Double up on IHT relief


Mike Butler, Partner, Head of Rural Services


A husband and wife with a mixed portfolio of exempt and IHT taxable assets should consider carefully whether they can get two lots of IHT relief on the exempt assets when they die.


In general it is possible to pass exempt assets down a generation when an individual dies but apart from the nil rate band, to avoid paying IHT non exempt assets such as investment portfolios and investment property will have to pass to the surviving spouse. Whilst IHT is avoided on the first death the surviving spouse themselves have the issue of holding more “problem assets” when they die.


Convention would dictate that the surviving spouse would immediately seek to dispose of the assets they recently inherited from their partner by way of lifetime gift. This mechanism at least avoids the donor having to consider the payment of Capital Gains Tax on the gift since the assets inherited from the first deceased have been rebased in terms of valuation to the market value at the date of death.


The problem with this strategy is that the donor now has to wait seven years before they can confirm


whether the strategy was ideal. An alternative is to perhaps consider whether the surviving spouse doesn’t give but rather sells their inherited problem assets in return for the good and safe IHT exemption from the assets which passed down originally to the children. For example, a surviving widow may have £2million of let property inherited from their spouse whilst the children have £6million of farm land, the latter being considered exempt for IHT purposes.


The sensible thing would be for the mother to acquire the farm land herself and pay for it by way of residential property inherited by the surviving spouse from the children. Consensus would suggest that the surviving spouse would have to wait two years to gain the exemption on the commercial land and farm buildings to match her own holding but once achieved by way of personal farming, the whole objective would have been achieved and the surviving spouse’s estate would now combine mainly exempt agricultural property.


It is important to avoid paying Stamp Duty Land Tax as doing so shows your interest in property, unless the appropriate sub trust arrangements are used. This should be possible by using sub trusts from the main trust in order to facilitate holding the various parcels of interest in the land and property.


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