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  • Tax

    Inheritance tax

    Hi,

    Can anyone help with this question:

    I plan to take out an interest only mortgage and buy a (commercial) property. I will invest 100k of my own cash. The value of the property will cross the threshold of Inheritance tax. Will the mortgage be regarded as debt and therefore the property will be considered as worth merely 90k in respect to IHT?

    Thanks,

    Michael

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     PT is cool

    I mean "merely 100k"

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     PT is cool

    before an estate can be distributed all debts must be paid first

    The Estate pays IHT on what is left minus the allowances of course

    So yes debts are IHT friendly in a strange way

    I take out life insurance written in trust to cover the debt so its a win win win in regard to IHT


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    Learn Change and Adapt ?????

    That is really helpful, Dissy. Many thanks.

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     PT is cool

    So if there are 2nd interests or charges on property titles will the 1st and 2nd interests be paid off before IHT calculations.

    What happens if one of the 2nd charges is in favour of one of the beneficiaries?


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    It depends how the interest is created and for what reason.

    If the interest to the beneficiary is because they made a loan to the purchaser then it is free and clear. If however the interest is so that the settlor can pass some of the property on to them on death, then that is considered a Potentially Exempt Transfer a PET.

    Generally someone does not have an interest in a property or asset unless they have put something in, so to create an interest without this quid pro quo will raise concerns.

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    Landlord with 25 years’ experience in the property market and a specialist in tenant referencing ID and credit screening. Creator of identity, credit and anti-money laundering system ValidID.co.uk