Pass properties to kids by in a company or a trust

[Colonel]

UK LAW

If I own 2 properties and want to give them to my children as an inheritance, what is the best way so that they pay least amount of tax?

Say property A worth £500,000 is home owned by mum and dad.

Say property B worth £400,000, owned by mum & dad, is being rented out with say £1000 monthly pre-tax profit.

This is what I've imagined is best method:

Form a limited company called COLONEL with mum, dad and kids made the directors / owners.

Put property B under COLONEL's ownership.

The £1000 monthly profit from rent can be taken as (tax-free?) dividends by mum, dad and the kids in whatever ratio the parents decide.

When I pass, mum and kids will the remaining directors / owners of COLONEL and benefit from £1000 monthly profit from rent.

When both parents pass, the kids will be the owners of COLONEL and there will be no inheritance tax to pay because the kids own COLONEL. Kids continue to collect the £1000 monthly profit from rent (via Colonel)


Is it good to give ownership of property A to COLONEL too, to save on paying inheritance tax?


Q1. I just made up the scenario above from my imagination. I've probably got it all wrong. Please advise.

Q 2 Will there be tax to pay for transferring ownership of properties to COLONEL?

Q 3. Will COLONEL pay less tax on the rental income than the parents?

Q4. What's the difference / benefit of putting the properties into a TRUST?

[Pezza54]

Hi
I am not an accountant, certainly not a tax expert. You would probably do best to seek professional advice. The following are my thoughts:

Transferring a property to a limited company is a costly process, with expensive legal and accountancy costs. You may also face CGT and Stamp Duty when you transfer the property. A limited company has to maintain accounts and submit them annually to Companies House. The limited company would pay less tax on the rental income, the saving depending on your personal income tax rate. Clearly this is not a straight forward calculation.

Gifting the second property to a discretionary trust can be away of holding over the CGT. Putting a property into a discretionary trust means you are disposing the property and are no longer the owner. As trustee you can make decisions about the operation of the trust but cannot personally benefit from trust income. Gifting a second property into trust is regarded as a chargeable lifetime transfer and a single person is limited to £325k (£650k for a couple) before an immediate tax charge. In addition further tax charges may arise on every 10th anniversary of the creation of the trust, depending on the value of the assets held in the trust.

What you asked in your post is very difficult to answer with figures. You should bear in mind there are ongoing costs as well as initial costs, and tax rates etc could change with a new government

[atticus]

There are occasions when it is sensible to take good professional advice.

[Colonel]

Thanks