How do country estates avoid inheritance tax?

[mowglika]

Thinking about IHT for my own estate (as in a semi detached house ) I was thinking how do people with massive country estates and grand houses avoid inheritance tax?? Say if they have a property or properties worth £5/10/20m, how can they avoid paying massive tax on these? How do these country piles get passed down if they are eroded by IHT every generation?

Generally the estate is only part of the overall estate. These families don’t tend to have the bulk of their wealth tied up in a single physical asset, unlike the more common arrangements where most of people’s wealth is held in a single property.

A friend used to work for a couple of large family set ups and says with few exceptions estates lose money with amazing efficiency and have to be supported by the returns on other interests.

There are some reliefs for agricultural assets also, along with the same ability everyone else has to pass things along earlier in life to avoid inheritance tax liability.

Large estates are often owned by charitable trusts or businesses so the "owner" isn't one person, and nobody needs to inherit when someone dies. There are costs to doing this sort of thing and it's fairly complex to negotiate the paperwork, so it's not really worth it for "normal people" properties.

They're held in trusts so the occupants never "own" them, just have the right to live in them, then they pass to the next generation upon death.

Just like a will trust where a surviving spouse has the right to live in the marital home until they die at which point the share of marital home passes to the beneficiary named in the will of the spouse who dies first.

The reason why a lot of country houses turned into hotels/schools/public attractions after the war was precisely because of this - families being hit with such high "death duties" that they couldn't afford to run the houses at all.

They don't often, many of the national trust properties were acquired in lieu of death duties as were, ditto art work in galleries.

For state with farms there's different rules and early transfer is a good option, alternatively the property is owned by a trust not an individual

They have trusts set up that own the estate and therefore from an ownership point of view, nobody dies. The Duke of Westminster, acknowledged as one of the wealthiest men in the country, on paper doesn't have a pot to piss in, hence when his father dies a few years ago, there was no inheritance tax due. Ridiculous isn t it?

Just echoing what PP have said. In my experience they often don't, which is why so many are now hotels or outward bound centres.

A lot of them have either an agricultural element or business element which can reduce IHT considerably. There are reliefs which are aimed at ensuring that businesses and farms don’t need to be sold to pay IHT (as if they did a lot of businesses and farms would not be viable as 40% of them would periodically have to be sold to pay tax). Trusts can be used but it isn’t generally a tax free option- there is often IHT payable (and sometimes other tax) when you put assets into a trust or periodically once they are in it. It is rarely as simple as paying a lawyer to set up a trust and then not having to pay any tax. Sometimes estates are split between family well before the older generation dies e.g daughter given cottage to live in and son given farmhouse while parents keep main house.

A large percentage of the population (actually about 96%!) will never pay IHT on their estate anyway as the nilrate band is quite high. The vast majority of IHT is raised from the top 1% of the population for wealth.

They spend a lot on lawyers and accountants to help them find creative solutions to minimise their tax liability

Mostly they have to pay

If most of their estate is made up of agricultural property, they won't have to pay IHT on that part. Some of the big houses and art are subject to heritage property exemptions, which means they have historically been exempt from death duties because they're open to the public to view. The difficulty with that is that you have to keep letting the public see it or the historic death duties come back into charge from the last century, and some of them were huge percentages, 80 or 90%.

If you've ever watched any documentaries about, say, Longleat, that's why they have to let people wander round their bedroom, because there's stuff in there with historic death duties attached to it so they need the public to see it or they'll get a big tax bill.

If the estates are in trust, then instead of being a 40% charge on death, there is a 6% charge every 10 years. So a large estate in trust would have this as a predictable payment and would pay it out of income.

Yes obviously they take advice and some reliefs will be applicable.