Buying a property to avoid IHT - USERNAME: jacques
Tax Question: If (person A) who is a uk resident wanted to buy a house (valued in excess of the iht threshold) in such as way as to avoid iht for their partner who they are not married or in civil partnership with (person B) to enjoy on event of (person A)'s death what would be the best way to make the purchase. I understand there are foundations and trusts that can be set up for doing this kind of thing but know very little about them or the potential pit falls of owning a home though these types of structure. could for example person A set up a trust or foundation to buy a house. and set do it so the house is owned by the trust/foundation.
then live in said house with person B and then person B continue to enjoy the benefit of it after death of person A without the house itself actually changing hands and attracting iht ? would there be 'benefit in kind' type taxes to pay by owning a house and living in it in this way ? if person a did have to pay 'rent' to their own foundation/trust how would they be able to re-invest the money in the future and how could they benefit from it without falling into anti avoidance rules etc ? Answer: There is no problem in using the trust -- however there is an issue with A retaining the right of occupation. Any gift of cash or property to the trust which then held the property occupied by A would be likely to be caught either under the gift with reservation of benefit provisions (and therefore retained within A's estate) or by the pre owned asset rules (and therefore subject to income tax on A). If A was to use a trust he'd need to ensure that there was no occupation of the property by him. Looking at the basics couldn't the property be made in joint names -- with B then holding half of the property. Providing A's half was valued at less than his available nil rate band there would be no IHT. A could also potentially raise debt against the property and gift this to B. This would reduce the property value in A's estate to below the NRB and providing he survived for 7 years the cash gifted would be excluded from his estate. Other options include using schemes such as debt and charge schemes.
| 
