Those of us who are concerned about a possible Inheritance Tax bill on their deaths often focus on the more obvious and significant assets such as their savings and investments, rental properties or their home as a route to reducing the value of their estate. However, those with valuable personal effects or “chattels” could be overlooking a useful tax saving opportunity.
While HM Revenue and Customs take a dim view of people giving away assets but continuing to use them as if they are still theirs (known as a “gift with a reservation”) they do not apply the same approach to personal possessions.
This exception means you are able to give away such items then lease them back from the recipient and continue using them as before. While this sounds cumbersome it can be a very efficient way of removing assets from the IHT calculation, provided you survive more than 7 years beyond the date of the gift.
The current rental market for valuable items such as jewellery, antique furniture and works of art is extremely small and therefore the amounts payable under a lease of such items is relatively modest.
HM Revenue and Customs have suggested that 0.75% – 1.00% of the items value per annum might be an acceptable rental level, meaning that a large reduction in your estate’s value can be achieved for a very modest ongoing cost.
In any event, the recipient of the rent may be a relative who you are happy to see gain financially or a trust fund which might hold that rental income for the benefit of the family generally.
There would be some relatively modest ongoing requirements, such as keeping insurance cover in place, keeping the valuation on which the rental payments are based up to date using a suitably qualified valuer and the recipient would have to declare the rental income on their own tax return. Overall, however, you may be missing an opportunity to significantly reduce your IHT liability for very little cost and inconvenience.
Of course, you should take professional advice before embarking on planning of this nature to ensure that you can successfully claim these tax reliefs. Sutton McGrath Hartley is a multi-disciplinary firm of chartered accountants, financial advisers and lawyers offering comprehensive financial expertise for all business, personal and family interests. Our specialists can help with all aspects of tax and estate planning.
To discuss your requirements please contact David Sutton on 0114 266 4432 or firstname.lastname@example.org.