How to deal with Inheritance Tax and London Property

Inheritance tax is one of the main concerns many buyers and owners of London property have.

The regulations have changed and you have to understand the implications.

Unfortunately, the media has resorted to scare tactic headlines.

Invariably this means that many people are making uninformed decisions. You do not want to make the same mistake, so I asked one of the tax experts we recommend: what can buyers and property owners do in the face of potential Inheritance Tax (IHT) liabilities.

Please note his answer is not designed to give formal advice but is just an overview of options available to potential purchasers:

“While the UK Government has made it clear that historic methods of inheritance tax planning are no longer available to potential property owners, there are still several options for purchasers to consider that allow them to mitigate their potential UK tax exposure.

The first question that always needs to be considered is what is the envisaged purpose of the property. If, for example, the property is to be used by multiple family members then splitting the ownership between the different family members could provide a £325,000 discount to the taxable value of the property per ‘owner’. If the family members span multiple generations then the savings are likely to be higher as the UK Government generally allow a further 10% co-ownership discount when calculating property values.

It is, of course, possible simply to split ownership between individuals but a more flexible arrangement may be to use a bare trust or nominee company. This allows for a single registered owner of the property at HM Land Registry with any division between the family (or, of course, other interested parties) happening behind the scenes. This route will need to be used if you are considering having more than 4 owners of the property.

It is also possible to consider more substantial planning if you wish to pass on future growth in the property to other people. One option that may be worth considering is to divide the property between its current value and future growth. You could elect to ‘gift’ any future growth value now to the next generation, which will ensure your UK tax exposure does not increase if the property value increases (but would usefully decrease in the event of the much heralded but lesser spotted property decline) but prevents the younger generation having ownership of the property itself.

Of course, the tax ramifications of all of these options (and others) would need to be considered but hopefully this reassures you that there are still plenty of attractive options for owning UK property.”

The first chapter of The Insider’s Guide To Acquiring Luxury Property in London is all about the easiest way to save money. Good tax advice is a major part of this. You can rely on what you read in the press or you can speak to an expert.

So, if you would like me to recommend a good tax adviser please email me at jeremy@mercuryhomesearch.com or call 0800 389 4280 (+448003894280 from outside the UK). Please note that we do not receive any fees for these recommendations. We make these introductions because the tax advisers have a proven track record of saving our members not only money but also a huge amount of time and stress.

Best regards,

Jeremy