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Where Taxpayers and Advisers Meet

Eversden ruling

drcalewis@aol.com
Posts:4
Joined:Wed Aug 06, 2008 3:03 pm

Postby drcalewis@aol.com » Tue Jun 17, 2003 12:44 pm

What is involved in setting up a "Defeasible Life Income settlement Trust" as part of a way of saving inheritance tax on one's main home? How many hours of legal time does this take (the piece of string involves big freehold house without mortgage, husband, wife and four children only), and what would be a typical charge? Following the recent Inland Revenue loss of appeal in the Eversden family case, this loophole seems too good to miss! More advice please from the legal beagles!

webmaster
Site Admin
Site Admin
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Postby webmaster » Wed Jun 18, 2003 2:11 am

Have you read the articles in TaxationWeb's UK & International Tax Law section? There are a few good articles on the Eversden case.

DF
Posts:35
Joined:Wed Aug 06, 2008 3:02 pm

Postby DF » Fri Jun 20, 2003 3:56 am

This is a popularised scheme particularly in light of the Revenue's failure in court and the fact that no changes to counter this were made in the Budget.

Essentially, the benefit is that the scheme can enable you to gift away the value of your house (or 95% of it) whilst also enabling you and spouse to continue living in it. This is normally not possible under IHT rules since where you continue to enjoy a benefit the value of the item gifted continues to be in your IHTable estate. However, Eversden gets round this.

The benefit to you is a 40% IHT saving on the value of the home given away. The whole house can also continue to qualify for the main resdience exemption for capital gains tax.

There are risks of course. The main one being that you must give away a right to live in the property to another person (usually children) and they could exercise a right of occupation. If relationships between the parents and children go sour then this could be a problem. This is also the case if the children have problems with creditors in that your home may be at risk!

The scheme is expensive to set up, not without a level of risk (the full extent of which I have not described) and you will definately need professional technical advice. You would be ill advised to do this in any other way and I cannot overstate this.

David

Taxbar
Posts:1187
Joined:Wed Aug 06, 2008 2:19 pm

Postby Taxbar » Tue Jun 24, 2003 2:57 am

The Eversden Scheme has been blocked by the Inland Revenue on 20th June 2003.

There are 2 other methods of taking your home out of the IHT Tax Net. I will be discussing these in a forthcoming article in my section of this site.

They are the House Debt Scheme and the Reverse Ingram scheme.

Both have a number of variables depending on personal circumstances and should never be bought off the shelf as a product, but with the advice of an experienced Tax Lawyer.

You need to have a house worth at least £500,000k+ and to act quite soon.

I note you asked about costs. These will vary, but I would say that a broad rule of thumb is between £10,-20,000.

Please contact me via my section of this website if you require more advice.

Daniel Feingold Barrister-at-Law (NP)
Editor UK & International Law section.

drcalewis@aol.com
Posts:4
Joined:Wed Aug 06, 2008 3:03 pm

Postby drcalewis@aol.com » Tue Jun 24, 2003 11:56 am

Ouch! That is an awful lot of money for costs. Well, - you would say - "I can save you a lot of money by reducing your IHT liability - so my fee is a bargain". Would any legal expert be prepared to explain such a fee in terms of an hourly rate or time taken to draw up the trust. What exactly do you do for the money? I cannot believe that the trust is so bespoke that it is crafted from scratch. After all, there can only be a set number of variables to feed into an evolved trust scheme. My wariness follows being asked to pay £900 for 1.25 hours worth of face to face discussion plus summary report for inheritance tax advice that I could have found on the internet.

Dr Colin Lewis

Taxbar
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Joined:Wed Aug 06, 2008 2:19 pm

Postby Taxbar » Fri Jun 27, 2003 5:34 am

Dear Dr Colin Lewis,

The fees for a House Debt Scheme or Reverse Ingram ( please note that Eversden is no longer available) that I quote above are not mine, but are the market rates quoted by several London legal firms involved in this type of work. In my case ( I don't speak for anyone else!) it would be based on chargeable time at a hourly rate in drafting several bespoke legal documents and giving personalised appropriate tax advice governing your specific situation.Th concepts surrounding these schemes are very complex in tax and legal terms and require a very skilled and experienced tax professional to implement; they also involve the interaction of several taxes and obstruce points of tax law.

If you are concerned about fees, then this type of tax planning is not for you! Whatever you do, please don't buy an off-the-shelf product, they will be the first to be attacked by the Revenue!

Daniel Feingold

drcalewis@aol.com
Posts:4
Joined:Wed Aug 06, 2008 3:03 pm

Postby drcalewis@aol.com » Fri Jun 27, 2003 11:52 am

Thank you.
For the house Debt Scheme and the Reverse Ingram schemes, would I have to survive 7 years (unlike the stopped Eversden case)? What is the likelihood that the Inland revenue could ‘interfere’ with your schemes? Are there any other drawbacks/conditions that I should be aware of at this stage (rather than assume that “this type of tax planning is not for me”)? I am always suspicious of any deal where I would have “to act quite soon”.
This open discussion is very useful (and it has added resolve to my daughter to pursue law rather than medicine!)

Dr Colin Lewis

MIKEL
Posts:11
Joined:Wed Aug 06, 2008 3:02 pm

Postby MIKEL » Wed Jul 02, 2003 5:02 pm

Dear Dr Colin Lewis

I too am somewhat amazed at the myriad of schemes and their associated setup charges, none imo are fool proof. However, in my quest for information I have found a useful discussion forum should you have the time to read which does at least highlight some of the issues involved in the "House Debt scheme".

http://www.trustsdiscussionforum.co.uk/ ... 00480.html

Taxbar
Posts:1187
Joined:Wed Aug 06, 2008 2:19 pm

Postby Taxbar » Thu Jul 03, 2003 1:58 am

Dear Dr Lewis,

just to clarify: Eversden also required the spouse making the gift to survive 7 years becuase the gift of the trust interest given to them was a Potentially Exempt Transfer.
As for the rest of your comments you need to await my article which discusses all these issues.
As for MIKEL's comments: The trust discussion forum is aimed at tax professionals and you will if you can spend several hours see many many comments/queries on the house debt scheme, but I can't think that they will do annything but confuse you!

timbo33
Posts:12
Joined:Wed Aug 06, 2008 3:04 pm

Postby timbo33 » Thu Jul 10, 2003 9:18 am

MIKEL/Dr Colin Lewis,

The House Debt Scheme (also known as a 'Double Trust' arrangement) is threatened at present with the Government's plan to charge stamp duty at exchange of contracts as opposed to on completion as at present.

many practitioners have withdrawn their schemes temporarliy until this position is clearer. At present, these plans take advantage of the ability for the sale of the house to 'Trust A' to rest in contract and therefore costs are kept low...of the order of 1% of the property value.

Adding stamp duty at potentially 4% adds a dramatic increase in cost.

This leaves reverse Ingram.....


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