

Happy New Year, fellow forumites!

Appreciate that this may need some more detailed legal advice, but interested in views on this. 

Wife has elderly (80yo) aunty who owns a small (approx. 1 acre) piece of land, and said aunty wishes to leave said land to wife - and her will is made out to this end. 

Discussing with said aunty whether there might be any tax efficient ways of dealing with this to avoid or lessen IHT burden on death.

Aunty has no children and has never married, therefore will have minimum IHT allowance - and also owns a house so significant IHT will (as it stands) be due on her estate when the time comes. 

Aunty is in her 80's, but in good health - still drives, walks miles, goes on holiday independently etc. Nothing currently to suggest that she hasn't got another 10-20 years ahead of her - but of course you never really know! 

Aunty wishes for the land to remain in family possession due to family history going back to pre WW2 times, at the very least until her death. 

Are there any ways that may eliminate or reduce the tax on this land?

Unsure of the current value of the land - it's woodland, but near to London and could possibly be developed with some work. We think it's worth more than the £50k that her Aunt has said it's worth - but there are no recent valuations. Aunty is not interested in the value, the important thing to her is that the land remains in the family all the time she is alive and ideally beyond. 

Thoughts:

• Land is gifted to my wife now but with an agreement that it isn't sold - aware of the 7 year gift rule (with taper relief from year 3). This would mean we would assume responsibility for maintaining boundaries, insuring it etc - but could be the most straightforward?

• Land is put into trust for my wife (I don't know much about trusts, but understand they can be used for this purpose? Does the same 7 year/taper rule apply?)

Any other options here? Obviously option 3 is that the land is simply left in her will, however that would mean it falls into her estate in entirety on death. 

Thanks!

ZO. 

_Penny_Dreadful

How much is the aunt’s total estate worth? 

ZingyOcean

_Penny_Dreadful said:

How much is the aunt’s total estate worth? 

Unsure. House probably £500k-£550k, unknown savings, plus the land.

_Penny_Dreadful

Is the aunt a widow? If so and none or only some of the deceased spouse’s basic tax free allowance for IHT was used then potentially the aunt’s estate might not have to pay any IHT when she passes under current rules. 

If that’s not the case then the tax free allowance is currently £325,000 so it’s not just this parcel of land that needs to be considered for efficient tax planning. Also, for the land to be gifted to your wife it needs to be really gifted, no strings attached saying what she can and can’t do with the land, for the 7 year rule to apply. 

Keep_pedalling

Gifting woodland may not save any IHT as it is possible the land is exempt.

https://www.gov.uk/guidance/woodland-owners-tax-planning

Assuming that is not the case then you should be aware that gifting land to a connected person is treated the same way as selling at market rate and your wife’s aunt would need to pay CGT on the transfer.

A couple of other points - taper relief does not apply to gifts under the NRB (£325k), and a gift is absolute you can’t apply conditions to it, although I am sure your wife would want to go along with wet aunts wishes.

Considering the size of her estate she really should consider take professional advice on IHT planning from an independent financial adviser.

getmore4less

Conditions could make it a gift with reservation.

Unlikely to quality for taper relief unless substantially more valuable and not already exempt.

ZingyOcean

Keep_pedalling said:

Gifting woodland may not save any IHT as it is possible the land is exempt.

https://www.gov.uk/guidance/woodland-owners-tax-planning

Assuming that is not the case then you should be aware that gifting land to a connected person is treated the same way as selling at market rate and your wife’s aunt would need to pay CGT on the transfer.

A couple of other points - taper relief does not apply to gifts under the NRB (£325k), and a gift is absolute you can’t apply conditions to it, although I am sure your wife would want to go along with wet aunts wishes.

Considering the size of her estate she really should consider take professional advice on IHT planning from an independent financial adviser.

Thanks. That is interesting about woodland. The land directly borders ancient woodland (blue) but the land itself (green) is not classified, even though it’s an extension of the same wooded area. 

CGT - would that in essence be the 20%ish of the difference in value between when she inherited it 20 years ago and the value today? 

Completely agree about an independent advisor and also suggesting she does this. 

Keep_pedalling

ZingyOcean said:

Keep_pedalling said:

Gifting woodland may not save any IHT as it is possible the land is exempt.

https://www.gov.uk/guidance/woodland-owners-tax-planning

Assuming that is not the case then you should be aware that gifting land to a connected person is treated the same way as selling at market rate and your wife’s aunt would need to pay CGT on the transfer.

A couple of other points - taper relief does not apply to gifts under the NRB (£325k), and a gift is absolute you can’t apply conditions to it, although I am sure your wife would want to go along with wet aunts wishes.

Considering the size of her estate she really should consider take professional advice on IHT planning from an independent financial adviser.

Thanks. That is interesting about woodland. The land directly borders ancient woodland (blue) but the land itself (green) is not classified, even though it’s an extension of the same wooded area. 

CGT - would that in essence be the 20%ish of the difference in value between when she inherited it 20 years ago and the value today? 

No, the taxable gain is the gain minus your annual allowance which is currently £12,300 but due to halve in April. The rate is 20% for higher rate tax payers but for non tax payers or basic rate payers it is 10% unless the gain takes you into the higher rate bracket which would make some of the gain at 10% and some at 20%

https://www.gov.uk/tax-sell-property/work-out-your-gain

Completely agree about an independent advisor and also suggesting she does this. 

Who manages the ancient woodland? If she wants to maintain the land as woodland and the adjacent wood is managed by someone like the wildlife trusts she might like to leave the wood to them to manage it. Woodland does need managing by experts if it is to provide optimum benefit for wildlife. 

Gifting it to charity makes it exempt from IHT and if it forms 10% of her estate or more it would reduce the 40% rate on the rest of the estate to 36%.