UK Avoiding IHT on residential property portfolio using a trust to hold sites and company to lease it

[Jcwangel]

Hi,

I've read on previous forums that a structure can exist where a trust can own a portfolio of residential sites and lease them to a Ltd company (owned overall by the same person as trustee and director) so to avoid the high trust taxes and take advantage of corporation tax on the profits.

If this is correct I'd like to dig a bit deeper regarding the IHT implications. As residential property investments (only) don't qualify for BPR when IHT is being calculated on the owner/directors death, does the fact that the portfolio is held in a trust and used by the Ltd company to generate profit change the BPR position when considering the total value of the portfolio itself? I'm aware that idol profits from the ltd company may likely be taken in to the IHT equation but I'm more concerned with the portfolio itself.

If not and IHT will still take the portfolio in to account when working out the charge can this be stopped if the limited company used to lease the sites is placed as the trustee and beneficiary to the said trust?

My thinking is that if the limited company can somehow avoid IHT as it's a trading company only, maybe the trust assets can be shielded and further protected on the owner/directors death.

Apologies if this is extremely naive but please feel free to destroy this idea with knowledge!


Thanks

 

[Fidget]

It's a complex area, and I'm no expert, but my understanding is that the trust is the taxable entity on income generated by whatever it does with assets transferred into it. So I don't think you could get round the trust tax rates by leasing the assets in it to a limited company.

There's also an immediate charge to IHT on the excess value of assets transferred into a trust that are over the nil rate threshold, and then a further charge to IHT every 10 years thereafter for as long as the trust exists. The actual income generated is not subject to IHT, but subject to trust rates of tax applicable to it each year.

There's quite a few different types of trust and the rules aren't the same across the board, but I'd be surprised if there's any that you could use to avoid the IHT implications.

 

[Jcwangel]

It's a complex area, and I'm no expert, but my understanding is that the trust is the taxable entity on income generated by whatever it does with assets transferred into it. So I don't think you could get round the trust tax rates by leasing the assets in it to a limited company.

There's also an immediate charge to IHT on the excess value of assets transferred into a trust that are over the nil rate threshold, and then a further charge to IHT every 10 years thereafter for as long as the trust exists. The actual income generated is not subject to IHT, but subject to trust rates of tax applicable to it each year.

There's quite a few different types of trust and the rules aren't the same across the board, but I'd be surprised if there's any that you could use to avoid the IHT implications.

Thanks Fidget,

Really appreciate your response.

I hoped this method would've worked but i guess it sounded to good to be true! I'm struggling to see a way that UK investment assets under a UK Ltd company or UK trust can be kept completely safe from IHT without having a larger trading arm that qualifies it for full BPR.
Everything seems to point in the direction of a dubious offshore setup.................