benefits of willing second property to kids

[ronan1]

1. Mother (74)owns second home ( her childhood family home)in addition to main res joint owned with father(82).( Mother has paid £350 for advice but got a mere statement of her assets with no concrete advice given other than 'do nothing until first death'. i felt this was unsatisfactory, and i now dont trust the sols concerened.)
2. 2 kids . If the second home is willed direct to kids on first death ,would this effectively enable use of two IHT nilrate bands .? How much capital gains would we pay on sale of this second home if inherited , would it be on whole value ( £400 K) less allowance.
3 .Is a discretionary will trust still worth considering nowdays, and does this necesitate a move to tenanats in common on main home. How much should that cost to set up.?

thanks

[King_Maker]

1. If the second home is sold following their mother's death, the 2 kids will have a CGT liability (assuming it was never their main residence). The CGT will be based on its Probate Value. So if the sale takes place very soon afterwards, the CGT is likely to be low/NIL.

2. If there are no GWR issues, a lifetime gift should be a PET.

3. Deeds of Variation can be used to re-write a Will (or an Intestacy, if relevant). However, it does need the consent of all the beneficaries, which can prove more difficult in practice.

Did not the "advice" include possible options?

[Anthony Nixon]

Where there are assets with a value well in excess of double the IHT threshold it is worrth married couples including not only the discretionary trust but a further trust in their wills.

The discretionary trust is for assets worth the £275,000 “nil rate band”. This ensures that, on the death of the survivor, there are two nil rate bands available before any IHT starts to be paid. The nil rate band discretionary trust nowsaves 40% of £275,000, or £110,000 – what one of my colleagues calls a “no-brainer”.

This is unaffected by the assault on IHT saving plans from the new pre-owned assets tax.

The reason for having a second trust is to give the opportunity to save yet more IHT. If the survivor of a married couple outlives the first to die by at least seven years all the IHT on the assets owned by the first to die can escape IHT.

The mechanism is that the second trust in the will is an interest in possession trust. The surviving spouse has that interest in possession initially which means that there is still no IHT to pay on the death of the first spouse.

But the trustees of the second trust have power to vary the trust so as to pass “IHT ownership” down to children or grandchildren. This is a transfer out of the estate of the surviving spouse and is free of IHT after seven years – even after three years taper relief may save some tax.

Meanwhile the surviving spouse can still benefit from what has been transferred out of her estate without any problem with reservation of benefit rules or the pre–owned assets tax.

This is an ideal solution in your circumstances. Half of both the first and second properties can be passed down the generations, after the death of the first to die. The half in the estate of the first to die also gets a tax-free uplift for CGT.

Tenancy in common is essential to make this tax saving plan worth effectively. I am now advising all my clients that tenancy in common is preferable to joint tenancy, always accmpanied by making wills in the right form.

Willing the second home direct to the children on the first death is a less favourable opption - there is immediate IHT to the extent the value exceeds £275,000.

The double trust will plan which I have suggesrted is a better solution since there is only ever any IHT on the second death.

Anthony Nixon
Partner
Lester Aldridge Solicitors
Alleyn House
Carlton Crescent
Southampton
SO15 2EU

Tel: 023 8082 0442
Mob: 07881 920742
Fax: 023 8082 0441
Email: anthony.nixon@la-law.com
Website:www.lester-aldridge.com