CGT and IHT questions

[jiji2feng]

Recently, i am diastically with a serious medical problems that could shorten my life drastically. So i want to know how CGT and IHT will impact on my and my wife's situation, both now and on death, thanks..
I am now incapable of working any more but still in full control of my facilities. We own a large rammbling house in extensive grounds. it was purchased for 100,000 in April 1982. Until recently we have always lived in it but now considering whether to sell it or rent it out. A market rent of 10,000 a month has been mentioned. The market value of the house is at least 5,000,000. It is owned jointly by me and my wife.
There is another house in which my son George and his family live. It is owned solely by my wife who lives with them. She is thinking of giving the house to George but wants to continue to live there as she loves her grandchildren. The market value of the house is about 3,000,000. It cost her 80,000 in december 1987.
i have made a will in which all my assets are transferred to my wife. She has not yet made a will because she finds it "depressing to think about death". Neither of us has made any previous chargeable lifetime transfers.
We own shares in the family business.
the rest of our estates are as follows:

------------------------ my -----------my wife
bank accounts(UK)------850,000-------- 35,000
quoted shares----------240,000 --------- 2,000
gilts -------------------120,000---------- -
ISAs--------------------- 5,000---------- -
cars --------------------50,000 ---------- 4,000
personal effects---------30,000-----------80,000

My wife is also the sole life tenant of a trust set up by her first husband who died tragically young. They have no child. The trust stipulates that on her death the assets are to go absolutely to her next-of-kin. The trust's assets are a porfolio of quoted UK shares worth approximately 500,000, generating annual dividend income of about 50,000 net.

how CGT and IHT will impact on my and my wife's situation, both now and on death?and could you give me some suggestions about the most tax-efficient ways to organise our affairs?

Thanks a lot!

[Tax Accountant]

With such an extensive asset base, you are well advised to seek paid professional advice.

Ramnik

[jiji2feng]

With such an extensive asset base, you are well advised to seek paid professional advice.

Ramnik

really thanks for your reply!
Ramnik

but i really need some advice from you because you seem to be a very knowledgable man in this area who i can trust..

thanks a lot!

[Tax Accountant]

I am sorry, but I really cannot add anymore than what I have said before. Moreover, this area is not my strong point. With the size of your assets, I would only be providing what may amount to inadequate service to you. This is not in your best interests.

Ramnik

[jiji2feng]

I am sorry, but I really cannot add anymore than what I have said before. Moreover, this area is not my strong point. With the size of your assets, I would only be providing what may amount to inadequate service to you. This is not in your best interests.

Ramnik

ok, i see
thank you all the same!:)

[tenant29]

jiji2feng.

I suggest you contact the private banking section of your bank for advice on inheritance tax planning or contact a financial advice service company e.g http://www.towrylaw.com/html/individual_clients/protectinginher.htm
or else move to a lower tax jurisdiction.

[jonblair123]

Sorry about your predicament, I too am in a similar quandary. I have come to the conclusion though, that if I liquidate assets now, and pay CGT, then leave the money to whoever, then when I die, which will certainly be within within 7 years, that the tax man takes a second bite! So, if I am correct, not much point in taking that route. I do not think at this late stage anything can be done to reduce IHT, but no doubt some clever people out there amy know better. As for IHT, unless you have an insurance policy that pays out the requisite IHT liabilty to your beneficiaries(unlikely any insurer will now provide the necessary policy at reasonable costs), IHT will certainly apply, even if you go to a tax haven. This I think is the case, as you will always have a UK domicile. They can not take, (rather do not want to take that away from you lest you reduce your tax liability!) ie. you do not have the right to give up domicile for tax purposes only! You therefore will be liable to UK inheritance taxes even if you actually move to say Cayman islands and expire there! I think I am tight, but am no expert in these matters and stand to be corrected. Just that I have done a lot of thinking about the subject, being in the same boat. This should be a lesson for all people out there and the lesson is, dont leave it till its too late! Plan ahead, and give it all away before 7 years prior to death. Its the only surefire way of avoiding IHT.Sure there are trusts etc that abound, but they are all under attack by the teasury, and pretty soon, all the schemes would be declared null and void. I am not into politics, but at the last election, a major political party did promise to abolish IHT, yet the voters chose the other party. So, seems like this tax is democratically justified! People want to pay it!

