Inheritance Tax
Buy to Let Properties
A bit of background...
Buy To Let Properties attract substantial Inheritance Tax (IHT) charges and as such are a major concern for many property portfolio investors wishing to leave a legacy to the next generation.
One option is to gift properties to children during your lifetime and so long as you survive 7 years, this is an effective way of removing value from your estate for Inheritance Tax (IHT) purposes.
However, the gift must be irrevocable, which means you must not continue to take any benefit from the gift (income and/or capital), otherwise the gift will not be effective for IHT purposes.
From a tax perspective you will need to consider your Capital Gains Tax position when gifting properties.
Gifting an investment property is a disposal for tax purposes and could trigger a substantial Capital Gains Tax (CGT) charge, particularly where there is a large gain in the property.
This is your tax liability and how you fund it will need to be factored into your cashflow. When gifting a property you effectively create a dry tax charge, because unlike a sale to a 3rd party you will not receive any proceeds when you gift a property.
Before you make the gift
You should consider whether you need the income generated by the properties to support your lifestyle needs, whether you need continued access to the capital value and whether you are comfortable with your children having access to and control over such a large asset now.
Once clients are fully informed of the practical difficulties of gifting a property, they turn to us for advice and to understand whether our Succession Partnership is suited to their circumstances. The Succession Partnership was developed to address the practical issues that exist with an outright gift of a property, while providing substantial Inheritance Tax benefits
Solution - Family Succession Partnership
By utilising several statutory reliefs, it is possible to restructure how your Buy To Let Properties are owned without triggering any significant tax charges. Substantial value can then be transferred to the next generation without you losing control of the investment assets or access to income and capital
Typical Client Profile
You will be UK domiciled (or deemed UK domiciled) for Inheritance Tax purposes and could be either UK resident or non-resident for capital gains or income tax purposes.
You will have investment property assets that do not qualify for any IHT reliefs, such as buy to let properties with a net equity value of at least £250,000.
You will be actively involved in the day-to-day management of the properties, although you do not need to be spending 20 hours per week, as is recommended when transferring partnership properties to a Limited Company.
You will want to put a plan in place that enables your children to succeed you in the day-to-day management of your properties as you grow older or if you are unable to through ill health.
At Crofton Bradfield, we take the time to understand your individual needs and requirements to ensure that we tailor your Succession Partnership to your current and potential future needs.
