The right to acquire the freehold of a property presents a valuable Inheritance Tax (“IHT”) saving opportunity which is seldom used. Rather than a parent acquiring the freehold in their own name, this should be acquired by the children instead. The value of the freehold would not form part of the parent’s estate on death, so IHT will not be payable on it. The following questions arise:

• Who provides the funds for purchasing the freehold?
• Do the IHT reservation of benefit rules apply?
• Does the parent need to surivive7 years after the transfer to avoid IHT?
• What happens when the lease expires?
• What happens if the child dies/divorces/goes bankrupt?
• Will the child have to pay Capital Gains Tax on the increase in value?

If carefully planned all of the above can be dealt with, enabling an IHT free acquisition of the freehold by the children. Our Private Client & Tax department works closely with all other departments within the firm to produce the most tax efficient solutions for our clients.