Questions Of Cash: IHT avoidance relies on goodwill
Saturday 24 January 2004
Q In your article on inheritance tax (IHT) on dwellings (Save and Spend, 20 December) there is no mention of the fairly simple procedure by which home occupants declare themselves tenants in common and each will half their property to their children. The surviving spouse continues to live in the property rent free until death, when the remainder passes to the children. How will these arrangements be changed by the proposed legislation?
Q In your article on inheritance tax (IHT) on dwellings (Save and Spend, 20 December) there is no mention of the fairly simple procedure by which home occupants declare themselves tenants in common and each will half their property to their children. The surviving spouse continues to live in the property rent free until death, when the remainder passes to the children. How will these arrangements be changed by the proposed legislation? WC, Cheshire
Stephen Pallister, a partner in the private capital group at the solicitors Charles Russell, says: "This sort of arrangement ought not be affected by the Government's proposed legislation to tighten the reservation of benefit rules for IHT. The gift to the children only takes effect on the first spouse's death. But there are two stumbling blocks. First, the Capital Gains Tax (CGT) main residence exemption is lost on the half-share once it is owned by the children, unless they are in occupation. So half of any gain in value after the first spouse's death will be liable to CGT on disposal, to be met by the children. Second, you are relying on the goodwill of the children. This can cause problems if the surviving spouse falls out with the children, who could force a sale of the house. Also, if one of the children divorces or gets into financial difficulties, the cash value of the share of the house may have to be realised. A possible way round this is for the children, on the first parent's death, to settle their half-share of the house on a 'life interest' trust for the surviving parent, who would then have some protection during their lifetime. On their death, the trust would provide a 'reverter' to the children and there would be no IHT on the death of the surviving parent. Crucially, there must be no prior agreement on this step or it could be open to Revenue challenge. It is important to take proper tax and legal advice."
Q After a short voluntary retirement, I joined a company in April 2001 that was partly owned by BAE Systems, and joined the BAE Systems final salary pension scheme. During the qualifying period, BAE sold its interest in the company and so I ceased to be a member of the company scheme. I took the transfer value accrued and paid it into a Legal & General stakeholder pension, which appeared to be my best option. Both my employer and I continued to pay into the scheme. I retired last May and asked Legal & General to indicate the value of an immediate pension. I still cannot get an explanation. I recently received a letter from BAE Systems offering me a pension, but I think this may be an error. EF, Kildare, Ireland.
Carl Melvin of Pension Transfer Solutions says: "Legal & General accepts that it has made mistakes in the handling of your pension and is offering you £200 compensation for its failures. It has promised to provide you with the transfer value. Should this not be satisfactory, you may need to engage a pensions qualified IFA to represent you. The BAE letter is likely to be an error as you have no qualifying benefits in the final salary scheme."
If you have questions, write to Questions of Cash, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail firstname.lastname@example.org. We can reply only to letters published. Please send copies, not originals.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Video: The official full-length trailer for the Jurassic Park sequel has dropped – two days early
How to get fit in minutes
Money Round-up: Bank fraudsters; free wine; free home improvements; and rip-off extended warranties
How to cut the cost of car insurance: A five-step guide to getting a better deal
Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will
10 tips for taking out a personal loan
- 1 Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
- 2 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 3 Black Friday 2014: Opening hours for John Lewis, Asda, PC World, GAME and Argos
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Girl, 7, gets Tesco to remove 'stupid' sign suggesting superheroes are 'for boys'
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Revealed: How the world gets rich – from privatising British public services
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
iJobs Money & Business
£Attractive: Citifocus Ltd: High calibre individual with significant product d...
£Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...
£Attractive Package: Citifocus Ltd: High calibre individual with a high degree...
£Attractive: Citifocus Ltd: High calibre individual with superior academics an...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens