Tax & IHT guidance - Intelligent Money Private Clients
Discussion
Carbon Sasquatch said:
No matter what you thought - either he owned the property or the company owns the property - what to Land Registry say ?
It's easy to mentally mix things with a family business, but ownership of the asset should be clear.
it's registered in the name of the company, always has been. It's easy to mentally mix things with a family business, but ownership of the asset should be clear.
I'm not sure where the lawyers are going with this - they want 2k to get counsel's opinion - so that's maybe a clue!
Ah - just re-read it.
It's the shares in the company they are saying is a gift with reservation - because he gifted them on the basis that he could continue to live there, rent free. That means the entire company is potentially within his estate, not just the property.
Unless you can demonstrate that he paid a fair market rent, subject to periodic review etc. then they likely have a point. If you google 'gift with reservation of benefit' there will be loads of examples.
ETA - maybe, somewhere, you have an agreement that he will forego salary in return for the benefit ? Then as long as the BIK tax is close enough to market rate, you likely have a good case.
It's the shares in the company they are saying is a gift with reservation - because he gifted them on the basis that he could continue to live there, rent free. That means the entire company is potentially within his estate, not just the property.
Unless you can demonstrate that he paid a fair market rent, subject to periodic review etc. then they likely have a point. If you google 'gift with reservation of benefit' there will be loads of examples.
ETA - maybe, somewhere, you have an agreement that he will forego salary in return for the benefit ? Then as long as the BIK tax is close enough to market rate, you likely have a good case.
Edited by Carbon Sasquatch on Friday 12th November 10:55
Hi,
Your overview says the business bought the property. As long as this was at a market value then this should be clean and not subject to any gift with reservation restrictions.
When the business (shares) were gifted to you if he then lived in the property and paid no rent then this may be what they are looking at, as the implication is that the business was gifted on the undertaking he lived in the property that the business owned (the reservation)
I would think it is a bit of a stretch to apply it to the whole business and may just be able to apply it to the property, unless the property is integral in the running of the business.
You say your dad paid BIK tax for the use of the property but did this include the BIK for rent in lieu of salary, that's assuming he didn't pay rent?
If it did I would think you have a good case.
While I was putting this together I see Carbonasquatch has posted, I think we are saying the same thing!
Cheers
Nik
Your overview says the business bought the property. As long as this was at a market value then this should be clean and not subject to any gift with reservation restrictions.
When the business (shares) were gifted to you if he then lived in the property and paid no rent then this may be what they are looking at, as the implication is that the business was gifted on the undertaking he lived in the property that the business owned (the reservation)
I would think it is a bit of a stretch to apply it to the whole business and may just be able to apply it to the property, unless the property is integral in the running of the business.
You say your dad paid BIK tax for the use of the property but did this include the BIK for rent in lieu of salary, that's assuming he didn't pay rent?
If it did I would think you have a good case.
While I was putting this together I see Carbonasquatch has posted, I think we are saying the same thing!
Cheers
Nik
Intelligent Money said:
While I was putting this together I see Carbonasquatch has posted, I think we are saying the same thing!
Broadly - except I think it's the entire company at risk of IHT - it was shares in the company that were the gift, not the property.... I'm not sure you can unpack that into constituent parts.I'm far from expert though - but I'd be considering independent advice - this is one of those cases where you need to be careful what you say. The probate solicitor is not acting for you - so you might want someone who is....
Intelligent Money said:
Hi,
Your overview says the business bought the property. As long as this was at a market value then this should be clean and not subject to any gift with reservation restrictions.
When the business (shares) were gifted to you if he then lived in the property and paid no rent then this may be what they are looking at, as the implication is that the business was gifted on the undertaking he lived in the property that the business owned (the reservation)
I would think it is a bit of a stretch to apply it to the whole business and may just be able to apply it to the property, unless the property is integral in the running of the business.
You say your dad paid BIK tax for the use of the property but did this include the BIK for rent in lieu of salary, that's assuming he didn't pay rent?
If it did I would think you have a good case.
While I was putting this together I see Carbonasquatch has posted, I think we are saying the same thing!
Cheers
Nik
thanks for the repliesYour overview says the business bought the property. As long as this was at a market value then this should be clean and not subject to any gift with reservation restrictions.
