Rental property

[john2016]

Good morning,

I own a rental property. Is there any way , eg through some sort of Trust or otherwise where I can retain the income from the property but upon my death there is an irrevocable arrangement whereby it passes to my children. ie they are guaranteed to inherit it.

[AnthonyR]

Assuming that you own it outright and aren't looking to put in place any IHT planning or otherwise, it's just a matter of making sure you have an up to date and valid Will leaving the property to your children.

Just be careful if it's a joint tenancy as this will transfer to the survivor on the first death bypassing your Will. In this care you'd need to sever the tenancy and can only transfer your share of the property.

[john2016]

Thank you for that comment. However my problem with it is that my former partner wishes to ensure that the rented property will pass to our children (which I have no problem with) and obviously a Will may be changed at some future date. The arrangement has to be irrevocable. Any suggestions?

[AnthonyR]

The issue here is maintaining the income. If you were happy to give away the income as simple trust would suffice. If you need to maintain the income any trust becomes settlor interested which means that you are taxed on the income and the asset is treated as yours for IHT purposes (not necessarily a problem). The biggest problems however are that CGT holdover relief is not available to a settlor interested trust, which means that on the gift into trust you will be subject to tax on any gains to date and if the property is more than the nil rate band (£325k) or 2x nil rate band for joint settlements (£650k) then there would also be an immediate IHT charge and 10 yearly charges.

The alternative option is the creation of 'Mutual Wills' which is a complex area resulting in a Will including an irrevocable contractual arrangement forcing both parties to retain particular terms in their Wills and make agreed gifts on death. It's an area that needs particular care and certainty, so I'd take specialist advice on the subject if you are looking at it as an option.

[maths]

Much depends upon the value of the property today and its original cost to you. This will dictate the quantum of any CGT charge and IHT charge were the property to be settled on trust.

Such settlement should provide your former partner with comfort that on your death the property would pass to your children whilst at the same time during your lifetime you receive the rental income.

The property would also fall outside your estate on death for IHT purposes.