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F E Smith
F E Smith, Advocate
Category: Law
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Experience:  I have been practising for 30 years.
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I am 75 and my wife 70. We are British expatriates and live

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I am 75 and my wife 70. We are British expatriates and live in Cyprus for the lust 25 years.We joinly own a property in London which we let out and as we are getting old we want to pas it to our two children. We already made mirror wills that all assats in UK passes on to our children. (Just this property and a small amount of cash.)
We are also thinking of gifting the property to the children now. As we are old enough, we are afraight that it is very possible that one of us may not survive for 7 years and we may not get the full Tax free allowance of £325.000.
It was suggested that we gift 50% of the property now tas reducing this risk.
We were also told instad of gifting the property to put it into trust for the benefit of our children. I know nothing about trusts and how they work. Is a trust the best solution?
We want to avoid if possible inheridwnce tax.
Please let me know preffered action to be taken.
We can excange emails if you wish
Thank you.

Why are you thinking of putting it into trust for the benefit of the children, rather than simply transferring it out right? Are you thinking that they will sell it and you don’t want that? Would you be retaining any interest in the property?

Remember that there are 2 lots of inheritance tax allowance here . If of you dies and passes the estate to the other, then as there is no inheritance tax between husband and wife, it doubles the threshold on the eventual death, to £650,000.

Customer: replied 1 year ago.
By transferring all or part of the property the 7 years rule apply and in the event of one or both parents die within this period the tax free allowance is reduced accordingly. Therefore we run the risk of not utilizing in full the tax free allowance, if any of us do not survive for 7 years.If we do not transfer the property now, then on the first death the property passes on to the surviving parent and on the second death the whole property will pass onto the children. When this happens, IHT tax is payable and the full tax free allowance of £650.000 will be applicable. The 7 year rule will not be applicable in this case. Is this correct? Am I doing the wrong assamptions?
This way we also keep control of the property. Do you see any problem on the above?
What are the advantage if we transfer the property now?
Thank you

I am familiar with the inheritance tax provision of lifetime transfers what I was asking was why you are not transferring the property now instead of creating a trust.

In the event of the double allowance for inheritance tax, the seven-year rule applies on the second death, not the first.

If you keep control of the property, the revenue will treat it as a “gift with reservation” which is not a gift and treated as though the transfer never took place.

The advantage of transferring the property now is that after seven years it the disadvantage is the children could sell it and spend the money.

Can I assist you any further with this?

Please rate the service positive. It is an important part of the process by which experts get paid.

We can still exchange emails if anything needs clarification.

Best wishes.


Customer: replied 1 year ago.
Thank you for your reply. Something went wrong.
You started saying " The advantage in transfering the property now is after seven years.... " and the sentence is not finished.
One last question.
It appears you did not like the idea of putting the property into trust and you prefer transferring it outright. Is there any reason? I was told that trusts have many advantages. Can you please let me know what you feel about this.
I will apreciate if you let me have your email so that we can exchange emails if I need further clarifications
Nicos Jacovides***@******.***

I do not know what happened there. The advantage in transferring the property now is that after seven years, it is free of the IHT liability. The disadvantage is that the property belongs to the children and they could sell it and spend the money.

From the revenue point of view, they can always argue that you put the property into trust rather than did an outright transfer, because you want retain control. That is a gift with reservation and there is an argument that there was no real intention to give the children interest but it was damn to simply try to avoid IHT. If you transfer the property outright with no reservation, then it is very difficult and in fact almost impossible for the revenue to argue that this was not a genuine transfer.

We can exchange emails on here because the thread does remain open even after you rate my answer service.

F E Smith and other Law Specialists are ready to help you
Customer: replied 1 year ago.
Earlier you stated that: "In the event of the double allowance for inheritance tax, the seven-year rule applies on the second death, not the first."
Does this mean that if the first death happens, say after 4 years of the transfer and the second death happens after 8 years of the transfer we can still get the £650.000 tax free allowance?

Yes, it doesn’t matter whether the deaths occur.

Customer: replied 1 year ago.
We are going to transfer 50% of the property to the children now and make wills for the other 50%. We have a joint account with our children and the rent from letting this property is paid into this account. Do you see any problem ? Is there any possibility that this will be regarded as gift with reservations?

Why are you retaining 50%? That’s the question the revenue would ask and if it is to exercise some control, then it’s a gift with reservation. The revenue may not pick it up but that’s the situation.