Wealth Check: 'How can we manage our assets in a tax-efficient way?'

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Mr and Mrs de Massey want to know whether their estate will be liable to inheritance tax; like many couples today, their main asset is their home. They have not had the property valued, but expect the listed, detached house to be worth more than £250,000.

Mr and Mrs de Massey want to know whether their estate will be liable to inheritance tax; like many couples today, their main asset is their home. They have not had the property valued, but expect the listed, detached house to be worth more than £250,000.

They have a married daughter and three grandchildren, and want to know how they can pass their assets to her in a tax-efficient manner. The couple worry the house will become a burden. Mr de Massey would like to pass his share of the house to his daughter now as a trustee, with the power to sell the home if Mrs de Massey wishes. They would then like the house, or its value, to pass to their grandchildren.

The couple also want to know whether their day-to-day affairs are organised in the most tax-efficient manner. "We pay income tax, but we have not enquired whether we need to or not," says Mr de Massey.


Income: £1,800 a month in work and state pensions

Debt: None

Property: Jointly owned house with no mortgage

Savings: £34,000 in ISAs, Tessas and savings accounts, including a fixed-rate bond with Newcastle Building Society paying 5.95 per cent interest

Investments: £15,000 in shares with a weighting towards banks and utilities, £8,000 in Indian bonds

Monthly outgoings: Bills £550; expenses and petrol approx £535.

We put their case to Anna Bowes at Chase de Vere, Jennifer Storrow at Berkeley Morgan and Patrick Connolly at John Scott and Partners.


The de Masseys's case is relatively complex and they will need to take professional advice if they are to be sure of limiting their inheritance tax liabilities.

At Chase de Vere, Ms Bowes says the couple will need to set up a discretionary wills trust (DWT) that becomes active on the first death. They will also need to ensure they hold the property as tenants in common rather than jointly. Otherwise the property will pass, in its entirety, to the surviving spouse on first death.

She adds that a DWT can still incur both inheritance and capital gains tax liabilities. If the money in the trust is more than the nil rate inheritance band (£263,000), there will be a 20 per cent tax on the excess every 10 years. The trust can also be liable to capital gains tax on its share of the property, as there is no main residence exemption.

Ms Storrow strongly advises them to seek legal advice, especially if they plan to transfer an interest in the property during their lifetimes. "It is a major step, from which there is no turning back," she cautions.

Mr Connolly says the couple should not try to be too clever with their home, as the Inland Revenue has seen all the tricks before. But transfers between spouses are free of inheritance tax. There is an option of gifting a part share to their daughter on the first death. But, as Mr Connolly warns, the remaining spouse cannot keep an interest in the property.

If the remaining spouse is happy to sell the property and move to something cheaper, this might be feasible. However, the de Masseys need to consider what would happen in the event their daughter were to divorce, as her husband might have a claim on the gifted share.

Mr Connolly and Ms Bowes also point out there might be an option to use an inheritance tax nil rate band discretionary trust with an IOU scheme, but this is a very complex area.


The de Masseys should also pay attention to the basics, and make sure they are using their full mini-Isa allowances. Mr Connolly says it is especially important to shelter cash from income tax in this way.

Ms Storrow says the couple's tax situation is likely to be correct. However, they should check they are receiving the correct personal allowances, as these do increase with age. At 75 and over, the allowance is £6,950. If the couple are in any doubt, they should ask the Inland Revenue to check, or request a self-assessment form to check the figures themselves.


Mr Connolly says holding individual shares is risky for Mr de Massey at his age. As the amounts are relatively small he is unlikely to incur a capital gains tax bill on selling - especially if he does so over more than one tax year - so he should look at converting the sharesto cash. If he prefers more risk, he could opt for a diversified equity fund or a fixed interest fund. Likewise, the investments in India are rated as risky.

Ms Storrow echoes this point, and suggests transferring the portfolio into corporate bonds. These pay a tax-free income if they are held within an Isa. The de Masseys should be careful to avoid capital gains tax when selling their shares. The annual exemption is £8,200 and they will be able to make use of indexation and taper relief on long-term holdings.

* If you would like a financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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