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Inheritance tax warning as homeowners sitting on ‘ticking timebomb’ costing thousands | Personal Finance | Finance
Historic tax loopholes aimed at helping people reduce their inheritance tax (IHT) liabilities, could in fact cost people thousands, experts warn.
Tax law experts are calling for families with home loan schemes to “cut their losses” and “urgently” consider unwinding the complex trust set up, to get a tax refund and save their family thousands in double tax payments.
Experts explained that many families were persuaded into setting up elaborate trust structures with the aim of reducing their inheritance tax bills.
However, since pre-owned asset tax (POAT) came into force, what started as a tax-saving measure, turned into the regular payment of considerable income tax bills.
Plus, the inheritance tax position is still worse if the scheme is kept in place, rather than unwinding it.
Tax lawyers at law firm, Shakespeare Martineau explained the home loan schemes involved individuals (typically the parents) selling their house to one trust (“the house trust”) in return for an “IOU”. They then gifted the benefit of the IOU to a second trust (the debt trust”).
The parents were beneficiaries of the house trust which meant they were able to live there rent-free and, whilst the contents of the house trust technically fall into their estates for IHT purposes, the house trust only had nominal value due to the debt owed to the debt trust.
However, many families are warned they are sitting on a “ticking tax time bomb,” as POAT means people could be charged if they are living in a property that is part of a home loan scheme.
Rather than an inheritance tax, POAT is an income tax charge, which is calculated on the market rental value for the property.
With the rise in property rental prices, this means that some people could be regularly paying significant annual personal income tax bills, plus they’ll still have to pay IHT on your estate.
Julia Rosenbloom, tax partner at law firm, Shakespeare Martineau, said: “We are seeing more and more people fall foul of POAT charges and increased IHT liabilities as a result of having taken part in a home loan scheme. Tax schemes which they thought would save them money have ended up costing significant amounts in the long run.
“POAT charges can be considerable and it’s an extremely complicated field to navigate.”
POAT charges have been the focus of the Government and HMRC too, with cases brought before the courts, where people have claimed IHT relief when they have been paying POAT charges.
However, HMRC is being proactive in encouraging people to unwind their trust-based home loan schemes, allowing people to reclaim their POAT charges if they do so.
Ms Rosenbloom, continued: “A huge number of people will have been paying POAT charges over the years and the best bit of advice for anyone in this situation is to urgently start unpicking their schemes now.
“If you keep the structure in place, it will almost certainly be a nightmare to deal with for beneficiaries on death. Quirks with the way IHT is calculated mean that you’ll end up paying more in the long run.
“However, unpicking these schemes is easier said than done and breaking them down can lead to a lot of other issues around stamp duty, capital gains tax and income tax. Unwinding them needs care and the best advice really is to talk to an expert.
“Just to be clear, POAT charges aren’t only felt by the extremely wealthy. In the past, home loan schemes were targeted at the middle classes and at a time where the cost-of-living crisis is squeezing many families, saving money now and in the long run is extremely important.”
Mumbai:
The Indian equity benchmark indices opened higher on Friday amid positive global cues, as buying was seen in the IT, pharma and auto sectors in the early trade.
At around 9.27 am, Sensex was trading 265.3 points or 0.33 per cent up at 80,066.81 while the Nifty added 89.85 points or 0.37 per cent at 24,336.55.
Nifty Bank was down 222.85 points or 0.40 per cent at 54,978.55. The Nifty Midcap 100 index was trading at 54,980.80 after increasing 10.95 points or 0.02 per cent. Nifty Smallcap 100 index was at 16,903.30 after declining 60.20 points or 0.35 per cent.
According to market watchers, “after a positive opening, Nifty can find support at 24,200 followed by 24,100 and 24,000. On the higher side, 24,500 can be an immediate resistance, followed by 24,600 and 24,700.
“The charts of Bank Nifty indicate that it may get support at 55,000 followed by 54,700 and 54,500. If the index advances further, 55,500 would be the initial key resistance, followed by 55,800 and 56,200,” said Hardik Matalia, Derivative Analyst of Choice Broking.
