Tax, Trusts, Inheritance and Your Home – a Solicitor’s Advice

Posted on April 22, 2020

Few clients wish to see their home sold to pay for nursing fees, leaving their loved ones with a much reduced inheritance. However, when you consider that figures suggest HMRC win nearly 90% of the cases brought against it by taxpayers it is worth considering: is tax avoidance actually worth it?

We all know and recognise acceptable tax planning:

Contributing to pension schemes
Using your ISA allowances year on year
Making good use of transfers of assets between spouses to reduce tax
Using statutory incentives and reliefs such as Business Property Relief and Enterprise investment Schemes

However if an arrangement you enter into appears too contrived or in the general parlance of anti-avoidance looks to be an ‘abusive arrangement’ you are on thin ice. As one taxpayer found to his cost recently, an arrangement that appears to put your house out of reach of the nursing fees or inheritance tax net is likely to come under scrutiny as part of the administration of your estate if not during your lifetime.

“This case saw HMRC challenge the actions of a widower who sold his house to a trust, but no money changed hands and the taxpayer continued to live in the house,” said Private Client Solicitor Sarah Finnigan. “What this amounted to effectively was the homeowner giving a ‘legal IOU’ to the trust which was then given away by the trustees to the children of the taxpayer.

“Sound complicated? Overly so, thought HMRC, who in a First Tier Tribunal decision overturned the transaction and treated the house squarely as an asset of the taxpayer at the date of his death, giving a much greater inheritance tax bill overall,” she added.

At Pearson we advise clients day in day out on the plethora of legitimate statutory reliefs, exemptions and acceptable tax planning structures that are available within our legislative framework.

“Seeking a tax advantage through the taking of reasonable and commercial steps is not avoidance and Pearson will guide you through the complex multi-layered fabric of our tax system to ensure you understand your tax exposure and limit it if possible,” said Sarah.

For advice on all areas of tax planning, inheritance and financial planning contact our team on 0161 785 3500

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.