Reducing inheritance tax
A retired client, referred to us by another of our clients, had made over the majority share in a second country property to their children some years ago, in order to save the family Inheritance Tax. The client later moved into the property full time, thereby unwittingly defeating the original intention.
Having established the full extent of the client’s invested capital, we advised, in co-operation with their solicitor, that the situation be rectified by the client obtaining two professional valuations of what an open market rental should be, and that the client enter a tenancy agreement with the children to pay an appropriate proportion of that rental (based on the higher of the two valuations in order to make doubly sure the Capital Taxes Office would be unable to challenge the validity of the transaction) in respect of the share in the property the client did not own. On the client surviving seven years from the completion of the tenancy the property will fall out of account for Inheritance tax purposes.
Furthermore, by paying the rent in specie viz.by transferring each year an appropriate proportion of the investments to the children the client will achieve further reduction in tax, as any growth in the value of the transferred investments will take place outside the client’s estate.
The Financial Conduct Authority does not regulate taxation or trust advice.