Home Loan Scheme & IHT

[Barrey]

What is the current position regarding these schemes, paricularly for house in excess of twice nil rate band? These are marketed by a number of firms - but there seems to be a ? over their viability - depending upon whom you talk to?

These schemes rely on IOus and trusts (NOt the eversden scheme)

Also when do the new stamp duty rules come into force regarding transfers if this route is used (July or December?)

Any helpful comments welcomed

[wealthguard]

The home loan (IOU)scheme using trusts is thought to be effective - though there can be no guarantee that the position will not change in future. The CTO is believed to have expressed the view that, providing the drafting is done properly, a scheme of this type will work. There are as you say a number of variations of this type of scheme and expert advice is essential.

With regard to the changes to stamp duty, it will no longer be possible to avoid stamp duty on this type of arrangement (by resting on contract) with effect from 1 December 2003. There is, therefore, a short window of opportunity to establish such schemes without stamp duty costs, but even from 1 December onwards, such schemes still offer significant IHT savings even with the payment of stamp duty taken into account.

Rod Fisher - Wealthguard
0800-8498095

[Taxbar]

Dear Barry

There is an existing discussion on the site about this tax planning strategy.

I will summarise my comments.

Nobody should use this strategy, unless they have had IHT advice from a tax expert and considered all the planning alternatives.

Approach the marketed schemes with extreme caution.

The scheme is untested and I am not aware of any CTO comment saying that providing the drafting is good they work. I'd love the last writer to let me know the chapter and verse.

It is true that the drafting of the loan note is critical (hence my caution above). I believe that a bespoke version of this scheme can work, but there can be no guarantees and each person may need a different version of the loan note and trusts.

On the stamp duty, Up till December 1st this can be deferred by relying on a device known as resting in contract. After that date I believe that most people will baulk at the stamp duty charge 4% of the property value and the strategy will die a natural death.

If you want further advice you can contact me.

Daniel Feingold
Barrister
Editor UK & International
Tax Law section this website.
e-mail: sedrate@easynet.co.uk
tel: 0161 720 7244