Inheritance Tax and Capital Gains

[Jacob Oliver]

I have two questions and search as | might I cannot find a previous link

Inheritance Tax: On my death my portfolio of properties will pass equally to my three adult Children. But for them to be able to pay the Inhertance Tax they will have to sell some properties.

Will the tax authorites give my "children" a set time scale to sell these properties so they can raise enough cash to pay the inhertance tax. If so what sort of time scale will they allow.

CGT: Also after my death will my "children" be liable for Capital Gains Tax as well as Inheritance Tax.

I hope to hear some good news - but I doubt it!

Jacob Oliver

[Tax Accountant]

Capital Gains Tax only applies on sale or transfers whilst you are still with us. On death, there is no Capital Gains Tax. All assets are inherited by the beneficiaries at their market value, also known as probate value. The receipients will then only be responsible for CGT on subsequent sale or transfer based on increase over the probate value.

Inheritance tax could be paid in instalments. I am not sure exactly over which period, but I think that it is over a few years. However, interest is charged on this. Effectively IHT is treated like a loan to you which your survivors settle over the given number of years.

Did you know that each person is allowed £275,000 without any IHT? Do you have a spouse? If yes, she is also allowed £275,000 without any IHT.

Also, did you know that lifetime transfers (known as PETS) could be wiped off if you survive 7 years. So, you could give away say £275,000 today and could so again after 7 years. However, lifetime transfers gets caught by CGT.

So, it is CGT during lifetime and IHT at death.

Ramnik

[Jacob Oliver]

Karongo

Your explantion is very helpful and pleasing that my chidren will not have to pay Capital Gains after my death. Just IHT

With regard to me giving away £275K every seven years do you know if the is just one £275K because I have 3 children but no wife

How do you phisically give away £275K to one all or one of my three children as most (not all) properties have a BTL mortgage. But still there is a lot of equity.

Perhaps I should read up on about PETS I have avoided this route so far because I understand that if you give away your properties then the rental income must go to them. - At the present time this is not an option

Does any one know of a simple guideline book on PETS

Karongo, again thank you

Jacob Oliver

[Tax Accountant]

Jacobs,

The £275,000 nil rate band limit is per donor regardless of the number of receipients.

You are right in stating that you could not give away the properties without also giving away the rental income that goes with it.

You could release equity by selling or remortgaging and then you could give away some cash. However, if you sell, you may incur CGT and if you remortgage, you will then have a higher mortgage to service which may not suit you.

It is best to seek independent professional financial advice. Also make sure that you have an upto date will.

Ramnik

[Jacob Oliver]

Thank you Ramnik and Karonga

Has any one else have some more advice on this matter

With mortages attached to buy BTL properties it seems virtually impossible to reduce Inheritance Tax - I will just have to work harder to reduce the various attched mortgages but with rental income remainig static and mortgage rates increasing this is near nigh impossible

Jocob Oliver

[Tax Accountant]

As I said earlier, you could raise capital by remortgaging and then give away the capital. But you cannot have your cake and eat it. It is easy to realise the IHT problems but difficult to put into practice for various reasons.

Ramnik

[musicman]

Inheritance tax could be paid in instalments. I am not sure exactly over which period, but I think that it is over a few years. However, interest is charged on this. Effectively IHT is treated like a loan to you which your survivors settle over the given number of years.
Ramnik

Inheritance tax is currently paid over 10 years, as I am currently paying it on a property I inherited from my father. However if you sell property that makes up part of an estate, the inheritance tax is payable immediatly.

Currently, though I have the cash to pay off the goverment, I can earn more in interest than I have to pay them each year, so I am making them wait for it. This is also down to the fact that I was disgusted that I had to pay the tax in the first place, as my mother left me half the house when she died 12 years ago, but that did not matter to the tax man. Nievity on my part yes, but also maybe bad advice at the time, combined with rampant house inflation over the last 12 years.

[Yardleystar]

It is said that IHT is the one wholly avoidable tax as you can effectively plan your estate to remove all this tax.

This is a complicated area involving trusts that have to consider the income and home of the surviving spouse as well as the interests of the beneficiaries.

If your estate is planned effectively, it is likely your children will inherit 100% of your portfolio and pay no IHT and not have to diminish your portfolio to meet the bills.

Setting up effective estate planning is a straightforward process involving a review of your current assets and liabilities, discussing the plans for your future and setting up trusts to manage the estate.

I have an estate planning solicitor who is excellent in this field, and should anyone wish to know more, feel free to contact me

[Jacob Oliver]

Firsly to Musicman thank you for telling me of the 10 year rulle I had heard of this before but still have not seen any written evidence of this.

Also musicman what is the difference between inheriting a property and part of an estate ( Can I assume that the inherited property was the only item within the estate)

Also to Steve Sims, I will definetly phone you but to date I have paid not inconsiderable amounts of moneys just to be told that there is no possibility for me to have reduce my level of inheritance other than the standard level

thank you Jacob Oliver

[musicman]

Also musicman what is the difference between inheriting a property and part of an estate ( Can I assume that the inherited property was the only item within the estate)

Unfortunatly (or fortunatly, depending on how you look at these things), the house was not the only the sole part of the estate, though it did take up nearly the whole IHT allowance at that time. as my father had other money from savings & insurance policies, these have allowed me to be able to pay the monstrous amount of IHT I have to pay. If the half share of the property had been left to me, as we all thought it had, I believe I would of had to pay around £5K-£8K of IHT, which I would still be annoyed about paying, as my parents were both working class. My father's salary just before he retired was around £12K and that was the best wages he had earn't. My mother did earn more when she was alive, but they scrimped and saved to buy a house and then upgrade, though savings. They were never a couple who went out down the pub and spent money like that. So to say I am bitter about paying this tax is an undersatement!!

Gary

[Grange]

'Give away 275k every 7 years'.

No - a popular misconception! That gives you very little benefit.

Instead give away as much as you can in excess of 275k, and then don't die for 7 years.

If you only give away 275k you get no benefit whatsoever if you die within the 7 years, as that sum is deducted from the nil rate band in force at your death within 7 years.

If you give away more than 275k, the amount of tax paid is reduced according to the length of time you survive.

'My properties have mortgages'

In which case they're not worth as much as you think they are... I suggest you refinance and move the mortgages so that you can release some houses from debt; then give them away. Alternatively, your children can take on the BTL mortgages.

BTW Are you sure your children want to be property landlords?

[khanking]

My father passed away last year, however in 2004 he transferred and gifted to me his house, where he lived with my disabled mother. Subsequently the property has been let following my mother moving in with my brother a couple of months ago. What are the overall implications to me regarding the proceeds of either selling the property or the continued rental income from the property bearing in mind that I am in receipt of benefits.ps. My father appointed me as the executor and trustee in his will, there is mirror will, whereby the property would pass on to my mother in my fathers absence. Instead of me selling the property given my situation would it be more advisable for my mother to sell off the property and avoid all together any IHt or CGT? if these were relevant to my mother considering that this was her main residence with her late husband. Would appreciate any advice.

[jeffrey]

khanking: please start new thread.

[jeffrey]

If you received the property:
a. did you assent it to yourself; and
b. are you now the registered proprietor? If so, only you- not your mother- can sell the property.