Adding a child as a joint tenant on investment property to reduce inheritance tax?

[ProperrtyAlex]

Hi everyone,

I'm looking to add my adult child as a joint tenant to investment properties currently jointly owned by my wife and i.

The aim would be to rely on the right of survivorship on our deaths so no inheritance tax was payable at that time.

Adding them as a third joint tenant I'm presuming would mean my wife and I would have to pay capital gains tax now on the effective third share (with the annual exemption this would be modest). She would receive a third of Sent ongoing (which is fine for us too)

On the first death then the remaining joint tenants would split the Sent them 50/50 but I presume at that point there is no inheritance tax as it's outside of the estate, but not sure if there is another capital gains implication.

On the second death my child would then own the property outright and I'm hoping without suffering capital gains or inheritance at that point.

Eventually if she sold the property (post our deaths) I presume she aid pay capital gains using a the acquisition price when we bought it as she hadn't bought it since (other than for the initial third where this would be at the value we paid capital gains on)

Does this make sense?

Underlying intent is to prevent her having to sell the properties due to taxes, but we have gains on the properties and would need to still have access to part of the rent while we are alive.

Th a nod for any thoughts.
Alex

[Lambs]

P,

Holding as Joint Tenants means that the value of the asset falls out of the assets in the Estate that need to be "proven" - for probate purposes - but not for Inheritance Tax purposes.

Simply put, IHT is charged on the value of the deceased's Estate immediately PRIOR to death, not once he or she has died (but with adjustments for insurance claims payable into the Estate, etc.)

The interest in the joint asset still has value to the holder at that point, so is included in the Estate for the purposes of calculating IHT, even if not otherwise.

With regards,

Lambs

[ProperrtyAlex]

Thanks Lambs, that's very helpful I didn't realize that. Alex

[Lambs]

Most welcome.

To be clear, I am warning that holding an asset as Joint Tenant does not remove the asset *entirely* from one's Estate, which is what I discerned as your understanding from the original post. In other words, if you own an asset and you transfer a 50% stake to your daughter, then it DOES reduce the value of your Estate for IHT purposes, but not by 100% of the property value - you would remain subject to IHT on the value of your remaining share (albeit that value can be discounted in some cases of Joint Tenancy). I hope this simply reinforces your understanding of what I said earlier, rather than adding to confusion!

More broadly, transferring ownership to the next generation makes sense for IHT purposes, with the general caveat that such gifts will commonly trigger CGT even if they avoid IHT immediately, (and on death provided the donor(s) survive the gift by - usually - 7 years). It might be observed that there are often more tax-efficient routes than others, depending on the circumstances.

With regards,

Lambs

[maths]

Arguably it's better to leave everything as it is ie you/wife continue to hold 50/50. On first spouse death their 50% passes to surviving spouse at which. time there is no IHT or CGT.

On surviving spouse's death 100% of property left to child. No CGT charge. Surviving spouse has their own NRB and RNRB and can also claim transfer from previous spouse's death the letters unused NRB and RNRB.

Seems pointless to effect transfer to child in lifetime.

[Lambs]

M,

Depends on the size of the property portfolio? 28% plays 40% (for now at least). I'd tend to agree if the property portfolio is relatively modest and much can be sheltered within 2 x (R)NRBs, worth up to £1m in aggregate. But if/as the value gets higher, so does the incentive for lifetime giving, I think.

Another factor would be the risk of accumulation of wealth if there be surplus rental income, although that can (for now) potentially be addressed by gifts out of normal expenditure. Apparently, the OTS thinks that the concept of gifts out of income is just too hard, so better to abolish it. Strange how simplification seems to find favour only when it increases the tax bill. Like Indexation Allowance.

VB as always - and particularly for the New Year,

Lambs

[maths]

Values of properties and couples' estates would be helpful information.

Perhaps poster can advise.

[ProperrtyAlex]

Many thanks for all the input. This is one of several rental properties so the intent was indeed to pass income and value each year for a few years.
As I understand it per lambs reply my idea partially works but not fully but paying a limited CGT now on a share of the property would be less than IHT later. I was hoping the joint tenant part would enable the remaining share to pass tax free altogether but I get that doesn't work now.
Thanks again everyone.
Alex

[Lambs]

P,

If you are looking at IHT planning for a valuable portfolio, then you really should be taking expert advice from a suitably qualified professional.

With regards,

Lambs