Be­ware the sharks when tax plan­ning for your fam­ily home

Tax­ing Times

Yorkshire Post - Property - - PROPERTY NEWS -

Nigel Shaw, tax ad­viser, Gar­butt and El­liott, www. gar­butt-el­liott.co.uk

AS THE fear of In­her­i­tance Tax (IHT) in­creas­ingly grips many fam­i­lies in the re­gion, we are see­ing reg­u­lar at­tempts by less scrupu­lous ad­vi­sors to prey on in­no­cent home own­ers.

They of­ten tar­get the el­derly and vul­ner­a­ble and their tax plan­ning ideas are not worth the pa­per they are writ­ten on.

So, for the ben­e­fit of read­ers, I have de­tailed below some ex­am­ples where cau­tion is needed if you are to avoid an IHT dis­as­ter:

Al­ways take a sec­ond opin­ion, prefer­ably from a Char­tered Tax Ad­vi­sor or so­lic­i­tor, when you are rec­om­mended to trans­fer your pri­vate res­i­dence “into a trust dur­ing your life­time” – this area is fraught with dan­ger and could leave you in a del­i­cate le­gal po­si­tion where you no longer legally own your home. Of­ten the ad­vi­sor is at­tempt­ing to avoid is­sues like care fees or pro­bate fees but all too of­ten the tax con­se­quences are over­looked and, as a re­sult, you or your heirs could end up with un­nec­es­sary tax charges and penal­ties.

In a sit­u­a­tion like this you must ask the ad­vi­sor, “What are the In­her­i­tance Tax, Cap­i­tal Gains Tax and Stamp Duty

Land Tax im­pli­ca­tions of giv­ing up your le­gal own­er­ship of the res­i­dence to Trustees?” If they can­not an­swer in full with de­tailed anal­y­sis do not pro­ceeed any fur­ther.

An­other sit­u­a­tion we have en­coun­tered is where a home­owner is en­cour­aged to trans­fer not just their pri­vate res­i­dence but also other as­sets as well – for ex­am­ple bank ac­counts and share port­fo­lios into trust. This is of­ten done on the ba­sis that it avoids fu­ture claims against your es­tate, es­pe­cially if there are fam­ily is­sues or stepchil­dren in­volved and there are con­cerns over who will in­herit.

While in law this plan­ning may well ar­ti­fi­cially re­duce the as­sets in your es­tate, it could have wider tax im­pli­ca­tions de­pend­ing on the terms of the Trust in­volved. It could also mean you miss out on the new valu­able IHT re­liefs shortly to be in­tro­duced by HMRC.

The other is­sue which you need to be alert too here con­cerns who be­comes the le­gal own­ers of the pri­vate res­i­dence – they will be called “Trustees”. It is im­por­tant your re­la­tion­ship with them is based on trust with a full un­der­stand­ing of your cur­rent and fu­ture fi­nan­cial sit­u­a­tion.

Fi­nally, de­spite the an­nounce­ment back in 2015 of the plans to in­tro­duce higher lev­els of IHT ex­emp­tions i.e. nil rate bands up to an ad­di­tional £175,000 per home­owner, we are still see­ing home­own­ers try­ing to cir­cum­vent these in­creased re­liefs by un­wit­tingly trans­fer­ring their prop­erty in­ter­ests in their life­times.

This, for many home­own­ers, does not make sense as we ap­proach April 5, 2017, when the in­tro­duc­tion of the “res­i­dence nil rate band” com­mences with a po­ten­tial com­bined nil rate band of £500k by 2020-21. The in­tro­duc­tion of res­i­dence nil rate band is tied in with the own­er­ship of a pri­vate res­i­dence, which is held un­til death (al­beit there are spe­cial pro­vi­sions ap­pli­ca­ble in the event of down­siz­ing dur­ing life­time as dis­tinct from life­time trans­fers) so why would you con­tem­plate miss­ing out on this ad­di­tional re­lief?

It may now be the case that home­own­ers who have trans­ferred their pri­vate homes look to un­ravel these ar­range­ments to make bet­ter use of the new IHT rules. This could prove com­pli­cated but it cer­tainly mer­its fur­ther con­sid­er­a­tion.

I have ad­vised on IHT Plan­ning for over 30 years and only in very se­lec­tive cases would you con­sider us­ing the pri­vate res­i­dence as an as­set suit­able for life­time plan­ning. It’s of­ten not fea­si­ble to un­der­take proper IHT plan­ning with­out un­fore­seen is­sues.

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