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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

So wonder how people hang on to family money?

31 replies

byzantinelaws · 30/10/2021 07:06

Someone I know through work comes from a wealthy family who own property/land. Lives in a big house that belonged to the family and was given to him, but seems to struggle with the household expenses and says he can't afford to get jobs done on the house (plenty needs doing)

He is employed in the family business which he says is failing and everything has to be cash - he went to buy a large item the other week and asked me to help collect it in my van, the seller wanted a bank transfer but he said it had to be cash.

If the business is failing why not sell off some of the land/property to help? I'm confused that someone can live like this - they seem to buy a lot "through the business" yet be cash poor.

Coming from a fairly poor working class family where we just spent what we earned, I'm completely baffled by it all. Is he likely dodging tax or something? I also realise it's none of my business really, I'm just fascinated by it!

OP posts:
ToykotoLosAngeles · 30/10/2021 07:30

He may be asking clients to pay in cash to avoid paying tax, yes. Obviously not sure what the business is, but I mean income/corporation tax. Thus only having cash to spend.

Hollyhead · 30/10/2021 07:33

I think often in families like this there is an instilled duty to keep it all going so selling part of it feels like failure.

Original poster
byzantinelaws · 30/10/2021 07:34

I wonder why people live like that though. The house is still full of ancient carpets with holes, the windows are knackered (he was moaning about those and the energy bills, can't afford to replace the windows) why not just sell the house to someone who can afford to look after it and not have the money worries? The one house alone is worth over a million (in an area that isn't very expensive)

OP posts:
Original poster
byzantinelaws · 30/10/2021 07:36

@Hollyhead

I think often in families like this there is an instilled duty to keep it all going so selling part of it feels like failure.
He did mention to me a couple of years ago about passing the house down to his son, so you might have a point there.
OP posts:
SW1amp · 30/10/2021 07:41

It’s highly likely all or part of the land and property is held in trust

The advantage is that it gets around massive inheritance tax bills
The downside is that the estate can’t be easily sold

If this is the case, the business will be run separately but alongside the family wealth
Eg the business will pay peppercorn rent to the trust for the use of the land or premises but one can’t prop up the other

The trust has to pay for repairs etc
The business has to cover itself

PerseverancePays · 30/10/2021 07:49

Many of these old estates are tied up very tightly so they are passed down intact . People that marry in can’t inherit, bits can’t be sold off, not easily anyway, heirs and spares must be produced to keep the whole thing going.
One of the problems is that they, the inheritors, may not have any business sense whatsoever but will always have a scrimping and saving ethos drummed into them. So they will be wearing a fifty year old coat but not know how to set up some air b&b for some actual money. They are the relics of colonialism and imperial rule.

Whose · 30/10/2021 07:49

Yes there's a whole pride/honour thing around looking after the family property.
They say something to that effect in Downton Abbey... They don't own the place, they're just looking after it for the next generation.

But you're not wrong, they should sell up and pass on good values, sustainable finances etc rather than a huge, rotting liability

Original poster
byzantinelaws · 30/10/2021 07:59

@SW1amp

It’s highly likely all or part of the land and property is held in trust

The advantage is that it gets around massive inheritance tax bills
The downside is that the estate can’t be easily sold

If this is the case, the business will be run separately but alongside the family wealth
Eg the business will pay peppercorn rent to the trust for the use of the land or premises but one can’t prop up the other

The trust has to pay for repairs etc
The business has to cover itself

So does this mean even if the business goes bankrupt, they can hang on to the property? I don't know much about business or property!
OP posts:
LakieLady · 30/10/2021 08:12

So does this mean even if the business goes bankrupt, they can hang on to the property? I don't know much about business or property!

Yes, it's entirely possible, especially if the property is vested in a trust. This is a practice widely adopted by wealthy, landed families as it avoids inheritance and other taxes. It also means that property is not owned by any individual or company and that it cannot be forcibly disposed of in the event of bankruptcy or to recover debt.

There are also significant tax advantages to income deriving from the land/property.

HandlebarLadyTash · 30/10/2021 08:54

Can all homeowners put property in trust for the kids? & if so why is that not the norm?

DaisyNGO · 30/10/2021 08:57

He might also be really attached to it emotionally, which I completely understand.

NinjaTuna · 30/10/2021 09:03

A previous 'boss' lived in an asset rich, cash poor world. He limped from inheritance to inheritance . The new car was leased, credit cards were juggled and the baliffs turned up more than once for payment.

It all seemed very stressful but he marched through it with his head high, projecting a ' only little people worry about taxes' attitude. It was mesmerising and ugly at the same time. I'm not sure he or his wider family were ever truly happy but they certainly bonded together and looked down on anyone with double glazing or state education.

