"Buying out" IIP trust beneficiary: IHT implications.

Nucktheking

I appreciate that this is a complex issue, and the answer may well be to simply consult an expert, but thought I would try the hive mind here first.

My father-in-law is the beneficiary of an Income in Possession Trust (IIPT), set up by his parents as a way of protecting the family assets from his ex-wife, from whom he was divorcing at the time. As a result, the value of the Trust counts as part of his estate for IHT calculations.

The Trust is farming property, which untenanted is worth around £3m. The income it generates is around £35k a year.

My question is: if we could agree a sum with my father-in-law to "buy out" his interest in the IIPT, would this still be subject to IHT rules (eg: he has to live for 7 years thereafter to remove IHT) - or, as his interest has been "sold", the rules are different (for example, if we bought his house at market rate, wouldn't it immediately be longer be his asset?)

And the question of "market rate" is also tricky: if we based it on his life expectancy x the annual rent, would that be a "reasonable" amount, as far as HMRC were concerned? He is in his late 70s, so his life expectancy is probably 15-20 years at most. Or would they view the value of the asset (which we are likely to realise once his interest is removed) as the "value" of it? We appreciate that CGT is going to be due whatever happens...!

I hope that's clear. Any help gratefully received!

Nick.

Keep_pedalling

You all need professional advice.

poseidon1

Nucktheking said:

I appreciate that this is a complex issue, and the answer may well be to simply consult an expert, but thought I would try the hive mind here first.

My father-in-law is the beneficiary of an Income in Possession Trust (IIPT), set up by his parents as a way of protecting the family assets from his ex-wife, from whom he was divorcing at the time. As a result, the value of the Trust counts as part of his estate for IHT calculations.

The Trust is farming property, which untenanted is worth around £3m. The income it generates is around £35k a year.

My question is: if we could agree a sum with my father-in-law to "buy out" his interest in the IIPT, would this still be subject to IHT rules (eg: he has to live for 7 years thereafter to remove IHT) - or, as his interest has been "sold", the rules are different (for example, if we bought his house at market rate, wouldn't it immediately be longer be his asset?)

And the question of "market rate" is also tricky: if we based it on his life expectancy x the annual rent, would that be a "reasonable" amount, as far as HMRC were concerned? He is in his late 70s, so his life expectancy is probably 15-20 years at most. Or would they view the value of the asset (which we are likely to realise once his interest is removed) as the "value" of it? We appreciate that CGT is going to be due whatever happens...!

I hope that's clear. Any help gratefully received!

Nick.

The 'hive mind' here will have little or no experience of such an esoteric matter.

You will require expert advice from a highly experienced STEP solicitor, a RICs Surveyor with competency in agricultural property valuations, an actuary to cover mortality calculations having regard to your father's age and state of health, an accountant for the CGT liability  that may arise on the disposal ( trustees bear the brunt of the liability,  so they will need to be indemnified).

Lots of moving parts here, but  I think you get the point.