Landlord wanting to set up trust

Keep_pedalling

Any transfer, whether it is to a trust or a family member is going to be subject to CGT which could be a substancial amount if they have owned the property for a long time. If they plan to still receive the income from the property once in trust the transfer will be considered to one with reservation of benefit so will never fall out of their estate for IHT purposes. 

Taxation of trusts is complex and the rates are high, so overall this looks to be a really dumb move, but for confirmation they should take professional advice. 

poseidon1

SiliconChip said:

My friends have done it by purchasing their rental properties using a limited company and making their children the directors and shareholders in the company. I don't know the details and I've always felt that there must be some pitfalls that could trip up either or both the parents and the children at some point in the future, but they seem quite confident it'll work. 

The company option does have its benefits in this scenario. Children get to enjoy a share of the rental income stream without jeopardising future first time buyers status or  triggering 2nd property SDLT. Parents get to control level of income flowing to children by virtue of number of shares allocated and/or share class.

Gradual IHT estate planning can be achieved by virtue of gifting of parent's personal shareholdings to children, but this will be subject to potential CGT on the parent on any increase to the shareholding attributable to underlying values of properties concerned. In this situation, shares are best gifted on death ( by will) to eliminate CGT on shares revalued on death.  

In the situation outlined by the OP, limited company unlikely to be appealing if the properties are not already in such a structure from outset, especially since the landlord concerned is described as not being financially savvy.

 Lack of financial confidence pretty much rules out trusts of property  as well, which in some ways are more complicated and costly compared to company ownership.

Leaving property by will probably best solution here.

 If the landlord has no personal  need for the rental income, can always make annual gifts of the net income ( after tax) to the family member concerned, prior to death. So this gives the family member the benefit of the rents without burdening them with any of the disadvantages of investment property ownership.

Alternatively  if the property has significant value, and IHT an issue on death, the landlord could always establish a life policy ( in trust) for the family member, funded by rents, with death claim payable to the family member IHT free in due course.

A couple of ways to skin this particular cat, without undue complexity.

martindow

If the children don't want to become landlords or lose their first time buyer status, isn't another alternative to sell each property, pat the CGT and gift the remaining cash to the children?  

Khaderbhai

Thanks for all helpful responses