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Where Taxpayers and Advisers Meet

IHT, Discretionary nil rate band trusts and other tax implications

david_tax03
Posts:2
Joined:Wed Aug 06, 2008 3:06 pm

Postby david_tax03 » Thu Oct 09, 2003 2:58 am

Summarising the issues:

Value of estate lies primarily in the property value of c£500,000; it is intended to change ownership status to tenants in common.

We are advised that we should create a discretionary nil rate tax band trust whereby on first death the one-half share of the property passes to the sole beneficiary [son] but the surviving spouse can continue to reside in the property paying a nominal £1 per year rent and also to take a 'loan' from the Trust equal to the value of the amont transferred into the trust. The loan will be repayable with interest on the death of the second spouse.

Does this make sense please? Are there other tax implications regarding the transaction - CGT? Income tax? Thanks.

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

Postby Taxbar » Thu Oct 09, 2003 6:06 am

Dear David tax03,

I assume that you are talking about a married couple with an estate valued at circa £500,000.

The advise you have been given (and you don't say from where!) is that the ownersip of the pr0perty should be changed to tenants in common from joint tenants, all very sound.

Then discretionary will trusts should be drawn up of the nil band for IHT ( currently £255,000).

The rest of the advise I confess,does not make sense.

What actually would normally be used is a Loan Trust. This where the nil band is given to the wife on an IOU basis.

This may be subject to indexation, but never interest as this would create an income tax problem.

On death, the surviving spouse's estate pays back to the trust the amount owed plus and amount to refelect indexation or inflation however drafted.

This should present no tax problems for IHT and it is possible that the indexation amount could be subject to a CGT charge at a maximum 34% and a minimum 20.4%. There are ways of possibbly eliminating this alogether, although that is crystal ball gazing, as we are talking of years in the future.



Daniel Feingold
Strategic Tax Planning
International&UK Tax Consultants
E-mail: sedrate@easynet.co.uk
TEL: 0161 720 7244
 

david_tax03
Posts:2
Joined:Wed Aug 06, 2008 3:06 pm

Postby david_tax03 » Thu Oct 09, 2003 12:53 pm

Thanks Daniel.

The advice was from a solicitor specialising [he says] in IHT and I was seeking to clarify a couple of points and establish further questions I needed to answer before reverting back to him.

What you have outlined, in conjunction with the notes I took, makes more sense now. eg I believe I mistook interest for inflation. The more I know - the more I find I need to know.


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