Can I please start by saying that I have searched and found only a couple of threads that didn't really shed light on the topic, and that ultimately I and he will seek professional counsel, I would just like an initial opinion from the EF finance gurus.

My dear old dad is now getting to the point where he is set on organising his will and seeking to minimise the effects of the UK "it's not theft because it's legal and we're the government innit" 40% inheritance tax.

He has a total of two properties in the UK (one his residence, the other a modest flat that he rents out) and may be getting another (he's undecided). The rest is a lump of cash in the bank that I have told him he should just spend, life's too short, but currently it's there.

My questions are, assuming he still has a lot of cash left in the future to be hit hard by IHT, and bearing in mind that I am not so experienced in these matters:

• If he gifts me the properties, I assume that the value of these, along with any rental benefits, would be declared on my tax form subject to wealth tax, and the rental income taxed in Switzerland as earnings every year, thus losing around 20% of said rental income? To me this wouldn't seem an efficient thing to do now as he is only 63 (he retired early a few years ago) and fingers crossed he will live a long old life.
• Assuming he did gift me the properties and I received them, along with the rental money each month, I assume that this would then be a huge red flag to the UK tax authorities when I then gave him the rental back each month? Or as he has a decent pension and doesn't rely on the rental to live on, would it be better to just keep it in a savings account gaining interest to compensate for the Swiss tax?

TLDR: What are the best ways of minimising the effects of IHT and at what stage is it best to implement those plans bearing in mind the effects of me receiving the additional wealth and being subject to tax here in CH.

Any advice appreciated.

Cheers,

Rich.

You will need to take professional advice in the UK to be certain.

Essentially, though there is a 7-year rule about IHT and gifts, if these are perceived as a way to avoid tax, they will be challenged.

A thought: how about selling the properties (UK capital gains tax payable) and shift the wealth to Switzerland where there is no IHT. Better still move your father here.

Wealth tax here is not a big issue - it's measured in permille not percent...

While there is no inheritance tax here for those in the direct line, tax-free gifts are limited to CHF 13k/year or so, above which you will pay income tax.

Tom

Thanks for taking the time to make some suggestions, much appreviated! Move my father here? LOL... he would move here over his dead body. He loves his house and he loves his village and he loves England... he has zero desire to re-locate.

The problem I think with selling the properties now is that you then lose the rent, and in 10-15 years the prices are very likely to rise to a decent degree, so I think it is too early to do that as he is still in very good health and very active.

Good point about the gifts, I see from Googling that only small gifts are "ok", and larger ones can be scrutinized.

Regarding the wealth tax ok that's good to know, I will do some digging on that ultimately consult a professional adviser too, me on this side and he on his.

Thanks Tom, also useful info.

1) If you are gifted the rental property, you will need to fill in a UK tax return each year and will be taxed in the UK on the income. Assuming you are a British citizen, you will be entitled to the UK personal allowance (currently £11,000) which means you will only actually have to pay tax above that amount.

2) In Switzerland, the rental income itself will not be taxed, but I *think* they add it to your Swiss income and use that total figure to decide which Swiss tax rate to apply.

3) As mentioned, by AbFab, if you are gifted the property but then give the income back to him, then for UK IHT purposes HMRC will argue that it was simply a tax avoidance scheme and will ignore the gift and charge full IHT as usual.

4) If he doesn't need the income then it should be fine: the 7 year rule for IHT purposes works on a sliding scale, so he would need to survive at least 3 years after the date of the gift for there to be any benefit, and after 7 years the gift becomes IHT free. Full details here: http://www.inheritance-tax-planning....-year-rule.php

5) Re AbFab's comment on shifting the wealth to Switzerland, that won't make any difference if your father remains resident or domiciled (in the strict tax sense) in the UK. To avoid UK IHT he would have to become both non-resident and non-domiciled in the UK. Losing UK domicile is difficult, and involves basically severing all ties with the UK - no house, no job, not too many visits, not even a burial plot in the UK. If you are considered UK domiciled at death, HMRC can come after you for IHT.

I'm not sure if that is canton specific, but a friend in Geneva received a larger gift than that from their (non-Swiss resident) parents with no tax impact other than having to declare it in the annual tax declaration as an increase in their wealth.

This highly depends on the canton and relationship. In ZH parent-to-child gifts are tax free up to 200k

Ahh interesting info, thanks... rental will certainly be less than £11'000 on the flat! A second flat would raise it above this though.

Yeah that's what I meant (but explained poorly), that it would be added to my CH income and taxed.

Yeah, makes sense...

