Family Investment Company v Discretionary Trust for Property

Family Investment Company v Discretionary Trust for Property

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Discussion

gregs1959

Original Poster:

102 posts

115 months

Tuesday 14th March 2017
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Hello I was wondering if anyone could give me any advise apart from go back to the accountant.

I'm in a fortunate position where I have a number of property's free from mortgage. I am 58, and my wife is 50. Pension of £145.00 month. Don't know what to spend it on lol.

3 Kids.- 21yr just finishing university (probably will do another year conversion.). 23 yr just bought own house with boyfriend. Getting married this year both teachers. 26 yr hard working not a permanent job though. Owns 4 BTL with his friend. Living at home.

Accountant advised me to set up a Discretionary Trust.. As I understand (could be wrong) I can move in up £650,000 of property's and leave them there 7 years. Any income is taxed at 45%. Remaining income can be distributed to 3 kids - tax return filled in at year end and any difference between their tax rate assume 20% the difference can be reclaimed beck and diverted back to the property account set up in their name.

Effectively only paying £25% tax on rental income. Have I got that right ? . This way the Trustees - me and the wife still own the property's and it keeps them safe within the family in the future. ? and not letting any future estranged partners get their hands on them.

Now I've just been on google and read about setting up a Family Investment Company you move the property's over. There is a potential capital gains - however using both our annual allowance and around our area prices still not moved significantly upwards since 2008 should be ok not to have any capital gain tax. Obviously we would be limited to moving 1 each year.

Don't really know what our personal / and the company's tax liabilities would be, and which scheme would be best suited for us. Was looking at moving over 3 property's at this stage,

At this stage would like to keep the property income to ourselves if possible, Apologise for any spelling or bad grammar.

Any advice would be very much appreciated.

Regards
Mark


ellroy

7,030 posts

225 months

Tuesday 14th March 2017
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Don't forget CGT if at some point you needed to sell the properties in the trust(s) you would also have top rate CGT with at best half an annual personal allowance. Last time I looked if you already owned the asset you'd also be liable for CGT as you moved the asset in, as well as stamp duty etc, as it would be a disposal at that point.

Edit to add: there's a fair bit of talk at the minute about the next tax attack from HMRC and what reasonable tax planning is, and is not, I've heard Family Investment Companies mentioned a fair bit in this context.

As ever take good professional advice.



Edited by ellroy on Tuesday 14th March 20:51

Jockman

17,917 posts

160 months

Wednesday 15th March 2017
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It's an interesting point about the stamp duty. I would guess that it would be payable due to transfer of ownership into the trust.

Now here's a bigger question. Would the trust be liable to the Enhanced Rate of stamp duty on the purchase of any properties? In a company buying a residential property we just paid the enhanced rate not because the company had any other property but because the owners of the company had their own property. Does this apply to trusts too ??

If the enhanced rate is payable, how does this effect the scenario you are trying to achieve?

Btw well done so far and good luck !!!!

Jockman

17,917 posts

160 months

Wednesday 15th March 2017
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Just had another thought.

If you move the nil rate band equivalent into the trust or company should you avoid putting your primary residence in? The reason I ask is that the residential nil rate band will be in full swing by 2020 and I >think< it applies to your primary residence.

Would you inadvertently lose access to protecting a further £350k by no longer having a primary residence?

anonymous-user

54 months

Wednesday 15th March 2017
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gregs1959 said:
26 yr. Owns 4 BTL with his friend. Living at home.
Oh dear.

Lawrence5

1,253 posts

235 months

Friday 17th March 2017
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Consider SDLT also....

ukshooter

501 posts

212 months

Saturday 18th March 2017
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I don't really get involved much in property advice so may be irrelevant but check the position with Discretionary trusts and lifetime inheritance tax if the value is above the nil rate band and even if it isn't, check the position regarding periodic charge and exit charge.

CaptainSlow

13,179 posts

212 months

Thursday 4th July 2019
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Lawrence5 said:
Consider SDLT also....
Thread resurrection, if a Discretionary trust is set up and the property is left to the trust upon death..is there any SDLT? I assume it's just like leaving to an individual ie just potential IHT? (I know the RNRB can't be used when leaving to a Trust).