[Worldlife]

It's so sad to read about the situation facing jonblair and jiji2feng. Unfortunately life gives some of us a raw deal.

We are not on the wealth index of jonblair and so we wouldn't mind if Governments used the taxes they collect from such sources wisely.

What we think is grossly unfair is that much of the estate of ourselves and others could be wiped out by Social Services stealing our asset bases to pay for long term nursing or residential care. That treatment that was expected free of charge from the NHS as part of the contract between state and citizen that my parents and our family contributed to in taxes and national insurance contributions throughout our working lives.

By early planning it is possible to minimise this theft by Social Services.

Whatever planning one might do you cannot overcome the fickle finger of fate. In our case it was the blow that our lass was suffering from an incurable disease that might been she could die before we did. Most of our planning had been to enjoy our lives and leave our daughter with a comfortable future lifestyle.

The chances are that if we predeceased our daughter she would continue her current satisfactory lifestyle and give most of our estate to charity - money is not the source of her happiness.

It could well be an arrogant assumption that because you have made a pile your offspring wish to continue your personal lifestyle or that it actually bothers them the precise amount of money they will get on your death.

A good working practice would be to ensure that you enjoy life to the full whilst fit and able and use your wealth to help and enjoy the relationships with your family whilst you are alive.

In my view the inheritance tax level should be raised to protect families whose only asset is their home but it should not be abolished totally.

Certainly the country would benefit if the royal family were not exempt from inheritance tax and the aristocracy seem to have learnt how to pay some tax and survive.

[jonblair123]

It's so sad to read about the situation facing jonblair and jiji2feng. Unfortunately life gives some of us a raw deal.

We are not on the wealth index of jonblair and so we wouldn't mind if Governments used the taxes they collect from such sources wisely.

What we think is grossly unfair is that much of the estate of ourselves and others could be wiped out by Social Services stealing our asset bases to pay for long term nursing or residential care. That treatment that was expected free of charge from the NHS as part of the contract between state and citizen that my parents and our family contributed to in taxes and national insurance contributions throughout our working lives.

By early planning it is possible to minimise this theft by Social Services.

Whatever planning one might do you cannot overcome the fickle finger of fate. In our case it was the blow that our lass was suffering from an incurable disease that might been she could die before we did. Most of our planning had been to enjoy our lives and leave our daughter with a comfortable future lifestyle.

The chances are that if we predeceased our daughter she would continue her current satisfactory lifestyle and give most of our estate to charity - money is not the source of her happiness.

It could well be an arrogant assumption that because you have made a pile your offspring wish to continue your personal lifestyle or that it actually bothers them the precise amount of money they will get on your death.

A good working practice would be to ensure that you enjoy life to the full whilst fit and able and use your wealth to help and enjoy the relationships with your family whilst you are alive.

In my view the inheritance tax level should be raised to protect families whose only asset is their home but it should not be abolished totally.

Certainly the country would benefit if the royal family were not exempt from inheritance tax and the aristocracy seem to have learnt how to pay some tax and survive.


1. If taxes collected were used prudently, for the good of all, I would be the first one to volunteer! However, increasingly, as I have advanced in years, it transpires that a lot of the money collected is frittered away. Just as an example, the lavish homes that are provided to our ministers, just as an example. Or the index linked pensions etc for the great and the good.
2. If taxes collected were used to provide the retirement homes and services for the elderly, then I would be the first to volunteer! Instead we have the situation described here where your house is repossesed to pay for these services when you finally can not work.
3. I am no royalist, indeed I am naturalised briton, thoroughly commited to Britain, but we should not knock old institutions such as the monarchy, judiciary, parliament or make any changes. We may then end up with someone we can not remove from high office! we must not tinker with these traditional things. We do so at our peril.

