Hi wise ones.
One of my clients is in a nursing home, (86) she has private income, private pension and state pension so adequately covers the fees. She has sold her main residence and wants to buy a rental property to provide additional income. It will be her only property.
Should she buy it in the name of a limited companty and make her daughters and grand daughters directors/shareholders to assist with inheritance and inheritance tax issues, and use the post tax profit as dividend income in the meantime?
Thank you
Related resources
Replies (9)
Please login or register to join the discussion.
IHT Question please
Client in nursing home wanting to buy property to use rental income to pay nursing fees.Hi wise ones.
One of my clients is in a nursing home, (86) she has private income, private pension and state pension so adequately covers the fees. She has sold her main residence and wants to buy a rental property to provide additional income. It will be her only property.
Should she buy it in the name of a limited companty and make her daughters and grand daughters directors/shareholders to assist with inheritance and inheritance tax issues, and use the post tax profit as dividend income in the meantime?
Thank you
I think you as her accountant/tax adviser would be best placed to advise. Could you elaborate on what you mean by "assist with inheritance and inheritance tax issues".
Would it not be simpler and as effective/ineffective to make gifts now?
Hi,
I am thinking more along the lines of : she can pay the fees she needs to pay now, but if they increase she will need more income. If she lives another 5 or 10 years when she dies the property will still be owned by the directors and shareholders and they can all continue to benefit from the income?
Cheers
A simple model. She could arrange that her children incorporate a company, which could buy the property, which she should fund via a loan. The company would pay only corporation tax, and she would pay no income tax on withdrawals of the net cash flow. The company would not pay dividends, so the accumulation of P & L reserves would accrue IHT free to her children
Downsides
1] 3% SDLT
2] No CGT rebasing at death
That would probably be best
'Estate planning' has been used as a synonym for avoiding care costs
Gifts always a bit of an issue
Loan perfectly acceptable
Downsides
1] 3% SDLT
2] No CGT rebasing at death
Blatantly not a complete list, though it appears to be pretending to be one.
Hi,
I am not looking for lists etc, I have all that info. There won't be an estate to distribute on death. Care home circa £3000 per month, covered by income currently. Looking more at ownership of new property in say 10 years time
Income from it is not relevant as was more looking at client retrieving funds from her loan each year and distributing as gifts under £3k per year
I am not looking for lists etc, I have all that info.
Then I don't know what your question is (about). [In contrast, mine is simple: why did you post yours anonymously?]
There won't be an estate to distribute on death.
Why, what's happening to all her assets while she lives? (And I hope it's her doing the doing; all sorts of issues if it's her attorneys.)
Care home circa £3000 per month, covered by income currently.
So her unspent assets will include the proceeds of sale of the home, or whatever asset replaces the cash, as well as the assets giving rise to the income over and above the pension.
Income from it [the new property] is not relevant...
Not sure what you mean by "relevant". Suppose your client is taxable on the income, maybe under the settlements legislation or POAT, for example? Would that be relevant? Let me add I haven't given that any thought at all and it might be baloney, whereas for you it was possibly a headache - as I'm sure you've had to think about it, given you now have all that info.
Given the age and health of the party is buying a property, with all the frictional costs that involves, the best investment she could make?
Forget the IHT wheezes for a minute, why property, her family could surely set up a company with money she lends it and buy shares, gold, anything- why is illiquid property, with some horrendous frictional costs re acquisition and later sale, the best advice for someone age 86?
Or is this planning not for the benefit of the 86 year old, perhaps?
p.s. And if IHT is the main issue maybe a portfolio of Aim shares might be worth a thought