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Where Taxpayers and Advisers Meet

Parents trust advice

Sunshine76
Posts:2
Joined:Sun Nov 26, 2023 12:05 pm
Parents trust advice

Postby Sunshine76 » Sun Nov 26, 2023 12:20 pm

Hi, my elderly parents (70 years old) are getting advice on how to set up their affairs to minimise liability on IHT and care home costs.

Estate:
Residential property = £700k
Rental properties = £150k x 3 (purchased 1976)
Cash = £300k

All properties are fully owned outright.

The advisor has said they should do the following:
1) Probate Preservation Trust - main residence
2) Investment Probate Trust - rental properties
3) Gift an amount of cash to dependents (subject to 7 year rule)

Does this sound like a broadly sensible / usual approach, I wanted to check with someone independent ?

He said :
a) only tax payable will be CGT at point of putting the properties into the trust
b) my parents will still get rent from the rental properties as per usual (income tax at usual rates)
c) my parents could apply for hold over relief but that means the rent from the properties wouldn’t go back to them
d) my parents can sell the properties and receive the proceeds
e) whilst not the objective or conclusive, these trusts can result in reduced care home fees taken by the government

I had read there was a 20% charge (IHT?) when you put properties into a trust but I may have misunderstood….

Just wanted to check that my parents were not getting crazily wrong advice!

Thank you.

bd6759
Posts:4239
Joined:Sat Feb 01, 2014 3:26 pm

Re: Parents trust advice

Postby bd6759 » Sun Nov 26, 2023 7:26 pm

Look up deprivation of assets.

AGoodman
Posts:1724
Joined:Fri May 16, 2014 3:47 pm

Re: Parents trust advice

Postby AGoodman » Mon Nov 27, 2023 10:40 am

Also, yes, if a individual transfers more than £325,000 into trust within 7 years, there is a 20% upfront charge on the excess. Just settling the house between them would cost them £10k of tax and anything else would incur 20%. There is a further (smaller) charge on distribution or after 10 years.

Be aware that a "probate preservation trust" and "investment probate trust" are not technical terms, they are marketing terms. The care home fees position basically relies on a rather optimistic hope that the Council will not ask questions (they will) or that your parents can lie convincingly that the aim was not to avoid care home costs (tricky when the trusts don't really achieve much else).

- is it worth the CGT cost when there would be a free CGT uplift to market value on their deaths?
- check with your parents that they want to go into the cheapest possible care home at council rates rather than something nicer which would require money.

these things are complicated and it's well worth taking a second opinion - particularly if the "adviser" has not mentioned IHT on trusts. The likelihood is that the trusts will not save any tax, will actually incur CGT and IHT on their creation and will carry ongoing administration costs. The only possible benefit is the hope of avoiding care costs.

Sunshine76
Posts:2
Joined:Sun Nov 26, 2023 12:05 pm

Re: Parents trust advice

Postby Sunshine76 » Tue Nov 28, 2023 4:17 pm

Thanks, I’ll see if my parents can get some alternative advice.

This tax advisor is insistent that putting in a £700k residential property into a PPPT would not generate any IHT charge on entry, only on exit.

AGoodman
Posts:1724
Joined:Fri May 16, 2014 3:47 pm

Re: Parents trust advice

Postby AGoodman » Fri Dec 01, 2023 11:44 am

I've seen some suggestion that some "probate trusts" don't involve an entry charge but I've no idea how they justify it or whether their justification would stand up. I suspect many are just (mis)selling these trusts to people with properties valued under the threshold.


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