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Inheritance Tax toolkit for buy-to-let landlords – Part Five

August 12, 2017

interitance tax toolkit for buy-to-let landlords from Optimise Accountants

By Louise Misiewicz

Are you aware of the regulations around inheritance tax?

How are you protecting your property assets and wealth?

I’m adding another article to the series of blog posts from recent weeks following a meeting with a property landlord client consultation on IHT. This week I’m writing Part Five for my property tax blog readers.

You can read the first part of the article series here

Part Two of the IHT Toolkit blog posts is in full here

Part Three of the article series can be seen here

Part Four from last week can be reviewed here

Looking at Part Five this week, I’m including the next set of questions I gave to my property investor client  during our meeting, as I reviewed his inheritance tax position in regard to his property portfolio.

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The next question I outlined to my client was:

Have all assets been identified that are due to the deceased from another estate and not yet received, or received by the deceased from another estate in the last five years?

Assets that the deceased has inherited can be overlooked if the other estate hasn’t been fully administered, as I explained to my client. Assets due to be inherited can also be mis-valued, as well as Quick Succession Relief being available but not applied for. The legislation around IHT can be complex and complicated.

HMRC advises that the form IHT415 (Interest in another Estate) should be fully completed, as well as revaluing assets yet to be distributed, as well as taking account of any related property.

All assets received should be accounted for in the deceased’s estate, and my client agreed with this. The value of assets due to be received can sometimes be returned to the value of the previous estate, instead of the value at the date of the deceased’s death – asset values can go up and down between the date of inheritance and the date of the deceased’s death. We moved on to further review my client’s IHT liability.

Question: Have all Gifts or other valuable transfers within seven years of the date of death been identified?

All Gifts and transfers of value made within the seven years to the date of death need to be included in the calculation of IHT, as I explained to my landlord client.

Transfers of value can occur where an asset is sold for less than its full open market value (such as the sale of a property), where a debt has been written off, where property is transferred into a Trust or settlement, or where an asset is acquired by more than one person.

HMRC recommends that all bank and building society accounts are carefully checked for the seven years prior to death, to see what transactions have taken place that can be classified as Gifting.

I advised my client that it is also important to check whether the deceased paid for anything on someone else’s behalf, such as holidays, bills, or loaned them money which has been waived.

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It is important to review any joint purchases on property, as well as ascertaining how the joint purchasers funded their shares of the purchase price. Parents, for example, often Gift their children money to fund the children’s shares, which is not always declared as a Gift.

I also pointed out to my client that he should consider the ancillary costs of the purchase of a joint asset, such as fees and Stamp Duty.

Question: Have any Gifts with reservation of benefit been considered and identified?

I informed my client during our IHT consultation that assets may be Gifted by the deceased, but the deceased may have to continue to be able to benefit from, or use, the property Gifted in their lifetime.

These Gifts with reservation of benefit may also be missed in IHT liability calculations, and these need to be considered even if the original Gift was made earlier than the seven years before death.

HMRC suggests that it is worth checking how any property Gifted by the deceased has been used since the Gift was made. If the deceased continued to use the property, or continued to benefit from the Gifted asset, the Gift may well be a Gift with reservation of benefit. It will need to be valued at the date of death.

Question: Has evidence been gathered to back up any claims for debts owed by the deceased?

Claims for debts owed by the deceased most commonly include inadequately-evidenced loans from friends and relatives, a deduction incorrectly claimed as spent on behalf of the deceased, should cheques for the benefit of someone other than the deceased, and other loans, overdrafts or mortgage and equity release schemes where it’s not evident that the money has been used. These areas all need careful checking.

HMRC will want to see full investigations taking place by my client, listing the exact terms and conditions of any loans from family and friends, as well as details if assets were purchased reflected in form IHT400 including their value when purchased and their value at the date of death.

If any debt is not going to be repaid out of the deceased’s estate, it cannot usually be deducted for IHT purposes. My client could see the complexities surrounding inheritance tax. More to come next week.

Further associated articles around inheritance tax rules which will be helpful include:

Transferring your main home into Trust to benefit your children

IHT planning – getting the basics in place

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Email: simon@optimiseaccountants.co.uk