IHT Legacy Planning For Landlords – CASE STUDY

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This case study explains how a couple could save their loved ones £2 million of inheritance tax for less than £10,000 in professional fees and £322.48 per month.

Paul and Shirley currently have a net worth of £1,250,000 after deducting all of their IHT nil rate band allowances and correctly structuring their wills to make maximum use of them. Therefore, their IHT liability if they were both to die today would be £500,000.

This case study looks into fixing two problems. The first being how to cap their IHT to the current level and the second being the cost to insure that liability.

Let’s suppose the majority of their current net worth is in a property company worth £5 million gross (£1.25m net after deducting £3.75m mortgage liabilities). If Paul and Shirley live for another 20 years and their portfolio doubles in value over that time their exposure to IHT would be £5 million more than it is today.

The good news is that for comparatively very little cost(under £10,000 in most cases), the entire future growth value in their property portfolio can be taken outside of their estate. This is achieved by creating a new class of company shares, which can be gifted now whilst these new shares have minimal value. All future growth then accrues to this new class of shares. However, as they are non-voting shares, Paul and Shirley can continue to run their business as they always have. If Paul and Shirley’s portfolio portfolio has doubled in value by the time they die they will still own the same value of shares as they do today but the additional class of shares owned by their beneficiaries would be worth £5 million. Paul and Shirley would have saved themselves £2 million of IHT by using this structure.

The above doesn’t solve the problem in regards to their current net worth. For that, a whole-of-life insurance policy which pays out enough money to fund the IHT on the second death may well be a viable solution. The policy should be written into trust so the payout remains outside the estate and doesn’t add to the IHT problem.

To give you an idea of costs I obtained a quote based on £500,000 of cover for myself and my wife.

My date of birth is 12/01/1968 and I am a smoker.

The date of birth of my wife is 25/10/1973 and she is a non smoker.

The premium came out at just £322.48 per month.

Remember; this is whole-of-life insurance so the policy only ends if we cancel it or when it pays out. Even if the youngest of us (my wife) lives to be 100 years old (56 years from now) the insurance premiums paid would only be just half of the value of the payout required to pay the IHT. This is a ‘no-brainer’ is it not? Especially when you consider that we could both die after paying only one premium and our beneficiaries would have all the money they need to pay the IHT due of our estate. Either way, it is good value for peace of mind if you want to leave a legacy to your loved ones.

I don’t profess to be an expert on IHT planning (YET!) but I’m getting there very quickly as a result of mixing with people who are experts and have been implementing planning of this nature for their landlord clients for decades.

My plan, over the next six to 12 months, is to integrate an IHT planning service as part of our Landlord Tax Planning consultation process. For the time-being, to test the appetite of our readers for this service, I am offering IHT planning consultations free-of-charge. I will complete initial fact-finds and then check the strategies I have in mind with the advisers I am already in contact with. They check my suggestions, complete further analysis where necessary and will then provide you with details of the savings to be made, the strategies recommended and their quotes for implementation. If necessary, they will also meet with you at no cost to fill in any gaps and help you to complete any necessary paperwork. And don’t worry about me working for nothing, I will receive commission for business resulting from my introductions. It’s a win:win scenario for everybody.

If you would like to know more please complete the short form below. I will then send you an email outlining the information I will need to begin to progress matters.

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Insurance company taking us to court after following their complaints procedure

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We’re having a dispute with our insurance company who recently informed us they are voiding our landlord insurance policy – their reasons being that it was due to material non-disclosure and misrepresentation.

My partner, who’s first language is not English answered the policy set up questions honestly to the best of their knowledge on the broker comparison website which seems to have led to an inaccurate type of insurance due to a wrong interpretation of the wording.

My partner recalls a phone conversation with the insurer shortly after policy set up when he’d discussed HMO status and number of tenancies – I also made notes of a phone conversation with them confirming to us their awareness of the correct details. They are now denying this as none of those details were included in the policy schedule.

Since this happened, I checked through our other insurance policies on different properties to ensure all details were correct and discovered that certain information we’d made them aware of and agreed over the phone wasn’t included in the schedules.  I called one of the insurers who reassured us and insisted we need not be concerned as correct insurance was in place, although I insisted they confirm HMO status specifying number of individual lets in writing which they have now done.

