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Mitigating IHT on farmhouse inheritance?
My widowed client (C) is considering his will. He lives on a smallholding of 30 acres including a large old farmhouse owned by the family for the last century. The farmhouse value is £700,000; and surrounding land and substantial agricultural buildings are valued at £970,000. The estate (including machinery collections, loans made and cash, together with a house occupied by the son’s partner, is approximately £2.9m). It is unlikely that agricultural property relief will be available as the income from hay and straw sales is small.
C has a strained relationship with his son (S, 45), who is in and out of self-employment (and the pub) and barely self-sufficient. S is unmarried and has four children. S occasionally lives with his partner (P) who has custody of their children (ages 12–20). P lives with the children in a house bought by the client of a value of £250,000. P pays the client market rent funded by DSS while there are children living with her. C wants to provide in his will that this house will pass to the grandchildren but that P will have the right to live there (or another property for her lifetime if the house is sold).
C wants to provide for S to occupy the farmhouse for life and then to pass to the grandchildren. He would also like to provide for any of the grandchildren to live at the farmhouse and to use some of the farm buildings for business purposes. Would a discretionary trust for S and grandchildren achieve this? My client intends that the residual estate apart from the two houses should go 40% to S and 60% to his grandchildren in trust to meet the cost of maintenance of the farmhouse or to provide for the grandchildren’s education or support a business start up.
How can C achieve his objectives? It is anticipated that the IHT on C’s death will be met from the sale of collections, barns and land. How should the will be drafted to mitigate IHT on the death of P (if any)? Is there an interest in her possession if there is a discretionary will trust for the benefit of P and C’s grandchildren? And what would be the answer to this question if the son dies first?
Query 20,403 – Hayseeds.
Does gift on death create reservation of benefit?
My clients are a retired couple. The husband is 67 and in poor health. The wife is 64 and healthy. For historical reasons their principal private residence was transferred into the sole ownership of the wife some years ago. They are now considering some estate planning.
Should the wife die first and leave, say, a half share in the marital home to her adult children with the other half to her husband with his right of continuing occupation on a rent-free basis, does this create a reservation of benefit in respect of the half share which continues to be occupied by the husband, although it is actually owned legally by the two adult children who do not live there?
An alternative suggestion is for the wife to transfer a half share of the home to the husband now, inter vivos, and in the event of, say, the wife dying first, she would leave her half to the surviving adult children, who again do not live there, and the husband would have the right of occupation over the entire residence although he would only legally continue to be the owner of half of it. Is this likely to give rise to a gift with reservation of benefit (GWRB) on the half share not owned by the husband, which he would continue to occupy albeit he would not be a legal owner of it?
I have read that there are various opinions as to whether this kind of situation creates a GWRB. What do readers think?
Query 20,404 – Partridge.
CGT for giving shares?
We have a client who owns the only share in his company. There are three directors including himself. There is no connection between the directors other than they are members of staff. One was appointed in May 2024; another in May 2017.
My client wishes to give each 45% of the shares and keep 10%. We can issue another 99 shares to effect this. The balance sheet total is £100,000 without goodwill but the company only makes £20,000 a year after directors’ remuneration. There have been no dividends.
My concern is – will he have a CGT bill for giving shares? Will the directors have personal tax liabilities for receiving employee related shares? Is there a tax efficient way of doing this?
Query 20,405 – Logan.
VAT dilemma with gift.
One of my clients trades as a clothes retailer and the business is highly profitable. His business recently gave away a very expensive wedding dress as a gift to a production company because his daughter is playing the part of Miss Haversham in Great Expectations and the dress will be used by her character in the play. The production company is a professional organisation that is registered for VAT and can apparently claim input tax. My client’s generosity has been acknowledged on the company’s website and other promotional material.
The wedding dress is worth £2,000 and my client accounted for output tax of £400 under the business gift rules – also claiming input tax on the original purchase of the dress from the supplier – and thought that was the end of the matter. However, I understand from a colleague that my client could ask the production company to pay him this £400 and they can claim input tax on their next return. Is this correct? Presumably, my client can just issue a VAT only evidence to the production company?
Query 20,406 – Charles.
Queries and replies
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