UndertonesOfCake · 30/10/2021 09:07

There's often a sense that they don't want to be the one who lost the house for future generations - there would be a huge sense of failure associated.

This sort of thing provides a few storylines in Downton Abbey.

SW1amp · 30/10/2021 09:08

@HandlebarLadyTash

Can all homeowners put property in trust for the kids? & if so why is that not the norm?
Technically yes but then you have to give control to the trustees

Neither you nor future generations will own the house. The trust owns it, and gives beneficial use of it to the current generation

So you couldn’t downsize, move, upsize, extend etc
The trustees would be the only ones allowed to make those decisions. They are effectively your landlord, and make decisions based on what is best for the trust and future generations. Not what’s best for the current occupants

Great when it’s a historic stately pile and the alternative is giving it to the National Trust or having to sell it, or turn it into flats to pay a multi-million tax bill

Makes no sense when it’s a 4 bed house in the midlands and you are only looking to avoid a couple of grand of IHT in exchange for losing all control over your house

Original poster
byzantinelaws · 30/10/2021 09:11

So who can be the trustees? The place I'm referring to isn't a stately home, it's a few acres of land with three houses on it, think it used to be a farm.

OP posts:
VladmirsPoutine · 30/10/2021 09:17

@SW1amp I wondered this! Thanks for explaining so clearly!

SW1amp · 30/10/2021 09:27

Farms are slightly different because they are already exempt from most inheritance tax - but it comes with conditions. Basically if the land is used for farming and the house is an appropriate size for the farm (ie not a stately home) then you don’t pay inheritance tax

But if eg you convert buildings from barns into holiday homes, those are obviously no longer agricultural buildings and tax is due. Or if the land is used for pet ponies rather than agricultural work

But farms will usually separate the farming ‘business’ from the property ownership so that might well be the reason they don’t use one to prop up the other
Or there might be a trust ownership structure
Or it might be pride
Impossible to know without a good snoop around Companies House and land registry data

But what you say about ancient carpets and rattling windows is pretty normal for farmhouses. They are rarely comfortably heated, regardless of how much money is in the business!

It also disproportionately devalues farms when you start selling off bits
Eg you might raise £500k selling off one of the houses and some land, but the remaining farm is worth £1m less because it’s now too small to be a commercially viable farm

user1471538283 · 30/10/2021 09:31

It sounds utterly miserable to be in a house with all that lands as it decays. Alot of them think of money as crass though and wouldnt dream of using it as a business venture.

I've never inherited a house but I think a home is only any good if its suitable.

topcat2014 · 30/10/2021 09:34

Paying for your personal life through a business is tax evasion though.

SW1amp · 30/10/2021 09:35

@topcat2014

Paying for your personal life through a business is tax evasion though.
But there is no suggestion that’s what he is doing
Original poster
byzantinelaws · 30/10/2021 09:36

It's not used for farming now, although he did tell me they rent one field out to a farmer for grazing. This is all very interesting. One thing seems clear, they're definitely on a tax fiddle!

OP posts:
Original poster
byzantinelaws · 30/10/2021 09:38

But there is no suggestion that’s what he is doing

Well he insists on paying for everything in cash, so I imagine he is getting paid in cash for at least some of the work he does.

OP posts:
Alarae · 30/10/2021 09:38

I see the other end of the spectrum of this, where the family wealth generates so much income but the beneficiaries don't want anymore so it gets built up. Literally a problem of having too much money (nice problem to have, eh).

One reason how they manage to grow so much wealth is because they have the connections to invest vast sums of money in promising start ups. Once you have an 'in' you then get offered more opportunities. For example, they made approximately a £1m investment a few years ago and now its worth around £10m. Obviously there are investments that fail, but they are offered investments more likely to succeed than not.

The numbers involved are just ridiculous. When a 2 year old receives close to 100k in income a year, its just a bit nonsensical.

M0rT · 30/10/2021 09:39

I know someone who married in to one of these farms. A nice warm new bungalow was built for the older generation and she and her husband got the large uninsulated house with single glazed windows, slate flooring and 30 year old wiring. Supposed to be the better deal!
When the second child was born she insisted on moving in to a house with working central heating in the village. I was amazed she had held out that long!

SW1amp · 30/10/2021 09:40

@byzantinelaws

But there is no suggestion that’s what he is doing

Well he insists on paying for everything in cash, so I imagine he is getting paid in cash for at least some of the work he does.

That’s evading income tax by being paid cash in hand

That’s not funding your personal life through a business as such

But either way, it doesn’t sound particularly above board, especially given the situation with the business being so precarious