Upon contacting a third insurance company, where similarly the schedule wording didn’t specify it’s HMO status or number of individual lets, they initially informed me that it was insured only as a single let and cancelled our policy when the situation regarding the insurance company voiding our insurance came to light during questions for policy amendment.

They gave us a 7 day grace period while informing us they would provide an alternative insurer before that time was up, however they somehow managed to get it wrong and informed us they were unable to find a replacement at the end of the 7 day period at the end of the 7th day leaving us without insurance.

We have emails and notes of phone calls made to that particular insurer detailing how we had made them aware of property being HMO + number of tenancies during policy set up – (this is something we’re challenging them on) they have admitted to their mistake regarding the 7 day grace period and are now offering a £60 compensation for inconvenience.

With regard to the Insurer Claiming against us, we followed the correct complaints procedure in accordance with their policy and after confirmation of policy cancellation, took the complaint to the Ombudsman.

While the Ombudsman investigation was in progress we received a court claim from the Insurance company’s solicitors requesting that we declare that the Insurance company was entitled to void the policy for the above reasons, they also seek court fee costs.

The Ombudsman investigator has informed us they’re now unable to continue with our investigation as court proceedings have begun.

We believe the insurance company are taking it this far due to an ex tenant who is making a fraudulent injury claim against us and is asking for an astronomical amount, so naturally they would want to avoid making any settlements.

Has anyone else had similar issues with insurers?

What are our rights with regard to the Ombudsman taking the decision not to continue with the investigation and the insurance company’s claim against us?

On advice of solicitors we’ve spoken to with regard to defending against the insurance company in court, the outlook for us is bleak as we don’t have the funds or the time to do so effectively.

How is it acceptable or fair treatment to take legal proceedings against someone when a complaint is made?

They should have included this in their complaints procedure as per their policy … i.e: ‘feel free to complain but we’ll take you to court if you do!’

Had we been given the opportunity to be aware of this possibility, we might not have bothered complaining in the first place.

Apologies for the length of the post, any thoughts or advice are much appreciated.

Many thanks

Kev

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7 key facts identified from the English Housing Survey

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English Housing Survey:

The latest report from the government’s annual English Housing Survey 2015-16 highlights some important changes in the private rented sector (PRS) relating to tenants and landlords

The Negotiator Magazine, a printed trade magazine distributed to the entire UK estate and lettings agency industry, has identified 7 key facts from the survey about the fast-changing private rented sector.

1. Last year 787,000 tenants moved home within the private rented sector. Of these, 73% said they move because they wanted to, while 11% or 86,600 tenants were asked to leave by their landlord – two thirds because the landlord wanted to sell or move back in, and a third presumably for bad behaviour.
2. Despite constant media coverage of rogue landlords and agents, the survey reveals that 71.4% of all tenants were satisfied with the way repairs and maintenance were carried out on their property. But the survey also says 17.7% of tenants were unhappy with how their landlord looked after their property, leaving 9.5% not sure either way.
3. Being a tenant has yet to become as popular as home ownership. Just one in five renters or 21% quizzed by the report were satisfied with their status as a private tenant.
4. The research also reveals that the private rented sector is now significantly larger than the social rented one. There are 4.413 million private homes in the UK compared to 3.85 million local authority and social housing ones.
5. Key complaints among tenants are that their landlord doesn’t bother to carry out any repairs or maintenance, is difficult to contact, carries out shoddy repair work and that repairs are completely too slowly.
6. The English Housing Survey also reveals that talk of ‘generation rent’ is not exaggerated – although younger renter tends to be over-represented in surveys, the proportion of the rented sector who are between 25 and 34 years old has nearly doubled over the past decade from 24% to 46%, while the number of families with children has risen from 30% to 36% of all renters.
7. And talk of slum conditions within the private sector also looks less credible now – the proportion of non-decent homes, as the survey puts it, has dropped from 47% in 2006 to 28% in 2015.

English Housing Survey 2015-16

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