CASE STUDIES

CASE STUDY A
SYNOPSIS

Our client had been widowed for several years and was in her early 80’s. Her home (which was in her sole name) was worth around £600K and she had savings and investments collectively worth around £350K. About 4 years ago her son (who lived with her) had substantially improved our client’s property. The son had his own building company and is well known locally and regularly acquires (with bank support) plots for residential development. Our client was not in good health and unlikely to survive 3-5 years. The son was facing a potential IHT inheritance tax liability of £270K.

CASE STUDY A
SOLUTION

It was possible to avoid any IHT liability. Lifetime gifts were difficult because of our client’s limited life expectancy. It was possible for our client to become a shareholder in her son’s building company and to extract income in the form of dividends. This secured the benefit of 100% BPR after just 2 years, an IHT savings in itself of £140K. This also avoided the son’s need for gearing, increasing the overall profitability of the family company. It was also possible by employing constructive trust and proprietary estoppel arguments, for a declaration to be put in place recognising the son’s contribution to our client’s home, thereby immediately removing 50% of its underlying value from IHT liability. All planning avoided any IHT liability. Other taxes such as POAT (Pre-owned Asset Tax) and CGT (Capital Gains Tax) were also successfully
dealt with.

CASE STUDY B
SYNOPSIS

Our client’s principal residence was in London. Originally they contacted our conveyancing department about the acquisition of a second home in the South West. Our property lawyer alerted them to various tax issues and referred to our specialist private client team for technical support and strategic advice. The obvious problem was a potential CGT liability on a future disposal. There were also IHT and other estate planning issues.

CASE STUDY B
SOLUTION

Ordinarily, it is only possible to secure the benefit of the 100% Principal Private Residence Exemption (PPR) on the main home. Therefore a second home is treated as an investment and any profit liable to CGT, potentially at 40% (from 2008/09 18%). However, it is possible to exploit the legislation to ensure that both properties continually qualified for PPR. The planning can be complex and may involve the use of trust structures to trigger deemed disposals to fully secure the benefit of PPR and achieve substantial tax savings. Will and succession planning implemented also secured longer term IHT savings and secured significant asset protection i.e. against nursing home fees, death, divorce etc which were also a concern to our clients.