I recall reading something here about Trusts used for IHT but can't seem to find it anymore.

The scenario:
A parent owns a BTL property and has a BTL mortgage on it. The parent wants to pass the asset to her daughter (as part if IHT planning) but the daughter can't get a BTL mortgage.

Is there anyway the parent can transfer the asset for IHT purposes without changing the land registry ownership (hence continuing with the current BTL mortgage)?

I looked into using a Declaration of Trust (or Deed of Trust) but that doesn't seem to work for IHT.

I recall an old discussion about moving the property to a Trust or a limited company. Can anyone please advise?

Thanks!

Hi,

Yes, I believe it is possible. A Trust can own property and it may be possible as well for the Trust itself to obtain a mortgage, but please don't take my word on that. It's worth having a chat with your accountant, or with Stephen Fay - I think he's on this forum - as a specialist property accountant.

J.

Thanks Jayne …

Hi Emmanuel,

Using a trust is certainly a very useful method of transferring assets to a family member, and so avoiding inheritance tax on death. Unfortunately I’m not aware of any residential lender that well lend to a trust – so the mortgage will need to be repaid before transfer.

One thing to watch out for when NOT using a trust – passing assets directly from parent to child will incur a capital gain tax charge, with the market value being used as the ‘sale’ price. This sometimes causes problems as there are no sale proceeds to pay the tax – plus there is a tax bill to pay – not ideal. A deed of trust is of little use in these circumstances.

A company isn’t much use as an inheritance tax-planning tool – the value of the shares is just the underlying value of the (property) assets. A proportion of a property can be gifted from parent to child on an annual basis to utilise the parents’ (double) CGT Annual Allowance – that’s certainly worth considering, and a deed of trust can achieve this. [Note - making family members the shareholders from day #1 is an option - IF the loss of control can be lived with!]

IHT planning needs careful consideration – definitely not a “DIY” exercise – and usually a mix of gifting assets, transfers into trust, insurance, and raising finance and gifting away the cash.

Hope that helps …

Thanks Stephen.

(20-09-2012 07:23 PM)Stephen Fay FCA Wrote:  Thanks Jayne …

Hi Emmanuel,

Using a trust is certainly a very useful method of transferring assets to a family member, and so avoiding inheritance tax on death. Unfortunately I’m not aware of any residential lender that well lend to a trust – so the mortgage will need to be repaid before transfer.

One thing to watch out for when NOT using a trust – passing assets directly from parent to child will incur a capital gain tax charge, with the market value being used as the ‘sale’ price. This sometimes causes problems as there are no sale proceeds to pay the tax – plus there is a tax bill to pay – not ideal. A deed of trust is of little use in these circumstances.

A company isn’t much use as an inheritance tax-planning tool – the value of the shares is just the underlying value of the (property) assets. A proportion of a property can be gifted from parent to child on an annual basis to utilise the parents’ (double) CGT Annual Allowance – that’s certainly worth considering, and a deed of trust can achieve this. [Note - making family members the shareholders from day #1 is an option - IF the loss of control can be lived with!]

IHT planning needs careful consideration – definitely not a “DIY” exercise – and usually a mix of gifting assets, transfers into trust, insurance, and raising finance and gifting away the cash.

Hope that helps …

From an IHT point of view is there really any need to transfer the asset.I do not think so.
Why don't you simply remortgage the buy to let property so the LTV goes up and then give the cash to your daughter.She can then invest the money herself.Also the cash will become IHT free once 7 years elapses as it is a PET potentially exempt transfer.

Since the debt on your estate has now increased, the net value of your estate will fall, which means your estate is less likely to exceed the nil rate bands of £325k per spouse.

(12-09-2012 09:37 AM)emmanuel_gad Wrote:  I recall reading something here about Trusts used for IHT but can't seem to find it anymore.

The scenario:
A parent owns a BTL property and has a BTL mortgage on it. The parent wants to pass the asset to her daughter (as part if IHT planning) but the daughter can't get a BTL mortgage.

Is there anyway the parent can transfer the asset for IHT purposes without changing the land registry ownership (hence continuing with the current BTL mortgage)?

I looked into using a Declaration of Trust (or Deed of Trust) but that doesn't seem to work for IHT.

I recall an old discussion about moving the property to a Trust or a limited company. Can anyone please advise?

Thanks!

I`m looking at selling some of my properties to my daughters gradually one by one . Im choosing the ones that releases equity at around 20K a shot ( so no CGT ) . I will use that money for my lifestyle choices and it replaces the lost rental income to a certain extent. They then have an asset in their own right growing year on year in their name collecting the 300 pcm rent money as well so they can also retire early. They may even pay me to manage it for them! If I`m not too greedy I will give them some of the cash released as well along the way and try to last at least 7yrs before I meet my maker!

Bill,

It's certainly a good IHT planning strategy to leverage your properties by remortgaging, and then gift the cash to your family. Cash gifts - as opposed to actual property transfers - do not attract any capital gains tax.

However, in my experience, gearing up and gifting cash away is not a common strategy among landlords, or indeed business owners. The main reason for this is that many people feel nervous / uncomfortable about carrying high borrowings in their later years.

CGT is often an area that catches people out - when a gift of an asset is made from parent to child, this is subject to both CGT and IHT. As cash is not subject to CGT, that's one of the two taxes avoided - and, if the donor survives 7 years after the gift, the gift is completely free of IHT.

None of the above requires a trust - since trusts pay tax at 50% they are really about controlling assets and passing on wealth rather than to save income tax on rental profits. Transferring property into a trust is a key part of IHT planning but does require specialist support - this is a complex area. As I said above, for most people no one strategy will work, it's normally a mix of mix of gifting assets, transfers into trust, insurance, and raising finance and gifting away the cash.

Hi
Could I please request help with this query?
I have a property as Tenants in Common with my mother, we own an equal share. Although each of our individual share is less than the IHT threshold, could we still be liable to pay CGT if one passed on their share to the other? if yes, is there a way to mitigate this.

Thanks