Camilla Bishop provides bespoke advice to high net worth clients looking to make the most of Inheritance Tax bands and reliefs and knows that gifts with leaseback can have a huge impact on an estate.
The majority of people aren’t keen on death taxes, yet most end their days with the single most offending asset still in their estate for IHT. The main residence is often the reason that the £2m threshold is breached and the residence nil rate band is lost, so it follows that a gift of the main residence to children can resolve the problem overnight: if your £3m estate includes a £1m main residence, a gift of that residence will bring the estate back to £2m. At a stroke you save £140k of IHT through reinstatement of the residence nil rate band (RNRB). There is no seven year rule for the £2m threshold test.
Of course in order to avoid a gift with reservation of benefit, market rent must be paid to the donees, but by putting in place a ‘lease for life’ you can have security of tenure while only paying the minimum SDLT.
If the gift of the main residence is made by a couple, you have the prospect of one or more surviving three years and benefitting from taper relief. If either or both survive seven years, there will be a further substantial IHT saving (up to £400k on a £1m property). This saving comes on top of the RNRB saving above giving £540k+ of IHT savings on a £3m estate.
The costs of implementing such an arrangement are modest in comparison to the potential tax savings, and the risks are low as HMRC accept this as legitimate planning that it is not contrived. In a flat property market, the loss of main residence relief for CGT on future gains is not an issue.
Implementing this kind of plan requires expert advice. If you'd like to find out more, please contact Camilla or a member of our Private Client team.