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Question for experts in dealing with UK inheritance tax

Discussion in 'United Kingdom' started by Nuvolari, Aug 11, 2020.

  1. Nuvolari

    Nuvolari F1 Veteran
    Sponsor Owner

    Sep 3, 2002
    5,651
    Toronto / SoCal
    Full Name:
    Rob C.
    Hello,

    I have a very close friend who's mother (remaining parent) is very ill and will likely inherit the family estate on her passing. I'll preface this by saying that this is a good man who does not care about the money but the property has the possibility to really help his family out and he wants to keep it.

    Problem is that the UK inheritance tax is something like 40% which would make it impossible for him to keep the property in the family because he would never be able to pay the tax bill without selling the estate. Certainly with his mother still alive it opens transfer possibilities that are not otherwise possible after her passing so I thought I'd turn to the UK F-Chat brain trust to see what options would exist for him to acquire the property without the huge tax bill.

    His intention is to live on the land and run a small hotel on it. He really loves his parents and wants to be on the land they lived their life on. He does not want to do anything illegal but at the same time I'm certain there must be some creative tax strategy that can be employed here.

    While I know this can be a sensitive subject I welcome anyone that can help to either Private Message me or send me an e-mail: rob@carbonio.com .

    I have no financial interest here and am just trying to help a good friend out.
     
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  3. INRange

    INRange F1 Veteran
    Silver Subscribed

    Jan 27, 2014
    5,188
    Virginia
    Full Name:
    JD
    I'm not an expert but this should at least help. It has the latest thresholds and ways to avoid/reduce the tax. If the estate is sizable....I would hire a real estate tax attorney to present the family options. The taxes in the UK are the primary reason we don't own real estate there. So many UK families have lost their legacy properties due to the inheritance tax.

    https://www.which.co.uk/money/tax/inheritance-tax/avoid-inheritance-tax-a4z5q8k6vkp7#:~:text=1.-,Make%20gifts,money%20away%20during%20your%20lifetime.&text=If%20you%20make%20gifts%20above,ll%20be%20tax%2Dfree%20too.
     
  4. francisn

    francisn Formula 3

    Apr 18, 2004
    1,820
    Berks, UK
    Full Name:
    francis newman
    #3 francisn, Aug 11, 2020
    Last edited: Aug 11, 2020
    Currently the first 325K pounds is IHT free, plus the deceased's primary property also has a 150K zero rate band as of April this year going up toe 175K in April 2021, if it is left to a direct descendant. (ie son/daughter/grandchild) and teh whole estate is worth less than 2 million.
    Other than gifts of 3K per year gifts are taxable at the full rate of 40% for the first three years then on a sliding scale (called taper relief) until 7 years have passed when they become tax free.
    If the mother has little time left there is probably no clever accounting that can be done to avoid the tax as laid out above, but worth checking with an expert.

    I am only speaking from personal experience not as an expert.
     
  5. Bluebottle

    Bluebottle F1 Veteran
    Silver Subscribed

    Oct 15, 2012
    6,775
    Exeter and Cirencester
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    John
    Did his father die recently and leave his estate to his wife? If so, the son may be able to use both of their allowances, and so double up on the figures Francis has quoted. I can't remember the date that provision came into force, but it will be on HMG's website somewhere - see https://www.gov.uk/inheritance-tax.

    Sadly no way to avoid IHT unless she gives it all to him and lives for another 7 years, but that may incur a CGT liability.

    As they say "the only things in life that are certain, are death and taxes".:(
     
  6. francisn

    francisn Formula 3

    Apr 18, 2004
    1,820
    Berks, UK
    Full Name:
    francis newman
    And even then if she continued to live there and not pay market rent to the son the value of the property would count towards her estate under the "interest in possession" rule.
     
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  8. Colin McKaydino

    Nov 19, 2020
    5
    Full Name:
    Colin McKay
    There is another one available if the estate is large if the deceased leaves 10%to charity it drops iht by 4%
     
  9. francisn

    francisn Formula 3

    Apr 18, 2004
    1,820
    Berks, UK
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    francis newman
    Correct but doesn't really help on this instance where he is trying to keep capital value in the estate.
     
  10. marklintott

    marklintott Formula Junior

    Jul 13, 2005
    537
    Taipei / Somerset UK
    Full Name:
    Mark Lintott
    I'm going thru this exact scenario right now. My mother died 4 weeks ago and my father in 2017. If the estate is "large" does that mean its a farm or some sort of agricultural property in which case IHT is zeroed out on inheritance - at least on that property that can be legitimately attached to the farm. Of course cash and other liquid assets; shares, bonds etc will be exposed and you'll be in for the 40% unless you have some other coverage. In this situation a farming partnership would also allow you to invest in the business with cash etc as long as your friend was bought in as a partner and can prove some involvement in the business. There is also business property relief that may be some help too. Capital gains is also zeroed at second passing but will start to acrue therefter.

    I am absolutely no expert although I've been involved with trying to sort this out for the last 2-3 years or so and have had the run around by one firm of lawyers in that time - that's a steep learning curve! What I say may also be not the whole story or may be only applicable to my situation so take it all with a pinch of salt. Anyone here with real expertise please correct me if need be.

    Get a good lawyer with expertise in the specifics of your friends situation is No. 1 in my opinion.

    Good luck!

    Mark
     
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  11. francisn

    francisn Formula 3

    Apr 18, 2004
    1,820
    Berks, UK
    Full Name:
    francis newman
    I believe there are completely different rules for agricultural land, and you probably already know far more than I will ever know. Sounds like you just need a better lawyer. Don't go there. Ended up in a dispute with my late mother's lawyer, with who my family had dealt since 1870. Cost us a load of money because they didn't know what they were doing. Then took 3 years to sort out.
     
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  13. marklintott

    marklintott Formula Junior

    Jul 13, 2005
    537
    Taipei / Somerset UK
    Full Name:
    Mark Lintott
    Likewise exactly. Don't know how some of these firm manage to stay in business really. There are good and bad of course but there seems little real recourse to the bad ones. Everyone's experience is unique of course so I hope it's the exception rather than the norm!
     

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