Discussion
I am speaking to my IFA soon about this but wanted to clear something up that is bugging me a little.
My parents have 3 X BTLs and 3 children.
He wants to pass them onto us but he needs the income from them.
So from my understanding if he doesn't pass away within 7years he can gift them to us IHT free.
As he needs the income, can us siblings be added onto the BTL mortgage in the meantime and not effect our personal tax if the rent goes into his account?
Hope that makes sense
My parents have 3 X BTLs and 3 children.
He wants to pass them onto us but he needs the income from them.
So from my understanding if he doesn't pass away within 7years he can gift them to us IHT free.
As he needs the income, can us siblings be added onto the BTL mortgage in the meantime and not effect our personal tax if the rent goes into his account?
Hope that makes sense
Good luck with that...
https://www.taxadvisermagazine.com/article/gifting...
Likely counted as a gift with reservation of benefit and therefore not effective at saving IHT.
https://www.taxadvisermagazine.com/article/gifting...
Likely counted as a gift with reservation of benefit and therefore not effective at saving IHT.
brickwall said:
Yup, gift with reservation. (Essentially, not counted as a gift for IHT purposes).
He can’t gift it to you then continue to derive the benefits of the asset. To not pay IHT he needs to either
a) sell the properties and give you the cash
Or
b) transfer the properties to you, stop deriving any benefit/income from them (and also stop being liable for what happens to them)
And in either case also live for 7 years after the gift is made.
Possibly some CGT to deal with as well...?He can’t gift it to you then continue to derive the benefits of the asset. To not pay IHT he needs to either
a) sell the properties and give you the cash
Or
b) transfer the properties to you, stop deriving any benefit/income from them (and also stop being liable for what happens to them)
And in either case also live for 7 years after the gift is made.
anonymous said:
[redacted]
Easily done with new purchases (assuming children over 18), but harder to do with ones you already own. Ltd co mortgages also tend to be more expensive.Edited by LooneyTunes on Wednesday 17th November 21:24
chinnyman said:
I am speaking to my IFA soon about this but wanted to clear something up that is bugging me a little.
My parents have 3 X BTLs and 3 children.
He wants to pass them onto us but he needs the income from them.
So from my understanding if he doesn't pass away within 7years he can gift them to us IHT free.
As he needs the income, can us siblings be added onto the BTL mortgage in the meantime and not effect our personal tax if the rent goes into his account?
Hope that makes sense
He could give the flats to the 3 of you and you could continue to hire him to do full management of them for a fee only marginally less than their net rental income after other costs.My parents have 3 X BTLs and 3 children.
He wants to pass them onto us but he needs the income from them.
So from my understanding if he doesn't pass away within 7years he can gift them to us IHT free.
As he needs the income, can us siblings be added onto the BTL mortgage in the meantime and not effect our personal tax if the rent goes into his account?
Hope that makes sense
Groat said:
He could give the flats to the 3 of you and you could continue to hire him to do full management of them for a fee only marginally less than their net rental income after other costs.
I'd be very cautious of that as it will fail under commerciality, could you pay some unconnected party in the market less and the answer is of course. I've represented myself twice at FTT on issues (not INT) and the Judges are pretty switched on. Any ongoing relationship of any kind with a gifted asset will be subjected to scrutiny.My neighbours did a scheme where by the parent allegedly gifted the house and allegedly paid a commercial rent, approx £x k per month for umpteen years, her SA doesn't show enough taxed income and the estate has dumped the local solicitor and found a specialist london firm who's retained Counsel, they'll spend 60 to 100K coming to the obvious conclusion, the scheme failed. No smart lawyer can undo the fact that money likely didn't change hands in a consistent manner
I cannot offer the OP anything other than, do it right and stick to the clear rules, to be fair IHT has pretty clear rules and if you adhere to them HMRC will move on.
JeffreyD said:
anonymous said:
[redacted]
On this point I am pretty sure the share value would still be subject to IHT as it's a non-trading asset.Even though the children are shareholders there shares are more or less worthless and it's the Parent's share that has all the value.
LooneyTunes said:
Impossible to generalise as it depends on how you set up the company (and the extent to which you are prepared to allow whatever outcomes you are trying to achieve to impact your structuring.)…
Fair point but if all a business does is hold 3 properties and collects the rent as per the OP surely it's not a trading company?I'm all ears if I'm wrong.
You’re probably correct that it wouldn’t be seen as a trading company, but that doesn’t automatically mean that all the value rests in the parents’ shares. There are many ways to structure companies that can see certain shares worth more or less than a standard value, which could have IHT implications, but you have to balance this with increased complexity.
For example, a structure with a single class of shares where all are equal would see each share valued the same. Structures where you have shares/shareholders with different rights could well see shares not all valued the same.
Whenever setting up a company you need to think about ownership, control, funding, etc along with scale snd objectives for the business and then bae the structure on this. To take the example you gave of one with three properties, personally I’d potentially do it quite differently depending on where the money was coming from, value of properties envisaged, investment horizon, and where I wanted the value to end up. There would be a big difference in how you’d approach it for 3x £40k apartments vs 3x £million houses.
The point really is that there’s more than one way to skin this sort of cat, and it’s not automatically going to be the case that parents’ shares are where the value sits. Where you can generalise is that many people look at this sort of thing too late on instead of at the outset (I know I certainly did with my first ventures) and that it’s often worth sitting down with good layers/accountants at the outset to get a better understanding of your options.
For example, a structure with a single class of shares where all are equal would see each share valued the same. Structures where you have shares/shareholders with different rights could well see shares not all valued the same.
Whenever setting up a company you need to think about ownership, control, funding, etc along with scale snd objectives for the business and then bae the structure on this. To take the example you gave of one with three properties, personally I’d potentially do it quite differently depending on where the money was coming from, value of properties envisaged, investment horizon, and where I wanted the value to end up. There would be a big difference in how you’d approach it for 3x £40k apartments vs 3x £million houses.
The point really is that there’s more than one way to skin this sort of cat, and it’s not automatically going to be the case that parents’ shares are where the value sits. Where you can generalise is that many people look at this sort of thing too late on instead of at the outset (I know I certainly did with my first ventures) and that it’s often worth sitting down with good layers/accountants at the outset to get a better understanding of your options.
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