Inheritance Tax Basics

Working with #Propertyinvestors and #Propertydevelopers over the years has been a very enriching experience, especially in listening to their stories on how things started for them, or how they intend to pass the wealth onto the next generation. One striking story was of a gentleman who was of the view that one had to study hard, work hard to buy a home which then appreciates in value, he has to grow old and struggle to pass on the value created to the next of his generation. With Inheritance Tax (#iht ) being at 40% of the Estates value above the Nil Rate Band of ￡325,000, I do indeed understand why the gentleman would be in need of advice. The sad news is that many people having above ￡10Million in Wealth do take advise on IHT planning compared to almost only 50% of those below the ￡10Million mark. Hence the motivation to inform those who may want to do something about it!

Here are some IHT efficiency basics worth considering;

Plan Early: Its amazing how many people actually first transfer ownership of assets then call you to complain of how massive the tax cost is. At which point in many cases, its subject to opinion if the tax must be paid. Before you transfer the legal #Ownership of an asset, please plan and as a must, have a picture of the end result you would like to achieve! It can't be over emphasised that one must plan.

Transfers between Husbands and Wives: At a time when family life is being battered and undermined at all angles, every good news that helps strengthen family bonds, is a welcome move! Asset exchanges between husband and wife is not chargeable to IHT. So in the event that a party to a marriage is over burdened with assets considering this avenue could lower the #Taxrisk on the family. One needs to take account of other tax exposures, depending on the asset under consideration. The beauty of IHT is that a husband and a wife both receive the ￡325K allowance to cushion them from IHT risk.

Structured Ownership: Right at the time of acquiring an asset, know what your exit/disposal strategy will be. If you must, learn from what has worked for other people and the relevance of it today. Being in the property market, we find it quite interesting how many build up assets for their children either for education or a head start upon graduation. Done incorrectly, it will only be burden to the recipients of the assets.

Inheritance Tax Reliefs and Exemptions: Like any tax, fairness has to be designed into it to help meet the unique position of serving the greater public good. Inherent in this is the risk of unintended consequences which opens the doors for tax efficiency. Most of which, in case of disputes, are settled by the courts. At which point the most persuasive legal mind is likely to be presumed to best represent the mind of parliament in making the law in question. These include, charitable donations, wedding gifts, business assets, farms and many others that can be claimed to improve ones tax efficiency position.

Some quick considerations to improve your IHT Efficiency:

• Paying into a pension instead of savings
• Keeping a debt liability on assets while utilising the liquidity to build alternative incomes
• Regularly gifting out ￡3000 a year
• Donating to Charity
• The use of Trusts, though this increasingly being legislated against.
• More advanced investment vehicle ownership structures that allows for efficient control while distancing legal ownership from the individual, who is unlikely to evade DEATH, the most potent IHT crystallising event from which it gets its name, ‘The Death Tax’.

Please do share with us your experiences on property financing, tax and property repossessions?

Email the writer at: [email protected] for a discussion on any of the above topics, and UK Property Investments and Development.

The article is for general information only and not intended to be advice to any specific person. You are recommended to seek professional advice before taking or refraining from taking action on the basis of this publication or other publications and contents of this page.

William PW Omony MBA is a Property Investment Strategist/ Property Tax Consultant at @Proactive Consult . A firm of Accountants who also provide unregulated property finance intermediation that is delivering agile innovative strategies for Property Investment, Development, Trading and Refurbishment.