Depressed markets make for ideal inheritance tax planning opportunities

Published: 18th December 2008

The fall in land and property prices whilst a cause for concern for most opens up a number of inheritance tax planning opportunities.

Inheritance Tax is charged on your estate at the rate of 40% subject to a number of exemptions. The simplest way to inheritance tax plan is to give away an asset and hope to survive 7 years. Typically inheritance tax planning for property owners is difficult because any gift not into a trust will trigger a Capital Gain Tax charge if the property being gifted has risen in value. Over the last 10 years we have seen substantial growth in commercial and residential property and therefore the potential Capital Gains Tax charge has precluded significant tax planning being undertaken.

With a gift into trust any capital gains can be 'held over' such that there is no immediate charge to capital gains tax however any gift over £312,000 (this is cumulative over a 7 year period) into trust will trigger an immediate inheritance tax charge of 20% of the excess.

For those people with significant property portfolios the depressed property markets means that gains might not be so significant and therefore there may be opportunities to gift assets away and start to reduce your estate for inheritance tax purposes without triggering an immediate charge to tax. Depressed prices also allow for assets to be put into trust without an immediate inheritance tax charge.

For those in the fortunate position to take advantage of depressed prices particularly looking to purchase land to develop it is worth considering whether the next development you undertake can be structured to keep any profits outside of your estate for inheritance tax purposes.

If you would like a no obligation chat with one of our Tax Trust and Estates team about the tax planning opportunities available during the current market please contact Paul Bricknell on 0161 214 0500.