Advice Sought From You Btlers...

[DonnieDarker]

...hello there, random one here.

Due to a death in the family my parents-in-law have a flat they have been advised to let as inheritance tax would wipe out 40%.

Some quick questions which I would appreciate advice on:

What is the typical fees a managing agent will charge? (I'm assuming 10% in the model I am building for them)

Also, are they liable for tax on the income? Would this be an extension of thier income tax? Ie. 40%?

THANKS

[lewissheridan]

...hello there, random one here.

Due to a death in the family my parents-in-law have a flat they have been advised to let as inheritance tax would wipe out 40%.

Some quick questions which I would appreciate advice on:

What is the typical fees a managing agent will charge? (I'm assuming 10% in the model I am building for them)

Also, are they liable for tax on the income? Would this be an extension of thier income tax? Ie. 40%?

THANKS

surely you can sell it for some ridiculous over-inflated price, pay the 40% and still be quids in ? or is that too easy ?

[DonnieDarker]

surely you can sell it for some ridiculous over-inflated price, pay the 40% and still be quids in ? or is that too easy ?

40% is a huge margin to toss to the taxman.

[aussieboy]

...hello there, random one here.

Due to a death in the family my parents-in-law have a flat they have been advised to let as inheritance tax would wipe out 40%.

Some quick questions which I would appreciate advice on:

What is the typical fees a managing agent will charge? (I'm assuming 10% in the model I am building for them)

Also, are they liable for tax on the income? Would this be an extension of thier income tax? Ie. 40%?

THANKS

Depends on where it is, the level of sevice you're looking for and the degree of snob value attached to the agent you choose.

Anywhere from 6& of gross to 15%.

Edited April 8, 2006 by aussieboy

[DonnieDarker]

Depends on where it is, the level of sevice you're looking for and the degree of snob value attached to the agent you choose.

Anywhere from 6& of gross to 15%.

Thanks...I've been able to find out that 10-15% is typical in London...15% being for "full-management" fees.

[Scipio_Africanus]

Due to a death in the family my parents-in-law have a flat they have been advised to let as inheritance tax would wipe out 40%.

Surely either the IHT is owed or its now? Who owns the flat? Are they still alive? If they're not alive then surely IHT is payable straight away? If they're still alive then why is there IHT? Or is IHT more complicated than I thought? Surely the only way IHT can be deferred is if you've inherited from your spouse?

[DonnieDarker]

Dont know the exact details...but its to do with whose "estate" the property is in.

All I know is that if they sell now they will pay 40% to Gordon Brown. (***k that!)

They will rent it out with a view to transferring it into the estate of their children...avoiding inheritance tax.

[Yandros]

Surely either the IHT is owed or its now? Who owns the flat? Are they still alive? If they're not alive then surely IHT is payable straight away? If they're still alive then why is there IHT? Or is IHT more complicated than I thought? Surely the only way IHT can be deferred is if you've inherited from your spouse?

That's what I was thinking. My understanding is that IHT must be paid within 6 months of death, and is based on the total value of any assets (including property). Anything over the IHT threshold (is it still £285K?) is taxed at 40%. With property, I gather you can differ payment for up to 10 years, but you get charged interest. Unless I'm completely misinterpreting the rules, not selling the property you inherit makes no difference whatsoever.

Edited April 8, 2006 by Yandros

[Time to raise the rents.]

Sounds like someones wild imaginings of the IHT rules to me.

[frugalista]

Sounds like someones wild imaginings of the IHT rules to me.

Me too. Assuming someone else has died and left your parents-in-law the flat, then they must pay the IHT on it in order for the probate process to complete. They don't pay 40% of the value of the flat, they pay 40% of the value of the estate which is over the threshold (£275k I think).

So, for example if the deceased left your parents-in-law the flat, worth 200k plus 100k cash they would pay 10k IHT.

( (200k + 100k) - 275k ) x 40% = 10k

frugalista

[Time to raise the rents.]

It's either a sale or a valuation. Either way IHT is due.

[Buylowsellhigh]

Due to a death in the family ...are they liable for tax ?

DD,

When you inherit a property the tax liability is governed by the threshhold, which is around GBP263,000. This means that the first GBP263,000 is free from inheritance tax, and any value above this amount is taxed at 40%. Also of note, if you dispose of the property at a higher value than you inherited it at, you will have to pay tax on that amount.

If tax is liable on an inheritance, then it must be paid before the estate is handed over. So if you are going to be over the threshhold limit, make sure you have 40% of the excess available, because the taxman will want paying immediately.

Ideally, the property would have been 'gifted' before the owner's demise. That way you would come under the 'Potentially Exempt Gift' clause, that allows 100% tax free inheritance when applied in conjunction with the annual 'Taper Relief' agreement. That's what the rich educated folks do ...or so I have found out very recently. It's also, in my view, barbaric.

