Inheritance tax planning to take property over from father?

by Readers Question

11:32 AM, 15th August 2016
About 2 years ago

Inheritance tax planning to take property over from father?

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Inheritance tax planning to take property over from father?

I was wondering if any one had knowledge or a solution for a property ownership issue with inheritance liability in mind.IHT

My father and I purchased a property approximately 2 years ago in the form of a joint tenancy. This property was a rental investment and has been let ever since. My father’s estate at present will be over 1 million.

I understand his allowance, which will go up to £500k (for home owners) gets passed to my mum. But with this property in terms of right of survivorship what would happen. My mum and dad are happy to let me have his share now and have asked me to look into this.

My dad’s health is not to good and he has had a heart attack a few years ago as well as other complications which would mean a life policy may be really expensive if not in possible to get. Also my personal circumstances are such that my property portfolio holds approx 900k equity so I am looking for a suitable solution looking to the future.

The property in question was purchased approx 2 years ago for £320k needing substantial works. The works and financing came to approx £70k and the current value is approx £580k-£650k

Any advice would be greatly appreciated.

Many thanks

Kay



Comments

Neil Patterson

11:47 AM, 15th August 2016
About 2 years ago

Mark and I can't immediately think of a way round this one.
Whatever advice you do receive you should also seek professional, qualifies and regulated advice.

Howard Reuben CeMap CeRER

12:17 PM, 15th August 2016
About 2 years ago

Hello Kay

Can I ask, when you mentioned "My father and I purchased a property approximately 2 years ago in the form of a joint tenancy", do you mean 'joint tenancy' where you both currently own 100% of the property, or 'joint tenants in common' where each of you own a share, eg 50/50, 70/30, 80/20 etc.,?

This could make a difference.

Specific tax advice though should be sought from professional accountants, tax advisers who understand property taxation and in particular 'landlord' taxation - not all do.

Neil Patterson

13:17 PM, 15th August 2016
About 2 years ago

This is from Mark Alexander

"The only idea I had if that father transfers to mother and son insures her on a life of another basis.

No CGT on transfer and no IHT on life of another policies.

However, SDLT would be incurred and it could mess up financing arrangements.

If son buys out father that would trigger both SDLT and CGT.

Should have used a company from the off as it is far easier to manipulate shares. Bad advice from the start in my humble opinion."

Kay Liddel

14:32 PM, 15th August 2016
About 2 years ago

Hi firstly thank you for taking the time to repond. It is owned as tenants in common so hences with a right of survivorship. Mark I agree 100% I made a mistake on this one. I'm just hoping there is some way to wiggle around it. Just thinking out loud What about If I changed the ownership to one that incorporates shares and dilute my dads share down but not completely remove it.

Puzzler

20:42 PM, 15th August 2016
About 2 years ago

You need professional advice but if your father leaves you his share and it is within or almost within the IHT band, the balance of his estate goes to your mother IHT free and there is nothing to pay

That would be the time to restructure, please consult a specialist though. The family home has a higher IHT threshold from next year I think

S.E. Landlord

21:54 PM, 15th August 2016
About 2 years ago

Taking account of the size of your parents' estate and your own property portfolio you and your parents should be talking to a good IFA. Taking advice from a forum such as this may save you a few pounds in advice but a good IFA will save you a great deal more in tax and be able to advise on things such as discretionary trusts and other inheritance tax plans,

.

Kay Liddel

23:18 PM, 15th August 2016
About 2 years ago

Hi thanks again for messaging back. I am more than happy to pay for advice from a IFA can anyone point me in the right direction, considiring the specifics.
I guess I was looking for a starting point while looking into this and also hoping someone had a similar issue that was solved, I know there is a lot of people with real life expertise on the forum.

S.E. Landlord

6:21 AM, 16th August 2016
About 2 years ago

Reply to the comment left by "Kay Liddel" at "15/08/2016 - 23:18":

It depends on where you are. I assume you have an accountant, they are likely to have a relationship with a local IFA so may be worth asking them.

David Mensah

10:33 AM, 20th August 2016
About 2 years ago

if your mum is still in good health so that you think she will survive for 7 more years then the easiest thing is for your parents to gift you the property. Assuming their income is not too high the CGT charge will be considerably less than a later IHT charge. You could take out insurance on her. Otherwise it can be a real waste of time.

Also rental and capital fractions don't need to be the same, so there are ways to gift property while keeping some rental income, see e.g. this article http://www.markmclaughlin.co.uk/index.php/archives/1554 -- but such strategies are not for the faint of heart.

Alternatively they could take a bigger loan on the property

but there is probably no easy way out of paying some tax on this.

As for IFAs, in my experience, their quality varies a lot and you are right in first asking questions on a forum like this to get a feel for what might be possible. If someone knows of a very good one (i'm sure the property118 recommended ones will be in this category) then their fees are well worth it.

Allan Wadsworth

18:47 PM, 20th August 2016
About 2 years ago

Many thanks for asking this question Kay,
I am wondering about Inheritance Tax for my offspring but have yet to meet anyone that I feel will help. I've had 2 accountants in 15 years and they both said inheritance tax is specialist so they cannot advise. I have had at least 5 IFA's and they are definitely not the people to talk to either.
I've only met one company that sounded knowledgeable and they want more per minute than my solicitor gets.
good luck
Allan (the Ostrich)

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