Offset Mortgages

[seanmac]

My Parents currently have an estate valued at £900,000 including a house valued at £600,000. We expect then to survive for at least the next 7 years. We are considering taking out an offset mortgage where the mortgage raised is gifted to myself and my brother but paid into savings accounts that are "offset" against the mortgage thus incurring no interest charge. Thus on my parents death the value of the mortgage is deducted from the estate for IHT purposes. AM I correct in thinking this. Obviously if they weren't to survive 7 years there is an IHT risk.

[Nigel Lord]

Seanmac

You are on the right lines, but the type of structure you are alluding to requires some fine tuning.

A common strategy would be to take out a mortgage and to use the proceeds to invest in an IHT efficient vehicle such as an income bond transferred to a Discounted Gift Trust. This would have the benefit of providing your parents with access to the income whilst immediately elimintating a substantial proportion of the value of the investment from their estate with the balance leaving over a 7 year period. Needless to say this is complex and contentious planning ans professional advice should be sought.

I assume that you parents already have effected IHT efficient wills and have considered the other simple planning opportunities available to them.

Our firm specialises in all IHT planning strategies and would be pleased to act on your family's behalf if so instructed.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852

[seanmac]

Nigel thanks - but in your example the mortgage would still require servicing which is not what is intended. There is a risk that the income bond will not generate enough income to cover the mortgage interest costs. We are about to discuss tax efficient wills etc and i wanted to throw my option above "into the pot"

Sean

[Nigel Lord]

Sean

You are correct. It left it as stated that the mortgage could be serviced by the income bond. There are no garantees in life, but with present interest rates this is feasible. The strategy improved substantially on your stated intentions as it removes a portion of the asset from your parents' estates immediately. It would be possible to structure in such a way so as to top up the mortgage by redeeming the income bond and gifting back to your parents.

I have access to an even more attractive strategy which allows the property to be converted into real cash, but would need to discuss your family's circumstances to see if it was appropriate.

Please feel free to call me to discuss the options vailable.
Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852