Trust, taxation and Inheritance

[Charente]

My husband and I are about to purchase a second home.
We live in a home that is solely in my husband's name.
We are considering buying our second home in some kind of Trust arrangement, where the sole beneficiaries will be our five children (from previous marriages.)

Can anyone answer/advise on the following questions?

We wish to minimize Inheritance tax. Is a Trust suitable for this?

We wish to minimize capital gains tax. Is a Trust suitable for this? If the house is bought solely in my name (wife) is capital gains tax due on the second home?

Is it expensive to set up such a Trust?

Is there any other possible arrangement that would help us meet our objectives?

Am I asking the right questions?

Grateful for all help. (Bit of a beginner on all this.)

[Loza]

A trust may be suitable to you, they are not the tax saving devices they once were but there are still opportunities.
If you (and your husbands) estate is likely to exceed the NRB, 325*2 = 650K then it becomes more relevant.
If you want to protect the asset from other parties (failed marriage)(creditors)then again there are reasons to use a trust.
A typical high street solicitor would charge around £1,000 plus to create the trust.
Ongoing support and administration in my opinion is equally as important,which you would not get from the one off creation.
You will find a number of people on this site who will be happy to do it for you,(myself included 07790 356873) at a lower cost.
If you are only just buying the property there are not likely to be any CGT issues.

[maths]

1. How old are the children.

2. Is the purchase to be rented out or occupied by someone as their main home.

3. Why are you suggesting a trust for the children; why not give them each a direct share of the property.

4. Which is more important avoiding CGT or IHT.

5. Presumably your and husband's estate greater than £650k.

[Anthony Nixon]

To get any IHT benefit now, you would either have to share ownership only with those children who are living with you (which gets awkward when one or more moves away) or pay a full market rent for any use you make of the property. Otherwise you will be reserving a benefit.

However a trust may be useful for CGT purposes.

As a married couple, you and your husband can have only one main residence for CGT between you. Once your children are 18, however, there is nothing to stop them having a separate main residence for CGT.

If you buy a property within a trust, of which you and all your children are potential beneficiaries, you can take advantage of any periods when the property can be the main home of any of your children, to shelter it from CGT, and, if you want, keep the whole benefit for yourself. With five children between you, there should be quite a bit of scope for this, with careful planning, and keeping elections with HMRC under review.

There is still a reservation of benefit for IHT purposes, but this is no different to keeping the property in your own names.

If you ever do want to pass IHT ownership down to the next generation, you and your husband can be excluded from the trust. This allows the property to go down to the next generation without a CGT charge, which is not the case if you have bought it in your own names.

Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP, Southampton and Chichester
anthony.nixon@thomaseggar.com
023 8083 1224

[tax_schmax]

Why are you considering buying a second property. Do you see it as profitable or is it more for enjoyment than financial gain. The reason I mention your needs in this respect is that if you see the venture something either profitable or for your retirement, there may be an IHT and CGT free option.