[Worldlife]

<snip>.
3. I am no royalist, indeed I am naturalised briton, thoroughly commited to Britain, but we should not knock old institutions such as the monarchy, judiciary, parliament or make any changes. We may then end up with someone we can not remove from high office! we must not tinker with these traditional things. We do so at our peril.

Great to see that our perspectives of live draw us together on what might otherwise be somewhat controversial postings. What matters and what does not matter needs to be put into different perspectives when we realise that we and those we love are not immortal.

Our lass will live forever in the hearts of the Diego Garcians for visiting them in Mauritius and writing a play for BBC to draw attention to their plight. Original link to Yahoo News no longer working and deleted. This alternative articel is somewhat better. Telegraph - Britain shamed as exiles of the Chagos Islands win right to go home (http://www.telegraph.co.uk/global/main.jhtml?xml=/global/2006/05/12/wchag12.xml)

The situation here illustrates the complicated (and expensive to resolve) conflicts between the Crown, politics and Judiciary. A High Court decided that these islanders had been treated unfairly and made a decision in their favour. Tony Blair then went to the Queen and got her to use the Royal Prerogative to overide the High Court Decision. Fortunately justice was served in that an appeal seems to have over ridden the Royal Prerogative. Never the less it shows that someone in the highest office (The Queen) can be influenced to impose an unfair, unjust and illegal action by a Commoner (Tony Blair).

I suppose the good thing here is that Justice has been done in this case without the need to go to Brussels. Guess the whole venture has cost a fortune in legal fees down to us taxpayers!!!

So to finish - A play together with her kindness and generosity will make my lass live in the hearts of others far more than my accumulated wealth and goods. Hoarding money means nothing to my lass - she used a substantial part of her free lance research expenses to resolve the housing situation of the family she was staying with.

From original link to Yahoo News (no longer working)


Exiled Islanders Win Right To Return Thursday May 11, 10:17 AM

Families exiled from the Chagos Islands by the UK so America could build a military air base on Diego Garcia have won their High Court battle for the right to return. They were kicked out of the Indian Ocean paradise in the mid-1960s and early 1970s. However, the British Government, under Royal Prerogative, introduced measures preventing them from returning, which have now been overturned.

The military base was later used to launched bombing raids in Afghanistan and Iraq.

Solicitor for the islanders Richard Gifford said: "The British Government has been defeated in its attempt to abolish the right of abode of the islanders after first deporting them in secret 30 years ago."

Mr Gifford said two judges had ruled that the islanders were entitled to return to their "beautiful islands".

Between 1965 and 1973, islanders were moved off their island for the reasons of US security.

They say more than 1,000 people were forced to go to Mauritius and the Seychelles, where many had problems settling, lived in poverty and received little.

At the High Court, Sir Sydney Kentridge QC, described their treatment as "outrageous, unlawful and a breach of accepted moral standards".

He said there was no known precedent "for the lawful use of prerogative powers to remove or exclude an entire population of British subjects from their homes and place of birth".

But John Howell QC, appearing for the Foreign Office, argued the Government had acted within its powers. and said no-one was unlawfully removed.

[johnj]

As there is no capital gains tax on death, and no Inheritance tax on gifts between UK domicile married persons, who are not seperated:

Holding assets pregnant with gain in your sole name will cause them to enjoy a revised current capital gains tax base cost on death (probate value).

A revised Will, a nil rate band Will, shall create an immediate tax benefit and then we can do some IHT planning for your wife later, but at least if any of the assets currently pregnant with gain are sold there will only be capital gains tax to pay on the gains accruing post death. A transfer of property as a gift free of SDLT IHT and CGT from your wife to you pre death for this tax free uplift could be very useful.
Sorry to be so blunt, but as a beancounter I have seen this situation many times before.