Years ago, a client of ours inherited a large property investment portfolio from her father. For many years, she had been managing her own tax affairs but started looking to better manage her portfolio and reduce her exposure to Inheritance Tax (IHT) after she decided to move abroad.

Challenge

The client’s property portfolio was worth upwards of £10 million and with the structuring she had in place at that time, beneficiaries would have been liable to pay 40% inheritance tax on death. Our challenge was to reduce her exposure to inheritance tax and find a solution that suited her family’s requirements, whilst being mindful of the income tax, Capital Gains Tax (CGT), and Stamp Duty Land Tax (SDLT) implications on any planning.

How we supported our client

Led by Amal Shah, Tax Director at Gerald Edelman, our tax team created a proposal with various options for the client, which allowed her to identify the most suitable choice for her family. The team considered a variety of routes, including:

1. Incorporation relief
2. Putting the properties into trusts
3. Becoming a non-UK resident
4. Selling or gifting the properties
5. Transferring the properties into her pension

Our client was already planning a move abroad, which meant becoming a non-UK resident was the best and most fitting option for her and her family.

Restructuring the property portfolio and managing residency

Firstly, the team considered the residency position and advised on the best time for the client to move, in addition to helping manage ties to the UK to ensure the client complied with the Statutory Residence Test.

Secondly, the team liaised with valuers, solicitors and international advisors to prepare the property portfolio and manage the various processes to ensure the client had a smooth transition to her new country of residence.

Thirdly, the team advised that the client should gift some properties to her children and set up asset protection for their associated companies. Gifting properties as a non-resident meant that the client received a tax-free based cost to April 2015 values which mitigated exposure to CGT on transfer.

Finally, the team considered commercial rates, multiple dwellings relief and linked transactions to reduce the client’s SDLT liability.

Result

Through better management of the client’s assets, the client reduced her SDLT liability by half, eliminated her CGT liability, and has started to reduce her IHT liability through ‘taper relief’.