An alternative to flat rental - MIL income from property in trusr

diveleader

My (wife's) father passed away last year.

His will leaves is flat (that has been let out for the last 20+ years) to his three children with the provisio that whilst his wife is alive, the income from the flat rental (or any other form of return on his assets) is to provide for his wife.

We placed the flat in trust and my wife is the trustee. This arrangement has been going OK, however, she wonders if an alternative to being a landlord would be a better choice?

I'm starting to research this for her, but thought I would ask here for suggestions.

I'm thinking of selling the flat (c.£330k) and using the proceeds to purchase either:

- A suitable money market fund
- or a income fund

However, I am unsure what platforms are available for a trust and if the introduction needs to be made via an IFA or similar?

With the flat rental, the returns (after letting agents fees) are approx 4.5% before taxes.

I feel that we could potentially match or beat this, without the potential issues with voids, refurbs and governmental influence.

Your thoughts please.

masonic

What do the other children, who are also beneficial owners of the flat, want to do with it? What about your mother-in-law's income stream? A MMF is not going to deliver 4.5%, and an income fund would not do so reliably either.

poseidon1

Some tax points to bear in mind when considering this investment change:

1) CGT - assume there has been a significant rise in the flat value over the 20 years. The trust is liable to 24%  tax on the gain with only a tiny £1500 trustee cgt exemption ( trusts only get half the full rate). Clearly this will reduce trust capital available for reinvestment, and a significant capital deficit to be recouped from future capital growth.

2) CGT and death of the income beneficiary - appropriate to remind you that all trust capital gains are eliminated on death of the income beneficiary. Depending on her age and state of health, this by itself might militate against a premature sale of the flat.

3) IHT - worth reminding you that the trust fund is amalgamated with the income beneficiary's personal assets for IHT purposes and all subject to tax if exceeding £1 million (assuming the beneficiary has full availability of all nil rate bands and made no substantial gifts within 7 years of death). The prospect of a potential trust IHT bill coupled with an actual CGT bill in 1) above, would not bode well for the rump of the remaining trust fund.

I would suggest take some time to consider the important tax points above before deliberating further on the merits of your proposed change of investment strategy.

In any event, also bear in  mind that the major investment platforms for DIY investors do not permit  trusts of this nature on their platforms. Bare Trusts are the most they will countenance.

saajan_12

diveleader said:

My (wife's) father passed away last year.

His will leaves is flat (that has been let out for the last 20+ years) to his three children with the provisio that whilst his wife is alive, the income from the flat rental (or any other form of return on his assets) is to provide for his wife.

We placed the flat in trust and my wife is the trustee. This arrangement has been going OK, however, she wonders if an alternative to being a landlord would be a better choice?

I'm starting to research this for her, but thought I would ask here for suggestions.

I'm thinking of selling the flat (c.£330k) and using the proceeds to purchase either:

- A suitable money market fund
- or a income fund

However, I am unsure what platforms are available for a trust and if the introduction needs to be made via an IFA or similar?

With the flat rental, the returns (after letting agents fees) are approx 4.5% before taxes.

I feel that we could potentially match or beat this, without the potential issues with voids, refurbs and governmental influence.

Your thoughts please.

How exactly are you calculating the 4.5% return? 
* Taking voids and repairs costs into account? (look at the historic over the last few years as a start)
* Taking appreciation of the property into account? 

That's a decent yield if its just coming from rental income, but properties also have a significant chunk coming from capital appreciation. 

xylophone

https://techzone.aberdeenadviser.com/public/iht-est-plan/Tech-guide-IIP-trust-taxation may be of interest.

Sam_666

saajan_12 said:

diveleader said:

My (wife's) father passed away last year.

His will leaves is flat (that has been let out for the last 20+ years) to his three children with the provisio that whilst his wife is alive, the income from the flat rental (or any other form of return on his assets) is to provide for his wife.

We placed the flat in trust and my wife is the trustee. This arrangement has been going OK, however, she wonders if an alternative to being a landlord would be a better choice?

I'm starting to research this for her, but thought I would ask here for suggestions.

I'm thinking of selling the flat (c.£330k) and using the proceeds to purchase either:

- A suitable money market fund
- or a income fund

However, I am unsure what platforms are available for a trust and if the introduction needs to be made via an IFA or similar?

With the flat rental, the returns (after letting agents fees) are approx 4.5% before taxes.

I feel that we could potentially match or beat this, without the potential issues with voids, refurbs and governmental influence.

Your thoughts please.

How exactly are you calculating the 4.5% return? 
* Taking voids and repairs costs into account? (look at the historic over the last few years as a start)
* Taking appreciation of the property into account? 

That's a decent yield if its just coming from rental income, but properties also have a significant chunk coming from capital appreciation. 

I disagree. That is 4.5% gross or 3.8% net or even 2.7% net for higher earner. Even less with new tax rates.
Easily beaten by many saving accounts and zero risk/stress.