Minimising Inheritance Tax Liability

Minimising Inheritance Tax Liability

15:53 PM, 17th September 2014, About 10 years ago 4

Text Size

My wife and I have in addition to our own property three rental properties, owned outright as tenants in common. We wish to minimise our IHT liability for our two children. We have been advised that if we give them half of the properties as tenants in common (i.e. a four way split) and do not share the rental income proportionally then the Inland Revenue will still look upon the properties as “ours” for the purpose of IHT. Is this correct? Minimising Inheritance Tax Liability

Would the same apply in a limited company of which we were four equal shareholders?

Similarly would there be an issue with my wife and myself taking the rental income (as a salary from the company) and not the children?

Would in that case the children’s shares in the company, which would have been gifted to them, fall outside of the IH liability after seven years?

All advice or direction gratefully received.


Michael Pike

Share This Article


Mark Alexander - Founder of Property118

16:13 PM, 17th September 2014, About 10 years ago

Hi Michael

The questions you are raising require complex tax advice, I strongly recommend that you seek advice from fully insured specialist professional including an accountant.

On a general level, and to partially answer your question, the strategies that you seem to be considering would all involve disposals of assets. If the properties have risen in value since you purchased them you also need to consider the CGT implications associated with transfers. It is for this reason that I have recommended that you consult with your accountant as well as a specialist in estate planning.

There is a trust scheme which deals with the reservation of benefits problem you have already identified as well as CGT problems but there are some very awkward conditions, especially if you ever want to raise finance against the security of the properties.

You should also consider life insurance based solutions as these tend to be far less restrictive going forward when compared to complicated trust structures. It is very simple to write life insurance into trust as the policies themselves have no value until you have died. By writing life insurance into trust the policy payout does not affect the value of your estate. If you are married and insure on a whole of life, joint life second death basis then you will be amazed at how inexpensive and flexible the solutions can be . Please also take a look at this page >>>

I do not sell life insurance, I retired from financial services in 2009 after having taken a company which I founded to rank #38 in The Sunday Times Profit Track 100.

If you become one of my private clients I will be happy to review your situation with you in detail and recommend you to the most appropriate professional advisers to deliver the services you require. Please see >>>


21:15 PM, 17th September 2014, About 10 years ago

Reply to the comment left by "Mark Alexander" at "17/09/2014 - 16:13":

I'm afraid there are some really complex questions here, especially when we don't know the capital assets and incomes of all the parties, or their needs and aspirations. I agree with Mark this is a case for paid-for tax advice. Property118 isn't a wealth management advice site and if it becomes dominated by landlords asking about their complex personal tax affairs, the site's volunteer contributors will just grow exhausted and drift away.

I would suggest self-education goes a long way. Try Carl Bayley's excellent books How to Save Property Tax and Using a Property Company to Save Tax, published by Tax Café.

In brief on your queries:

1. if you give away some of the capital but retain the rental income, this sounds like retained benefit to me. Why would you even bother doing this? Just split the income equally in proportion to the capital held, and if you really need the income for day-to-day living costs, informally ask your children to give you a cash gift, say once a year, for a similar amount to the rental income less tax.

2. a limited company can be a good idea, provided you intend to keep for the long term, because it can be laborious getting your money out. The returns would be better if you did some development work through the company as well. Carl Bayley explains the differences between passive investment property companies and development ones, and hybrids of the two.

3. salary from the company: no issues, provided you *do some work*! You need to show you are earning the salaries, and not going through all this contorted shenanigans just to avoid a bit of tax. Tax Café do another book, Salaries versus Dividends, which looks at the best balance between paying a salary (especially one under the NI threshold, at which point both personal and company NI become due) and paying dividends to shareholders.

4. Yes, the capital falls out of IHT, but only if the money has *really* left your estate and you're not hedging your bets and retaining excessive control of the capital by keeping the rental income. A company with proper, genuine, joint ownership and control, and joint benefits in terms of dividends, is one way of retaining a degree of control over the capital. A trust is another approach, as Mark suggests.

Graham Leak

8:56 AM, 20th September 2014, About 10 years ago

A trust deed will help you to overcome this problem of IHT.

I have the info for you if you wish to press ahead with a trusted company who I set mine up with.

David Mensah

22:09 PM, 21st September 2014, About 10 years ago

Hi Michael,

You may find the following article interesting

Mark McLaughlin thinks there are ways to give away part of an investment property, while keeping the rental profits and not be caught out by GWR.

However, he does end by saying:

"Could such a gift be caught by other measures, such as the general anti-abuse rule (GAAR)? Whilst some commentators consider that it is not caught, a possible challenge by HM Revenue & Customs cannot be ruled out. Gifting an interest in an investment property but keeping the rent is therefore perhaps not for the faint hearted"

You will still run into CGT issues etc... and should take professional advice. Three may also be some mileage in having your children benefit from some of the rental profits.

Try to look around and find someone really knowledgeable. I've learned that lesson by wasting a good amount of money on professionals who just give cookie cutter advice. Better to pay more in this case for a top of the line expert.

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now