On First Death, want to sell second home and put cash into trust

[dannyboy44]

I am 57 years married and live in our Main house with my wife the property is valued at £220,000. On my mothers death in 1995 her property was left to both my sister and I 50/50. In 1997 I bought out my sister paying 50% of the then market value of £60,000.The second property is being rented and we use the income to cover our outgoings. I would like to make a will such that the main property would be in my wife name and on her death she would use her part of her IHT allowance and put the property into trust for my benefit, on my death this would pass onto the children. I would like to put the second property into my name and on my death have the property sold and the cash put into trust for her to receive as an income. The capital to eventually pass onto the children (30+years old) on her death. The reason for wanting to do this is to benefit from no CGT on the second property on death. But understand that CGT will be liable when inherited by the children. Can anyone help and tell me if I can on my death sell my second property and then put this into trust from my wife as income and on her death capital for my children. If possible I think I may not have to pay IHT or CGT. Thanks in anticipation.

[Lee Young]

CGT is not payable on death.

Your concern on death is IHT - what is the overall value of your and your wife's estates. If below £285,000 then no IHT. If between £285,000 and £570,000 your wills can be structured so that there is no IHT on either death. If over £570,000 then there will be IHT on the second death, but if the Wills are correctly drawn this can be mitigated to "only" 40% of the excess over £570,000.

[DavidHC]

Lee Young is correct but the wills will only work if there is an actual gift made on the first death. Firstly, if your wife has the main residence in her name and, on death, puts it into trust for your benefit it will be an "interest in possession" trust insofar as you are receiving the "benefit" of living there and it would be treated as part of your estate and defeat the object of the excercise. Paying a market value rent to the trust could be done by those with the income to spare, recent pre-owned asset rules mean that this method can suffer through income tax levies. Becoming tenants in common in your own home permits the first spouse to die to leave the half of the property to the other in exchange for a debt owed to their "trust" equal to half the house value - thus remiving half the value of the house from the estate of the second spouse to die. As 50% of your property is well below the nil rate band (currently £285,0000) other assets can be split. CGT dies with you so passing half of the second property to the kids or a trust is fine. They or the trust would be liable for CGT on any increase from the point of acquistion until disposal less costs, with allowances etc. it may be an accpetable bill to take on the chin compared to no IHT planning and they may not want to dospose of it in any case.