Law: Our Learned Friend - It can pay to be prudent

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The Independent Culture
THE BUDGET next month has had lawyers and accountants trying to predict what the Chancellor of the Exchequer may introduce on 9 March and what people should do before then.

One case that has had advisers trying to second-guess Gordon Brown is the decision of the House of Lords in Ingram vs the Commissioner of Inland Revenue last December. It was welcomed by tax planners and their clients, as well as getting press coverage, because the Inland Revenue lost.

Lady Ingram's inheritance-tax arrangements involved the use of a nominee to carve out a 20-year lease on her property. The nominee then transferred the freehold to her intended legatees. The idea was that if Lady Ingram survived for seven years, her gift of the freehold would not be included for inheritance tax purposes. The only asset remaining to her would have been the lease, which would have had a low value. There were a number of technical legal arguments as to why the arrangements might not be effective, but the House of Lords decided that they should stand.

However, this type of planning is not suitable for everyone.

In common with almost all professions who advise on the financial affairs of private individuals, I would suggest using your family home for tax planning purposes only in exceptional circumstances. Many people are living longer, and are likely to need either their own home or nursing- home accommodation. It is imprudent - Gordon Brown himself would no doubt agree - to give away your major asset if this means that you will no longer be able to provide for yourself.

The Ingram approach is complicated. It involves a lot of work by the lawyer and is very expensive, making it justifiable only for estates of significant value - pounds 500,000 and above.

You also have to consider the consequence of any sale of the property. If the house is sold during the lease, both the leaseholder and the freeholder have to be involved, and the proceeds divided between them. And if the property is sold after the lease has ended, there will be significant capital gains tax liabilities.

Whatever your status, your tax adviser should look at all the details of your circumstances before you decide which option is most appropriate. However, there are some cases where the tax saving justifies all the work and the expense. As the Chancellor might say, prudence is the priority.

Catriona Syed is a solicitor at the law firm Charles Russell

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