IHT and CGT Planning Question

[Ben]

Scenario is as follows:

Net Value of Estate £450K. Donor and spouse aged 65 and 60
respectively and are preparing to claim state pension. No asset
transfers have taken place whatsoever. The donor and spouse have adult
children: a son and two daughters. The son has taken an active
interest in the family affairs and the daughters are married and
independent.

Donor traded 31 yrs, as sole trader from freehold commercial property
part of which is his main residence. (Accommodation above shop).
Property has a single deed hence no split of deeds between residential
to commercial has taken place.

5 years ago Donor ceased trading and commercial portion of building
including all business assets was let on 1 yearly renewable licences
(i.e. held control of fixtures, fittings and equipment though ceased
trading). Donor, subsequent to ceasing trade, travelled to and fro
from UK leaving spouse to collect rental Income. The 3rd licensee left
the commercial property few moths ago and the Donors son took over the
premises under the same conditions trading as a private limited
company and paying rent to mother (Donors spouse).

Taking into consideration the following:
The nil rate band, Business Property Relief, inter spouse exemptions
satisfying IHT regulations - Taper Relief and holdover relief under
CGT regulations. The age of the donor and spouse and the fact that the
donor had ceased trading but has not disposed business assets and
further the availability of the son as heir and the sons current
business activity trading as a limited company under a license in the
fathers property.

What is the best way forward in order to keep IHT and CGT liabilities
minimised if not nil.

 

[Ronald Raygun]

Scenario is as follows:

Net Value of Estate £450K. Donor and spouse aged 65 and 60
respectively and are preparing to claim state pension. No asset
transfers have taken place whatsoever. The donor and spouse have adult
children: a son and two daughters. The son has taken an active
interest in the family affairs and the daughters are married and
independent.
...

What is the best way forward in order to keep IHT and CGT liabilities
minimised if not nil.

If the estate is wholly owned by the donor, he should gift half of
it to the wife. If they already own it jointly, any joint tenancy
should be severed so that they each own half (in common, as opposed
to both own all of it together). Then they should each will their
share independently directly to the children.

No CGT since transfers between spouses are exempt.
No IHT since each half-estate is below the threshold.
No need to bother with all the tapering nonsense or any of
the other subtle stuff.

 

[Doug Ramage]

If the estate is wholly owned by the donor, he should gift half of
it to the wife. If they already own it jointly, any joint tenancy
should be severed so that they each own half (in common, as opposed
to both own all of it together). Then they should each will their
share independently directly to the children.

No CGT since transfers between spouses are exempt.
No IHT since each half-estate is below the threshold.
No need to bother with all the tapering nonsense or any of
the other subtle stuff.

Or do nothing at all now and a Deed of Family Arrangement when/if relevant.

 

[Stephen Burke]

If the estate is wholly owned by the donor, he should gift half of
it to the wife. If they already own it jointly, any joint tenancy
should be severed so that they each own half (in common, as opposed
to both own all of it together). Then they should each will their
share independently directly to the children.

But they have to trust the children, otherwise they could force a sale to get
cash for their half of the property.

 

[Ronald Raygun]

But they have to trust the children, otherwise they could force a sale to
get cash for their half of the property.

Fair enough, and they would have to trust each other too. But would
the children not be shooting themselves in foot by forcing a sale to
get half the cash if that meant they would lose the other half? I know
a bird in the hand is worth two in the bush, but isn't a bird in the
cage and one in the bush worth more than one in the hand and the
other gone forever? The betrayed surving spouse would, after all,
change his/her will and divert the other half to the RNLI.

Besides, can this problem not be avoided with trusts?

 

[Stephen Burke]

Fair enough, and they would have to trust each other too. But would
the children not be shooting themselves in foot by forcing a sale to
get half the cash if that meant they would lose the other half? I

It depends how much they need the money. Also some people might do it for
spite. Families vary, some (including mine - as far as I know can trust
each other implicitly, others not. Even there you might have to worry about
spouses, who might be unknown when you make the will, and maybe grandchildren
and their spouses ...

Besides, can this problem not be avoided with trusts?

Probably, but not retrospectively, you need to think about it when the will is
set up.

 

[john boyle]

But they have to trust the children, otherwise they could force a sale to get
cash for their half of the property.

Yes, so leave the property directly to the survivor against a debt to a
trust the ultimate beneficiaries of whom are the kids.

 

[john boyle]

Besides, can this problem not be avoided with trusts?

No, but it can be lessened unless the property never goes in the trust
at all, see my other reply.