When the business (shares) were gifted to you if he then lived in the property and paid no rent then this may be what they are looking at, as the implication is that the business was gifted on the undertaking he lived in the property that the business owned (the reservation)
I would think it is a bit of a stretch to apply it to the whole business and may just be able to apply it to the property, unless the property is integral in the running of the business.
You say your dad paid BIK tax for the use of the property but did this include the BIK for rent in lieu of salary, that's assuming he didn't pay rent?
If it did I would think you have a good case.
While I was putting this together I see Carbonasquatch has posted, I think we are saying the same thing!
Cheers
Nik
when he gifted the shares, it was never on the understanding that he would / could stay at the property. It just so happens that both he and the company remained at the property until he passed away. For the last years, his mobility was compromised, so having the office and his living together was needed, before that he travelled constantly, so this also suited his needs and that of the company.
As the company owned the property, and he remained an employee and director, every year we included on his p11d the benefit of the accommodation that was provided to him. It isn't calculated on an equivalent rental, it's calculated differently and is a job for the accountant. In any case, his annual tax paid was pretty substantial and in line with the tax code..
I can't see how HMRC can argue this status after the fact when they've collected benefit tax on this property for thirty years!?
more over, as the cost basis is pretty low for the property, any sale in the business and distribution by dividend to my brother and myself will attract corporation tax on most of the price and then dividend tax - totalling around 50% of the value of the property.
If they want to bring it into his personal estate, then I presume he'd have to get relief on the portion used as an office, then get the additional property allowance, and (I presume) a rebate to the estate of all the BIK tax he paid over the years??
'd think this would net less tax.
I don't see how they can have it all-ways.... IHT, Corp tax, Div tax, BIK tax...
If they want to bring it into his personal estate, then I presume he'd have to get relief on the portion used as an office, then get the additional property allowance, and (I presume) a rebate to the estate of all the BIK tax he paid over the years??
'd think this would net less tax.
I don't see how they can have it all-ways.... IHT, Corp tax, Div tax, BIK tax...
isleofthorns said:
I don't see how they can have it all-ways.... IHT, Corp tax, Div tax, BIK tax...
They are very different taxes. Your father paid BIK fo 30 years etc is all well and good - same with other corporate taxes - that is all right and proper for both the individual and the business.IHT is simply about the estate of the deceased. Historic 'gifts' are questioned to see whether they were truly gifts - or just a way too try to avoid IHT on the asset. Any other tax paid is not relevant - other than, maybe, as evidence.
The question is why did your father gift the business to you - and then carry on actively working & living there, if not to avoid IHT ? How you answer questions on this could have a material impact on the outcome.
Perhaps he wanted to step back, reduce his hours and only play an advisory role - you and your brother were already running the show and making the day to day decisions ?
Perhaps he wanted to retire by the sea and you persuaded him to stay involved and continue living where he did ?
Have you spoken to your accountant at all ?
The more control he retained - the less it looks like a legitimate gift.
Whatever you say to the probate solicitor cannot be un-said. Their job is to assess the estate according to HMRC rules - it is not to help you maximise your inheritance..... However, my guess would be that they'd like to help you, they sound like they are looking for an independent opinion - but a few answers either way, may swing the balance in deciding this one.
Carbon Sasquatch said:
IHT is simply about the estate of the deceased. Historic 'gifts' are questioned to see whether they were truly gifts - or just a way too try to avoid IHT on the asset. Any other tax paid is not relevant - other than, maybe, as evidence.
I don't think IHT planning or not is the issue... you're within your rights to plan to mitigate your taxes. The transfer of shares was just that - a transfer of shares. My brother and I held 40% for years prior to the balance being transferred. The fact that the company held the property was never a discussion or factor in that.Carbon Sasquatch said:
The question is why did your father gift the business to you - and then carry on actively working & living there, if not to avoid IHT ? How you answer questions on this could have a material impact on the outcome.
