The £2m house and IHT

[Soporalt]

Making a new post as this is a discrete point that comes up regularly here separate to that discussion.

Following on from the current long discussion about the rights and wrongs of a mansion tax, AIBU to pick up a few posters’ comments suggesting that the gentleman will have set up trusts to avoid IHT. I don’t blame the posters. This view is often put about by the media.

Firstly it’s highly unlikely the property has been put into any trust, we’re talking discretionary trusts here, that would “avoid” IHT. To have done that would already have incurred IHT and require him to pay the trust a market rent (taxable at 45%) to avoid further IHT on his death. And the CGT exemption would have been lost.

Secondly, discretionary trusts do have benefits for later generations in that their IHT bills are spread and can be planned for, rather than being paid in a huge lump following a death.

There can be debate around rates of IHT, but it is not true that trusts avoid IHT. Quite the reverse. I am not aware of any avoidance schemes that will now work. Everything peddled by what remains of the tax avoidance industry is now doomed to failure. Touch it at your peril.

Trusts remain a useful vehicle for asset protection, but not tax avoidance.

Good.

As some religious people say, if you have too much, build a longer table not a higher wall.

Or, as good citizens say, pay your taxes.

I disagree. You can hold over a cgt liability on a transfer into a trust then pass out to beneficiaries while holding over the gain again. Ok so the cgt will become chargeable should the beneficiaries ever sell but if it had been gifted directly, it would have been chargeable immediately.

Grandchildren's trust are a good way of using up the personal allowances of young people who don't have any other income. Therefore saving income tax.

Assets below the nil rate band can be passed into trust. Nil rate band refreshes after 7 years.

There are many ways a trust can be effective for tax purposes.