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Pros and cons

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Pros and cons

Postby 9fingers » 12 May 2017, 19:13

Swmbo and I are 64/63 and have one son of 30 still living at home with no sign of of getting married or moving out which is fine by us. We all get on well. He is is year one of a 4 year uni course after finally deciding he needs a proper career/job somewhat later in life.

In addition to our home , we have my parents house rented out and have been thinking about inheritance tax planning combined with investing some of our funds into property.


The plan is to buy a local flat in his name and rent it out. He is will not be a tax payer for a few years and the rent could be aimed towards reducing his student loan borrowings and repayments.

We do not need either the capital for the flat or the income in order to continue to live comfortably - very fortunate. :eusa-whistle:

As the property will be bought in his name, and that SWMBO and I survive a further 7 years (high probability :eusa-pray: ) this should serve to move the cost of the property from our estate into his free of IHT. Under the terms of our wills, apart from a few small legacies, the bulk of our estate will go to our son.

The conveyancing solicitor has asked if we are providing the purchase price of the flat as either a gift or a loan to our son and suggests we get independent advice and she is not prepared/able to do this.

Currently I'm thinking "gift" to provide a clean break from our estate but can't quite work out the pros and cons of making it a loan that would likely not be paid off.

One possibility could be that son will marry, then divorce. I don't know if the flat could get passed in part to the estranged wife or if it was 100% owned by my son before the marriage, it would be outside any divorce settlement.


If you have read this far and not dozed off, I'd welcome some discussion.

TIA

BTW this would be under English law
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Re: Pros and cons

Postby Robert » 12 May 2017, 22:56

I'd suggest you go and talk to a couple of local IFA's. Most will give you a free introductory chat.
You might not get detailed advice for free but you'll get enough to know if you are planning in the right direction.

Inheritance tax is something my advisor goes on about so it is something they are used to doing. So far we have not done any planning despite reminders.

My daughters flat purchase was assisted by us paying for just under half the price. Her solicitor didn't bat an eyelid at the money coming from us - it just topped up her deposit contribution.
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Re: Pros and cons

Postby Rod » 12 May 2017, 23:35

When we updated our Wills we were advised against making any trusts re our property (to avoid inheritance tax) for the reasons of family fallouts or marriage breakdowns. I realise it's not the same situation but breakdowns etc could lead to similar issues.
I think a gift after 7yrs becomes "tax free" but if you gave your son a house and then charged "rent" you would be liable to tax as it would be classed as income. Lending him the money would be one way around this I think.
Divorce settlements can be very messy and If children came along a home for the mother and children would feature.

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Re: Pros and cons

Postby Phil » 13 May 2017, 07:19

Some interesting thoughts to ponder on.

Our local tax people keep an eye on property purchases and where the money comes from to check on money laundering. Same when buying a car – you provide all your tax details.

We can ‘gift’ an amount in each tax year to a spouse or child. How they check and control that I am not sure.
There is nothing stopping me from just doing a bank transfer to their accounts.
When the wife turned 60, I invested 60k in her name for 5 years, supplying all her details and bank account number and did the transfer from my account. I did not declare it.

Bob, I am not sure about the gifting issue in your tax laws or the loan. The gift is probably the cleanest transaction.
You can in your will state that what he inherits does not form part of any communal estate and even better if married ANContract without accrual.


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Re: Pros and cons

Postby RogerS » 13 May 2017, 07:55

Seek professional advice - both for tax planning purposes and also re pre-nup agreements.

You could ask try writing in to the FT Weekend money page.
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Re: Pros and cons

Postby Phil » 13 May 2017, 14:17

RogerS wrote:Seek professional advice - both for tax planning purposes and also re pre-nup agreements.

You could ask try writing in to the FT Weekend money page.


:text-+1:

Yes, definitely. This is a mine field area where you don't want to regret the decision later on.
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Re: Pros and cons

Postby Rod » 13 May 2017, 15:28

Spend, spend, spend - you can't take it with you!

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Re: Pros and cons

Postby Deejay » 13 May 2017, 16:10

Afternoon Bob

The last time we moved house we rearranged our wills through the solicitor doing the conveyancing. He uses a tax specialist to advise clients.

There's a bit of advice here ..

https://www.gov.uk/inheritance-tax/gifts

but I'd agree with the advice above and talk to a professional.

Cheers

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Re: Pros and cons

Postby MattS » 13 May 2017, 16:15

The other thing to bare in mind if you haven't already is stamp duty. We very nearly made a property purchase with a loan from parents in law. Just to bridge till we sold our house. In the end it didn't happen but as money was coming from father in law and it wouldn't have been his main residence it wouldn't have been liable for the much higher second home stamp duty.

As others have said need some proper advice.
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