We never really discussed the transfer - as my brother was working full time for him, maybe he felt it was the right time for him to pass over the business. One thing is for sure, he wouldn't have been thinking much about his tax planning! He wasn't very literate in tax affairs or financial matters. As for carrying on having a role in the business, he watched his own father deteriorate in retirement, and he swore never to do the same. He was a simple sole - he played sport, travelled for the world for work and has no other interests to keep him busy. Practically speaking my brother had 'run' the business for years already. The house always worked well for him and the company - he travelled a lot, so it made sense for him to have his office and living together. In later years, his mobility declined, so it made even more sense to keep the status quo. In his last months we moved his desk into the living accommodation, but in reality he could barely tap a keyboard!
Carbon Sasquatch said:
The more control he retained - the less it looks like a legitimate gift.
Fair point. It was never that type of set-up - we all worked together (I run an associated business), but my brother was and is running the business. If it had been needed for any reason to sell the house and relocate the old man or the office, then I'm sure that would have been done; as it happened, it never was an issue for the him, my brother or the business.
thanks for your input so far. I'm still considering taking the advice.. I'm just trying to get my head around what view / action they could reasonably take.
I can't see they could cherry pick the property out of the company, and make that somehow his personal property. Potentially, they could maybe argue to unwind the share transfer, but on the basis the shares would likely be subject to BPR anyway, that wouldn't be of any benefit to them for IHT purposes (unless they argued the company was not a trading company, which I think would be a push).
Your probate solicitor is accountable for the decisions they make. It seems they are looking for cover by getting independent counsel opinion. How the whole thing is packaged into a question for the counsel is likely to have an impact on what that opinion finally turns out to be.
That's all I'm saying really - the more convincingly it's explained as an absolute gift with no strings or conditions, the more likely they are to agree with you. So think it through and have answers - ideally see how it is being presented to counsel & correct anything at that stage. The more closed the question they are asked, the better your chances are of the 'right' answer.
That's all I'm saying really - the more convincingly it's explained as an absolute gift with no strings or conditions, the more likely they are to agree with you. So think it through and have answers - ideally see how it is being presented to counsel & correct anything at that stage. The more closed the question they are asked, the better your chances are of the 'right' answer.
Quick IHT and SIPPs question:
Unmarried (or possibly widowed) Trevor has £1m in an ISA.
He wants to leave it to his kids, but minimise their losses (IHT or income tax).
His house accounts for all his residence IHT allowance.
If he transfers the whole £1m to his SIPP, foregoing tax relief, but thereby placing the money outside of his estate, will his children inherit more or less money than if he had left it in his ISA?
I know that there are other options available, including gifting and trusts, but I'm mainly interested in exploring this hypothetical situation in particular.
Unmarried (or possibly widowed) Trevor has £1m in an ISA.
He wants to leave it to his kids, but minimise their losses (IHT or income tax).
His house accounts for all his residence IHT allowance.
If he transfers the whole £1m to his SIPP, foregoing tax relief, but thereby placing the money outside of his estate, will his children inherit more or less money than if he had left it in his ISA?
I know that there are other options available, including gifting and trusts, but I'm mainly interested in exploring this hypothetical situation in particular.
rfisher said:
Quick IHT and SIPPs question:
Unmarried (or possibly widowed) Trevor has £1m in an ISA.
He wants to leave it to his kids, but minimise their losses (IHT or income tax).
His house accounts for all his residence IHT allowance.
If he transfers the whole £1m to his SIPP, foregoing tax relief, but thereby placing the money outside of his estate, will his children inherit more or less money than if he had left it in his ISA?
I know that there are other options available, including gifting and trusts, but I'm mainly interested in exploring this hypothetical situation in particular.
Can you leave your SIPP to more than one person? I don't think so. This might be problem #1.Unmarried (or possibly widowed) Trevor has £1m in an ISA.
He wants to leave it to his kids, but minimise their losses (IHT or income tax).
His house accounts for all his residence IHT allowance.
If he transfers the whole £1m to his SIPP, foregoing tax relief, but thereby placing the money outside of his estate, will his children inherit more or less money than if he had left it in his ISA?
I know that there are other options available, including gifting and trusts, but I'm mainly interested in exploring this hypothetical situation in particular.
pingu393 said:
Can you leave your SIPP to more than one person? I don't think so. This might be problem #1.
Yes - a SIPP can be left to any number of beneficiaries in proportion up to a total of 100%.You can notify the SIPP provider of the list of beneficiaries and the % for each and change it as often as you like before you die.