Interesting... I didn't think that included large gifts such as apartments, but I see it does. Also, good link!

He will almost certainly, short of a national catastrophe occurring, stay domiciled in the UK.

This still confuses the life out of me.

I don't declare tax, taxed at source. My wife doesn't work, so no tax.

If my wife receives an inheritence from UK, for example 100k dropped into our CH bank account, do we need to go knock the door at the tax office and tell them??

I guess it would not be subject to UK tax at all?

Years ago my Father thought about doing the same thing, procrastinated and did nothing.

His fear was that I might start a business which went bankrupt and the house would be taken as collateral... leaving him out in the cold.

An extra reason for considering the transfer in the first place was to avoid a situation where the NHS might take away his property to pay for later life care if he was to get a condition that the NHS deemed as requiring only social care rather than medical care... for example such as Parkinsons disease. For this to happen is much more common than you think.

Remarkably, very presciently, and sadly... years later he did get such a disease and there was a very real danger of exactly that... losing his home to pay for his care. It most likely would have gone that way but he succumbed to the disease.

The 7 year rule must also be considered in this context. If he got ill and needed to pay for his own care within this time frame, they can and do go after assets that have been transferred.

Your Dad is smart to think of these things, but like in everything, there are pros and cons and risks and rewards.

__________________
krlock3.

If you filled in your own tax return you would declare it there. If not, I'm not sure how the tax office go about levying wealth tax, but I would say you do not have to tell them unless asked.

This may help:

http://www.moneysavingexpert.com/fam...x-planning-iht

Surely wealthy people should contribute to their care in their final years.

Yes. Depending on the definition of wealthy..

We will likely lose my mothers house to pay for her care. She is very far from wealthy but owns a small property that would pay for her care for a few years.

Great incentive to live a life on handouts, do nothing, pay nothing, get looked after..
Work hard to make a little, get it taken away from you.


But that's another thread.

Not sure if we understand each other correctly or not, but you wouldn't actually pay Swiss income tax on the UK rental income. However, the amount you would pay on your Swiss income would increase because the tax rate would be increased to take account of the UK income.

Example:
1) Without UK income:
120,000CHF Swiss income
10% Swiss tax rate on 120k
=> 12,000CHF Swiss tax bill

2) With UK income:
120,000CHF Swiss income
10,000CHF UK rental income
11% Swiss tax rate on 130k
=> 120,000 x 11% = 13,200CHF Swiss tax bill [NB not 130,000 x 11%]

That's another debate, in some instances I don't disagree, but in his case he had a very complex and rare condition that required more medical than social care. Medical care should be free, at least in the UK.

But whatever, I'd rather not talk about that issue here. I was merely trying to help the OP with some further observations.

A tough one this- and perhaps for another thread, as said. And a big difference between inheritors (who have not worked hard for it - and mostly due to house price increases btw) paying 40 % and losing it all to pay for healthcare.

BTW same in Switzerland - very little left of my mil's estate in the UK as it was used to pay for excellent care, and same for my parents in Switzerland. Apart that in Switzerland, depending on K/Canton, each parent can keep around 20.000 each to pass on.

And personally, 40% on anything over a substantial sum, rising currently to 1 mio, on inheritance tax seems fair to me- the NHS, social care, education, infrastructure, roads, etc- need money don't they?


We have a friend in UK who gave her house to her daugher to avoid tax. She tragically died and her husband re-married to a horrible woman who was very unkind to our friend, fell out and insisted the house was sold to purchase a much bigger one. She was left with nothing and in need of social care and housing. A chlling tale. Also as I understand it (please someone correct me if wrong) - you father would then have to pay you a commercial rent on his own property.

Every penny of the money that my dad earned has already had tax paid on it. He was in the high earning bracket, so contributed more to society than 80% of people in the UK. But please feel free to start a separate dedicated thread about discussing if IHT is fair or not, because I'd rather not have you send this one off of the rails. Cheers.

It's 40% after a tax free allowance on the first £325,000 for a single parent or double for a married couple. The double allowance being transferable after the death of one partner.

The example of your friend is an excellent reason for doing absolutely nothing to avoid IHT and let nature take its course and be happy with possibly £650,000 plus 60% of the rest....

But she will not need the house, as she will be in care, so I don't see the problem.
Unless you are worried that YOU will not get a get to live on a hand out, do nothing, pay nothing.... It's her work, it's her house.
My parents have already told me and my brother that they would much rather sell the house to pay for their own care, rather than rely on us to provide the care. There is an idea, if you really want your mother to keep the house but be cared for, they she can move in with you and YOU can look after her, and get given the house after her death as a payment.