Help - Estate Planning including BTL Portfolio

Knightoftheroad

Hello All.

Hopefully I'm posting this in the correct category.

We have been trying to organise our estate for a while now and seem to be going round in circles.

My wife and I are in our early 50's have 2 children aged 22 and 13, and are keen to establish how we can mitigate IHT and CGT and make it easy for beneficiaries to understand what is being put in place.

The estate includes a main residential home, along with a BTL portfolio and general savings/ISA's which takes us over the IHT threshold.

What we need advice on is:

1. Maximising IHT protection 

2. CGT mitigation. The BTL properties are currently jointly owned in our names, not a ltd company 

3. We would currently have a significant IHT bill if we do nothing so the best options that work for us

4. Would what gives us the best chance of passing the estate to beneficiaries mean overly complicated ongoing processes and costs and reviews! If so how difficult would it be to access money or make changes if for instance it's all put into trust's?

5. Is there a tipping point where it's not worth doing anything as it becomes cumbersome to have whatever protection in place and just spend until the estate falls below the IHT threshold?

6. Get wills updated

7. Get LPA's in place

8. Get funeral plans in place

9. Explore care fee options for when the time comes

The problem is that of the companies we have approached so far, they don't necessarily do everything in house and we are advised to speak to either a separate solicitor/accountant/IFA to deal with the various elements of planning. Is this normal? It would make getting a holistic view difficult.

We spoke with one company CTT group (Countrywide) who appear to have everything available under one roof, or at least work with known partners, but their reviews are somewhat alarming, especially on points 4&5 above.

Keen to understand what others in our position have done and what worked for them.

Any advice or pointers greatly appreciated!

Thanks

Keep_pedalling

Unfortunately having the bulk of your estate in property makes IHT mitigation difficult and the only thing that mitigates CGT is death which obviously lead to IHT instead. 

Gifting is the most common way to mitigate IHT but you can’t do that with property without being hit with CGT or the loss of income. As you are both quite young you could cover IHT from an unfortunate early demise with life insurance.  

Unless we both need long term care our estate will also be hit with IHT, but as we have already given our children significant gifts and they will still get £500k tax free each and 60% of everything above that we are a bit more relaxed that some IHT will probably need to be paid. 

poseidon1

Knightoftheroad said:

Hello All.

Hopefully I'm posting this in the correct category.

We have been trying to organise our estate for a while now and seem to be going round in circles.

My wife and I are in our early 50's have 2 children aged 22 and 13, and are keen to establish how we can mitigate IHT and CGT and make it easy for beneficiaries to understand what is being put in place.

The estate includes a main residential home, along with a BTL portfolio and general savings/ISA's which takes us over the IHT threshold.

What we need advice on is:

1. Maximising IHT protection 

2. CGT mitigation. The BTL properties are currently jointly owned in our names, not a ltd company 

3. We would currently have a significant IHT bill if we do nothing so the best options that work for us

4. Would what gives us the best chance of passing the estate to beneficiaries mean overly complicated ongoing processes and costs and reviews! If so how difficult would it be to access money or make changes if for instance it's all put into trust's?

5. Is there a tipping point where it's not worth doing anything as it becomes cumbersome to have whatever protection in place and just spend until the estate falls below the IHT threshold?

6. Get wills updated

7. Get LPA's in place

8. Get funeral plans in place

9. Explore care fee options for when the time comes

The problem is that of the companies we have approached so far, they don't necessarily do everything in house and we are advised to speak to either a separate solicitor/accountant/IFA to deal with the various elements of planning. Is this normal? It would make getting a holistic view difficult.

We spoke with one company CTT group (Countrywide) who appear to have everything available under one roof, or at least work with known partners, but their reviews are somewhat alarming, especially on points 4&5 above.

Keen to understand what others in our position have done and what worked for them.

Any advice or pointers greatly appreciated!

Thanks

IHT planning for a BTL portfolio is indeed tricky , expensive to initiate and potentially expensive to administer.

As suggested by Keep_pedalling, I would strongly recommend you explore ( as your first port of call)  a large joint life 2nd death policy ( in  trust ) for your children. This does not reduce your tax exposure, but would provide a tax free amount to the kids in future to help them pay the IHT bill.

As you intimated in point 4, trusts are a possibility ( specifically discretionary trusts ), but are fiendishly complex and expensive. 

Firstly, between you and your wife you could settle property up to the value of your joint NRBs (£650k). Where the property sits at a gain compared to what you paid , the gain can be held over into the hands of the discretionary trustees ( ie they inherit your original base cost), so no intial CGT liabilities on the transfer. However your hurdle here is if there are mortgages outstanding. Lender may not permit the transfer but even if they do SDLT might arise on the transferred debt.

Next issue is income tax. Assuming you and your wife  entirely excluded as beneficiaries (pointless doing this if you aren't),  discretionary trust income is taxable at top rate of 45%.  This can be distributed to your adult daughter ( net of 45% ) and she can recover some or all  the tax depending on her personal  tax status. However, nothing can be distributed to your 13 year old until she is 18 otherwise such distributions are taxable on you.

Further issue is 10 year anniversary IHT charges. At 10th anniversary trust property is revalued. At this point the trust has NRBs separate and distinct from yourselves. However If value exceeds the double NRBs at the time , IHT at 6 % on the excess is payable. So if the £650k property became say £800k, £9,000 IHT would be in point. Not a bad outcome given you have removed £800k from you estate by that time, but the trust would need to have the liquid cash available to pay the liability without recourse to you.

Eventually property could be transferred out to the kids later down the line . Again no CGT ( gain heldover into their hands so they end up with it at your original base cost), but there maybe an IHT exit charge depending on timing. Optimum time for such a transfer would be within 90 days of the first 10 year anniversary.

All pretty effective for IHT purposes, but your children end up with property/s potentially pregnant with large unrealised gains which would have been wiped out on death had you kept them personally.

I would say the best professional to run through this option with you would be a STEP qualified accountant in terms of costs of rolling administration, annual accounts and tax compliance,  but a STEP qualified lawyer would be required to implement the initial trust deed, so this is a team approach if you find this option appealing.

As for trustees, no reason why this can't be yourself and wife but the STEP accountant should be ever present to ensure you stay between the permissible 'guard rails' of this form of trust arrangement.

Finally , even if you decide not to move forward with trust arrangements for property, the complexity of your asset position demands the attention of a STEP qualified lawyer for your Wills, don't accept anything less.

tacpot12

Given the amount of your assets, I would not bother with funeral plans. Particularly as you are young, there is a good chance the provider will have gone out of business taking your money with them. I would just keep an eye on your assets to ensure that there will always be enough to bury/cremate you as you wish. Even if yo die penniless, the council will cremate you for free, and your children should be wealthy enough to spend more on a funeral for you if they wish to do so. 

Knightoftheroad

Thanks tacpot12 , poseidon1 and Keep_pedalling for your respective comments. 

I'll try and make sense of it all and see where I can go from here. 

Many thanks again.