Quite right btw in looking for way's to protect your families 'hard earned'. Don't give it to the puppet at #11 ...if you can help it. He'll just give it to the Bank.

---

[Yandros]

DD,

When you inherit a property the tax liability is governed by the threshhold, which is around GBP263,000. This means that the first GBP263,000 is free from inheritance tax, and any value above this amount is taxed at 40%. Also of note, if you dispose of the property at a higher value than you inherited it at, you will have to pay tax on that amount.

If tax is liable on an inheritance, then it must be paid before the estate is handed over. So if you are going to be over the threshhold limit, make sure you have 40% of the excess available, because the taxman will want paying immediately.

Ideally, the property would have been 'gifted' before the owner's demise. That way you would come under the 'Potentially Exempt Gift' clause, that allows 100% tax free inheritance when applied in conjunction with the annual 'Taper Relief' agreement. That's what the rich educated folks do ...or so I have found out very recently. It's also, in my view, barbaric.

Quite right btw in looking for way's to protect your families 'hard earned'. Don't give it to the puppet at #11 ...if you can help it. He'll just give it to the Bank.

---

Barbaric??? Not quite sure where you get that from I did it a couple of years ago with half our house, to make sure my partner isn't liable for IHT. Be aware folks, if you're not married, your parner get's hammered for IHT if the property isn't in joint name.

One thing to note though, the gift is still liable for tax for up to 7 years.

Another interesting (and rather scary) point regarding the powers of the state... Let's say an elderly person gifts their property to a child, and then subsequently has to got into a nursing home. If the council believes that the transfer was done to avoid paying up for their care, the legal transfer can be SET ASIDE!!!!

[Buylowsellhigh]

Barbaric??? Not quite sure where you get that from

I got that from the thought of sitting by my old Mothers bedside, with a pen an paper in hand, trying to convince her of the advantage of signing up for a tax break with her dying breath !

One thing to note though, the gift is still liable for tax for up to 7 years.

Correct. So awareness and planning are the key, which does reduce the barbaric element somewhat.

Another interesting (and rather scary) point regarding the powers of the state... Let's say an elderly person gifts their property to a child, and then subsequently has to got into a nursing home. If the council believes that the transfer was done to avoid paying up for their care, the legal transfer can be SET ASIDE!!!!

Scary indeed, and news to me ...but why am I not very surprised to hear it ?

---

[DonnieDarker]

DD,

When you inherit a property the tax liability is governed by the threshhold, which is around GBP263,000. This means that the first GBP263,000 is free from inheritance tax, and any value above this amount is taxed at 40%. Also of note, if you dispose of the property at a higher value than you inherited it at, you will have to pay tax on that amount.

If tax is liable on an inheritance, then it must be paid before the estate is handed over. So if you are going to be over the threshhold limit, make sure you have 40% of the excess available, because the taxman will want paying immediately.

Ideally, the property would have been 'gifted' before the owner's demise. That way you would come under the 'Potentially Exempt Gift' clause, that allows 100% tax free inheritance when applied in conjunction with the annual 'Taper Relief' agreement. That's what the rich educated folks do ...or so I have found out very recently. It's also, in my view, barbaric.

Quite right btw in looking for way's to protect your families 'hard earned'. Don't give it to the puppet at #11 ...if you can help it. He'll just give it to the Bank.

---

Thanks! Thanks to Frugalista too...will have to look into this some more. Think I'll be advising they speak to someone who knows about Tax some more.

Lets suppose they do sell the flat...would they have to be any tax on that in addition to the tax they would have paid IHT threshold?

You said they would have to pay some tax if they sell it for more than the value they inherit at...I wonder what % that is and whether this rule is indefinite? If they keep hold of it for x years can they esacpe this capital gains tax?

Edited April 9, 2006 by DonnieDarker

[keepwatching]

QUOTE(Yandros @ Apr 8 2006, 09:08 PM)

Barbaric??? Not quite sure where you get that from

I got that from the thought of sitting by my old Mothers bedside, with a pen an paper in hand, trying to convince her of the advantage of signing up for a tax break with her dying breath !

QUOTE(Yandros @ Apr 8 2006, 09:08 PM)

One thing to note though, the gift is still liable for tax for up to 7 years.

Correct. So awareness and planning are the key, which does reduce the barbaric element somewhat.

I can see it now...... sign this mom and make sure you live for another seven years

[DonnieDarker]

Doing the basic maths I am really struggling to see how BTL is a viable investment. Can someone please enlighten me because using the scenario my parents-in-law are in I dont see the point.

Flat is worth £250k

They would have to buy out a sibling for half so would need a 50% mortgage of £125k.

An interest only mortage on that would be £500ish per month for 10 years.

They could rent the place for £200 a week.

Now, I have heard that realistically you should budget for 2 months being void each year.

