In these unprecedented times, Axiom Stone Solicitors will, in common with other businesses, be following the Government's official advice on social distancing and social isolating.

Public health measures must have the highest priority and, as a result, some staff will be working from home. Also, our offices will be closed to visitors.

However, we wish to reassure existing and potential clients that we will continue to provide the highest levels of service.

Please be assured we have a robust business continuity plan in place that is designed to minimise the impact on our service to you.

In addition, please continue to contact us electronically or by phone in relation to the progress of your matters or on any issues of concern to you.

Until further notice, service of claim forms, application notices and all other court documents and contractual notices must be made to our head office only (we shall not accept service through any other means). Our head office address is at Axiom Stone Solicitors, Axiom House, 1 Spring Villa Road, Edgware, Middlesex, HA8 7EB. We ask that all other correspondence be sent by email to the relevant member of Axiom Stone Solicitors. In the event that service of court documents or contractual notices is attempted by post, courier, DX, or fax to any address other than that of our Head Office, we cannot provide any assurance that they will be received or processed. We are grateful for your understanding at this time.

We will update this information regularly on our website (Please see COVID-19 Updates Here) and via social media.

Finally, we urge everybody to follow the official advice on fighting the virus outbreak so enabling you to stay safe and well.

X Close Notice

Tel: 0208 951 6989
enquiries@axiomstone.co.uk
Request A Callback

Lifetime planning

Why this may be the moment to downsize, explains Natalie Hall

  • The Stamp Duty (SDLT) temporary reduction presents an opportunity to benefit from significant tax savings
  • Downsizing your real estate now can save large tax leakage
  • Combined with careful planning, releasing equity early from real estate can allow reductions of potential inheritance tax liabilities

When thinking about lifetime planning it is always better to act sooner rather than later.  However, we don’t always know the best way forward.

Often people wish to benefit their family and loved ones during their lifetime by helping them set up a business, assist a son or daughter get on the property ladder or merely assist them achieve a  dream. But, you may be held back by feeling you do not have the necessary asset liquidity.

Everyone has an annual Inheritance Tax (IHT) gift allowance of £3,000 per tax year. Again, this will not be enough for the aforementioned goals. If gifts are made over the annual IHT gift allowance there will probably be tax implications. 

A gift over the annual IHT gift allowance is known as a Potentially Exempt Transfer (PET). If a person dies within 7 years of making the gift there can still be an Inheritance Tax liability of up to 40% (subject to Taper relief). If the person who made the gift survives 7 years from the date of the gift, this will fall completely out of the estate for IHT purposes and there will be no tax payable.

There are options available to assist with larger gifts – such as equity release, mortgages and life-time trusts. However many people are cautious about these vehicles and their ability to control them. 

Gifting a property interest in the family home will be caught by the “gift with reservation” exemption and therefore no IHT saving will be realised, Downsizing, on the other hand, can have many benefits, including moving to a property that’s easier to manage while still maintaining independent living. Also, moving to a less expensive property can release equity and lower running costs through for maintenance utility and Council Tax bills.

Previously, Stamp Duty liabilities when downsizing have increased leakage, however, the temporary Stamp Duty holiday announced by the Chancellor, Rishi Sunak in his Summer Statement on July 8 will make the prospect of downsizing even more attractive. Stamp Duty is being cut to zero on all purchases of main homes up to £500,000 until the end of March 2021.

Typical downsizing involves selling higher value real estate to purchase a smaller, lower value replacement. While the normal system places the larger Stamp Duty burden on the purchaser on the higher value real estate, unless the lower value real estate is priced below £125,000, both parties will be subject to a tax liability.

The Stamp Duty holiday opens up a wider realm of possibilities while limiting tax leakage. For example, for a limited period, those downsizing will no longer benefit from purchasing properties below the Stamp Duty thresholds, so can, in effect, afford a higher value home. Furthermore, the scheme is likely to benefit real estate values in higher price brackets (up to £500,000 as this is where the highest tax burden is liable) so helping downsizers potentially achieve a higher sale price of their home (the market is expecting an overall boost from the SDLT temporary reduction).

The reduced tax liability realised from downsizing can be used not just for family and loved ones in allowing them to benefit from their inheritance early and enjoy seeing them do so.  But can also be used for any purpose, as the benefit is essentially received in cash with no restrictions.

Careful inheritance planning, combined with downsizing, can potentially reduce Inheritance Tax burdens by gifting during one’s lifetime as it can reduce the eventual value of an estate upon death.  In 2017 the Government introduced a Residence Nil Rate Band (RNRB), which means that if property is passed to a qualifying beneficiary (that is, direct descendants) the first £175,000 is exempt to Inheritance Tax. This is in addition to the Inheritance Tax personal allowance of £325,000.00.

If at the date of death the estate is more than the qualifying allowances then there can be Inheritance Tax payable of up to 40%. Reducing the value of assets through downsizing can bring a reduction in the estate upon death and ultimately result in cost savings.

It is important to bear in mind that downsizing, IHT and RNRB rules can be complicated. Therefore, it is vital to obtain professional legal advice, so please feel free to speak to myself or my colleagues in the Private Client department for assistance with any lifetime planning issues or questions.

For more complicated family scenarios, the SDLT temporary reduction can also have benefits for internal transfers within the family which we are or course happy to explore on a case-by-case basis.

 


 

For guidance and advice in relation to any Private Client matters, please contact Natalie Hall, Associate Solicitor in Axiom Stone’s Private Client Team on 0203 827 6100.

Note: the information contained in this article is accurate at the time of publication on 10 July 2020. The remarks in this article are not a substitute for legal advice on the specific circumstances of any case.