1 / 19

Your House Asset or Liability

Your House Asset or Liability A presentation by Tim Adams Barlow Robbins LLP Solicitors Guildford Godalming Woking Inheritance Tax

Ava
Download Presentation

Your House Asset or Liability

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Your HouseAsset or Liability A presentation by Tim Adams Barlow Robbins LLP Solicitors Guildford Godalming Woking

  2. Inheritance Tax “…broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue” Roy Jenkins, speaking in 1981

  3. Inheritance Tax • Calculated on the value of a person’s estate at death and on certain gifts made during lifetime • First slice taxed at 0%- the “Nil Rate Band” -Currently £285,000 • Balance taxed at 40% on death and 20% for certain lifetime transfers

  4. Potentially Exempt Transfers • A gift from one individual to another is free of Inheritance Tax, if the donor survives for seven years • Very few transfers into trust qualify as PETs (the majority are now chargeable after Finance Act 2006)

  5. The Family Home • Often the most valuable family asset, but it will attract inheritance tax if you fail to plan • But do remember, you have to live somewhere – the future can be uncertain

  6. Reservation of Benefit • If a parent gives a house to a child who does not live with them, this is ineffective for IHT – Reservation of Benefit • Works if parent pays FULL market rent • Works if child lives with parent and remains there, paying a full contribution to the outgoings

  7. Tax Mitigation Schemes • Most of these are now unattractive since the introduction of Pre-Owned Assets Tax in 2004. • A child can still buy a house from a parent, provided it is the entire interest, not just a share • Commercial equity release possible but expensive – last resort

  8. Downsize • Sell the house, buy somewhere less expensive and possibly give away some of the surplus proceeds by way of PET • Consider your own future needs • Sale of one’s principal residence is CGT free

  9. Inheritance Tax and Your Will • Making your Will provides an ideal opportunity to review your financial position and take some positive steps to reduce your potential Inheritance Tax liability • but first – an old chestnut • “Surely we will save Inheritance Tax by owning our house as tenants in common”

  10. Joint Tenants/Tenants in Common • Joint Tenants - Property automatically passes to surviving joint owner on first death, irrespective of provisions of Will • Tenants in Common - Share of property is part of estate and passes according to Will or Intestacy • No automatic saving of tax - depends on terms of Will • Usually necessary in any tax mitigation arrangements

  11. The Nil Rate Band • Currently £285,000 • Each spouse is treated separately for Inheritance Tax purposes • Possible tax saving £114,000 on the second death • Benefit wasted if everything left to survivor on first death

  12. Will making strategies to reduce Inheritance Tax • On the first death • Leave a legacy (cash or assets) of the “nil rate band” to the children as an outright gift • Leave a legacy of the “nil rate band” on discretionary trusts

  13. Outright Gift by Will • Is it affordable? • Possibly leave a share of the house to the children – but what happens if children suffer financial or marital problems (or predecease)? • Potentially effective for IHT provided survivor has no guaranteed rights to occupy • CGT disadvantages

  14. Nil Rate Discretionary Trust • On first death - Legacy of the nil band to trustees • Trustees can use trust fund for a range of beneficiaries, including the surviving spouse • Spouse has no automatic right to benefit • If care is exercised, trust fund should avoid being taxed on death of survivor

  15. Funding the nil rate trust • What assets can be used for the trust? • Only assets “owned” by the deceased • Share of house? Not prior to Finance Act 2006, but now may be possible • Joint assets held as tenants in common • The “Charge” scheme

  16. The Charge Scheme • Enables the “nil rate gift” into a discretionary trust to be satisfied by requiring the trustees to accept a “charge” over assets passing to the survivor • Survivor can inherit whole estate subject to a liability/debt in favour of the nil rate trust • The Revenue accept (at present) that the basic arrangement is tax effective

  17. Anti-avoidance • S.103 Finance Act 1986 – debt may be disallowed where assets gifted by survivor during lifetime to first to die • Solution – leave residuary estate to survivor on life interest trust (IPDI) • Trustees must be careful to “manage” the trust to avoid allegations of a sham

  18. Deeds of Variation • It is possible to “rewrite” someone’s Will after their death to rearrange matters in a more tax effective manner • May be possible to insert retrospectively a nil rate discretionary trust • It is possible to “sever” a joint tenancy retrospectively • Strict time limit of two years from date of death • Not safe to rely on it – make a proper Will

  19. ANY QUESTIONS? Thank you for listening Tim Adams

More Related