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Where Taxpayers and Advisers Meet

Transfers from estate

Yiannis17
Posts:133
Joined:Wed Aug 06, 2008 3:43 pm
Transfers from estate

Postby Yiannis17 » Sun May 21, 2017 8:32 am

I have a situated whereby an elderly married gentlemen who is asset rich, his main residence alone valued at over 2 million has been making yearly transfers of his rental properties to his children. That is share in hos property so say 20% a year has been transferred over.

My understanding is that these transfers are PETS and if he were to die within 7 years they would form part of his estate. Would it have not been better to not make yearly transfers of his rental properties and instead on death the assets would pass over to his wife?

Thank you

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Transfers from estate

Postby maths » Sun May 21, 2017 8:55 pm

The transfers are PETs. Their potential advantage is that if the donor survives for 7 years then no IHT arises and the donor has effectively managed to reduce his estate on death (and thus the IHT thereon). Even if donor does not survive the full 7 years any IHT precipitated on the PETs due to donor's death may obtain taper relief (reducing the IHT charge).

Simply leaving estate to surviving spouse simply defers any IHT charge until the death of the surviving spouse.

Other things being equal, in an era of a fixed nil rate band (£325,000) or minimal increases but property which may be significantly increasing PETs are the better bet. But if donor is significantly older than spouse then deferral of IHT may be the better bet (due to cash flow).Even under the latter it would make sense for surviving spouse to make lifetime gifts.

Depending upon the objectives use may be made of trusts.

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: Transfers from estate

Postby AnthonyR » Mon May 22, 2017 11:05 am

As maths said, if PETs can be made early then this is usually beneficial as it fixes the IHT value and may escape IHT altogether if the client lives long enough.

The major issues most people have (and don't consider) are CGT and retaining income.

If the client retains any benefit from the gift (usually the income) it won't be effective for IHT (gift with reservation).

The disposal to the children is likely to trigger CGT at market value (often overlooked) on the client. As maths mentioned the CGT can, to some extent, be deferred using trust planning.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk


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