I presume that this can also be written into your Will, but would then not be so easy to change.
What happens if there are conflicting lists, I don't know.
Your SIPP is explicitly outside of your estate & therefore will.
For each SIPP you express who you like it to go to in percentage terms. The important bit is that it's an expression of wish - and not a solid instruction - that's the thing that keeps it outside your estate.
In tax terms - don't know - I guess it would depend on how much 'Trevor' already had in his SIPP and therefore what LTA charges there might be. Also the age at which he dies will dictate the income tax treatment for the beneficiaries.
There may also be an IHT claw back, like there is for gifts, if there is a large & late pension contribution ?
For each SIPP you express who you like it to go to in percentage terms. The important bit is that it's an expression of wish - and not a solid instruction - that's the thing that keeps it outside your estate.
In tax terms - don't know - I guess it would depend on how much 'Trevor' already had in his SIPP and therefore what LTA charges there might be. Also the age at which he dies will dictate the income tax treatment for the beneficiaries.
There may also be an IHT claw back, like there is for gifts, if there is a large & late pension contribution ?
rfisher said:
pingu393 said:
Can you leave your SIPP to more than one person? I don't think so. This might be problem #1.
Yes - a SIPP can be left to any number of beneficiaries in proportion up to a total of 100%.You can notify the SIPP provider of the list of beneficiaries and the % for each and change it as often as you like before you die.
Isn’t something inherited in a SIPP still bound by the same tax treatment for withdrawal?
Might not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
Might not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
Steve H said:
Isn’t something inherited in a SIPP still bound by the same tax treatment for withdrawal?
Might not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
NoMight not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
If you die under 75, then the beneficiaries get it tax free.
Over 75 and they pay income tax at their marginal rate
The 25% tax free does not apply - nor does it count towards your own LTA
Steve H said:
Isn’t something inherited in a SIPP still bound by the same tax treatment for withdrawal?
Might not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
Edited this bit as I got it wrong - thanks Carbon.Might not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
As with all financial products, the regulations are complex, undoubtedly by design.
That way the Gubberment gets it's hands on plenty of money that they otherwise wouldn't get.
Most of it they just incompetently piss up the wall in a way that is totally unaccountable.
Of all the taxes, I particularly dislike IHT.
Bah.
Edited by rfisher on Wednesday 17th November 19:53
Carbon Sasquatch said:
There may also be an IHT claw back, like there is for gifts, if there is a large & late pension contribution ?
You mean the 7 year rule?It would be good to know if that's correct, or if you can dump a large amount into a SIPP and then die shortly afterwards without any specific penalty being incurred as a result.
rfisher said:
Carbon Sasquatch said:
There may also be an IHT claw back, like there is for gifts, if there is a large & late pension contribution ?
You mean the 7 year rule?It would be good to know if that's correct, or if you can dump a large amount into a SIPP and then die shortly afterwards without any specific penalty being incurred as a result.
It is likely to fall foul of the "gratuitous benefit" rule and in this case be assessed as an action taken solely to avoid IHT rather than to increase pension benefits. If this is the case it is added back into the estate.
From a pension perspective, a gratuitous benefit is viewed to take place when a transfer or payment is made resulting in greater death benefits being received by an individual who may not have previously received them if the transfer or payment had not occurred.
This is typically applied if the individual is ill at the time of the transfer/payment and then dies within 2 years of the transaction but these are general guidelines not hard set rules.
It means that HMRC have an opening that they could use to challenge the IHT position on the payment,
You would also struggle to find a provider that will accept the contribution, part of the trustees duties to monitor contributions and check that they do not exceed the annual allowance.
Cheers
Nik
Carbon Sasquatch said:
Steve H said:
Isn’t something inherited in a SIPP still bound by the same tax treatment for withdrawal?
Might not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
NoMight not matter if the beneficiary is on a low income but if I’m understanding correctly, drawing beyond 25% of the sum could attract income tax at at rate similar to IHT if left to someone on a decent income which would negate most of the gains.
I suppose it may put the tax off till later and allow options later in life but it might also feel like an inheritance with disadvantages.
If you die under 75, then the beneficiaries get it tax free.
Over 75 and they pay income tax at their marginal rate
The 25% tax free does not apply - nor does it count towards your own LTA
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