Rental Income: £8666

Agents fees: -£866 (10%)

Maintenance sosts: -£2500 (1% of total value of property)

Interest Only Mortgage: -£6000

Tax: £0 as could be written off against expenses

= Total Income: MINUS £700

What is the point of BTL?

The chances of capital appreciation are slim for the next few years.

The chance of interest rates rising are increasing.

I'm strongly hedging towards advising them to sell now even if the taxman takes a bite.

[Goat]

Without knowing the specifics I am not able to advise fully on the IHT effects of any transaction however off of the top of my head I can't think of any reason why renting out a property would be more IHT efficient than selling it.

I have to agree that there is a possibility that the IHT spreading provisions are somehow being confused here - it is a question of timing of the tax, not the ultimate amount.

A word of warning: as a bear I expect major falls in HP's, the IHT will remain payable on the value at the date of death, not the amount it is sold for, the 40% could become 70-80% of the final proceeds.

Also I think your making a mistake on the profit loss calculation. Don't look at the 50% mortgage, look at the opportunity cost of what you could do with the whole £250,000, factor in £1,000 for a 100% IO mortgage.

[DonnieDarker]

A word of warning: as a bear I expect major falls in HP's, the IHT will remain payable on the value at the date of death, not the amount it is sold for, the 40% could become 70-80% of the final proceeds.

Holy cr@p! Useful to know that the IHT is on the value of the prop at time of death.

Even in bonds if they sold up and invested the £125k they'd get £6k per annum...beats minus £700.

Unless there are very good reasons for tax avoidance (and from the contributions of posters here it seems the IHT will stand regarless of selling/renting out) then I can see selling being the ONLY viable option.

[Goat]

Holy cr@p! Useful to know that the IHT is on the value of the prop at time of death.

Even in bonds if they sold up and invested the £125k they'd get £6k per annum...beats minus £700.

Unless there are very good reasons for tax avoidance (and from the contributions of posters here it seems the IHT will stand regarless of selling/renting out) then I can see selling being the ONLY viable option.

Really I would recommend professional advice here. Re-reading your original post it is not clear who advised your parents to rent the property out, if they are competent to offer such advice (ie a qualified tax advisor or accountant) there may be a good reason to do it. My suspicion is the advice was given by someone who was not suitably qualified to offer such advice and should be ignored.

[DonnieDarker]

Really I would recommend professional advice here. Re-reading your original post it is not clear who advised your parents to rent the property out, if they are competent to offer such advice (ie a qualified tax advisor or accountant) there may be a good reason to do it. My suspicion is the advice was given by someone who was not suitably qualified to offer such advice and should be ignored.

They are a qualified IFA, and in fairness to the person are well trusted by the family and have dealt with them for some time. (Just started a new post asking about IFAs as I am bcomeing suspicious of this ones intentions).

I have already told the parents to get a 2nd opinion from a tax expert. I think they will listen...

[Yandros]

You might want to post a query here (lots of tax experts lurking)...

http://www.taxationweb.co.uk/

or point your parents at the Inland Revenue leaflets...

http://www.hmrc.gov.uk/leaflets/iht.htm

I'd also go along with the suggestion of getting professional advice, from someone not trying to sell you a financial product!

Regarding the amount of IHT payable - reread my post above. It's based on the total value of the estate over the threshold (not just the property), and it is indeed at time of death. Although it is possible to delay payment, you'll get stung with interest, and yes indeed a HPC would leave you seriously out of pocket.

[DonnieDarker]

You might want to post a query here (lots of tax experts lurking)...

http://www.taxationweb.co.uk/

or point your parents at the Inland Revenue leaflets...

http://www.hmrc.gov.uk/leaflets/iht.htm

I'd also go along with the suggestion of getting professional advice, from someone not trying to sell you a financial product!

Regarding the amount of IHT payable - reread my post above. It's based on the total value of the estate over the threshold (not just the property), and it is indeed at time of death. Although it is possible to delay payment, you'll get stung with interest, and yes indeed a HPC would leave you seriously out of pocket.

Thanks.

its a tricky situation as they have some history with this IFA but I think the best form of persuasion I can use is to advise them to speak to an accountant first and foremost - someone with no VI in selling a financial product - and then come to their own conclusion and THEN give this guy their business.

[Jason]

Most sheeple think it's a good idea as prices will go up! Why don't you just sit down with [whoever] and run through the calculations starting from a blank excel spreadsheet. When they see you won't make any money things may 'click'.

Do expect the "ah, but prices will rise" argument. Then say work the figures again in a year when they think prices would have risen. Show them releases from ARLA showing rents, which may (at best) increase with wage inflation...

Then you can do the smack down, and throw in arguments like an interest rate rise and unemployment.

If this doesn't work play Solitair.

Edited April 10, 2006 by Jason

[DonnieDarker]

If this doesn't work play Solitair.

"The only game in town!"