Meanwhile, in the Sensex pack, TCS, Tata Steel, Maruti Suzuki, Eternal, ICICI Bank, SBI, HDFC Bank, Infosys, M&M and Tata Motors were the top gainers. Whereas, Axis Bank, Tech Mahindra, Nestle India and IndusInd Bank were the top losers.
In the last trading session, Dow Jones in the US added 1.23 per cent to close at 40,093.40. The S&P 500 climbed 2.03 per cent to 5,484.77 and the Nasdaq added 2.74 per cent to close at 17,166.04.
In the Asian markets, Jakarta, Bangkok, Seoul, Hong Kong, China and Japan were trading in green.
According to analysts, US markets extended their rally on Thursday as investors snapped up hard-hit technology stocks, helping boost the S&P 500 out of correction territory.
The foreign institutional investors (FIIs) bought equities worth Rs 8,250.53 crore on April 24. However, domestic institutional investors (DIIs) sold equities of Rs 534.54 crore on the same day.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
Mumbai:
Indian equity markets are trading in the red as tensions soar between India and Pakistan over the Pahalgam terror attack in Kashmir. Sensex, the 30-share BSE benchmark, has crashed over 1,000 points and is now trading below the 79,000-mark. Nifty, the NSE index of 50 shares, fell below 24,000 points.
The markets went up in early trade, driven by a global rally and fund inflows, but the momentum got lost thereafter, and it gave up the initial gains.
The markets are also upset by unimpressive March quarter earnings by Axis Bank, the third-largest private sector bank of the country. The bank’s shares have fallen 4.65% after reporting a decline in quarterly profit from Rs 7,130 crore in the year-ago period to Rs 7,117 crore.
Besides Axis Bank, major laggards include Bajaj Finance, Bajaj Finserv, Tata Motors, and Tech Mahindra. On the gaining side are TCS, Infosys, Reliance, HCL Tech, HDFC Bank, and ICICI Bank.
At least 26 civilians were massacred by terrorists in a tourist hotspot known as ‘Mini Switzerland’, leading to both countries pulling out their diplomatic staff and suspending visas issued to the other nation’s citizens. (Follow live updates here)
The latest flare-up at the Line of Control was speculative firing by Pakistani troops, which is being seen as an attempt to provoke the Indian side. Indian troops retaliated effectively against the firing from multiple Pakistani posts.
As Indian equities braced for the impact, global equities, including the Asian markets, were charting in the positive territory. South Korea’s Kospi index, Tokyo’s Nikkei 225, Hong Kong’s Hang Seng, and Shanghai SSE Composite were all in green.
Similar trends were seen in US equities, too. Last evening, Nasdaq Composite closed 2.74 per cent higher. S&P 500 jumped over 2 per cent and Dow Jones Industrial Average surged 1.23 per cent.
Mumbai:
Equity benchmark indices Sensex and Nifty declined in early trade on Thursday amid profit-taking after a seven-day rally and muted trend in Asian markets.
The 30-share BSE benchmark declined 242.01 points to 79,874.48 in early trade. The NSE Nifty went down by 72.3 points to 24,256.65.
In the past seven trading days, the BSE benchmark gauge zoomed 6,269.34 points or 8.48 per cent and the Nifty jumped 1,929.8 points or 8.61 per cent.
From the Sensex firms, Eternal, Bharti Airtel, ICICI Bank, Mahindra & Mahindra, HCL Technologies, Reliance Industries, and HDFC Bank were among the laggards.
IndusInd Bank, Tech Mahindra, Nestle, Bajaj Finance, Axis Bank, and Tata Motors were among the gainers.
In Asian markets, South Korea’s Kospi index, Shanghai SSE Composite, and Hong Kong’s Hang Seng were trading lower while Tokyo’s Nikkei 225 quoted in the positive territory.
US markets ended sharply higher on Wednesday. Nasdaq Composite jumped 2.50 per cent, S&P 500 surged 1.67 per cent and Dow Jones Industrial Average climbed 1.07 per cent.
Global oil benchmark Brent crude climbed 0.12 per cent to USD 66.20 a barrel.
Foreign Institutional Investors (FIIs) bought equities worth Rs 3,332.93 crore on Wednesday, according to exchange data.
The BSE benchmark jumped 520.90 points or 0.65 per cent to settle at 80,116.49, the highest closing level since December 18, on Wednesday. The Nifty rallied 161.70 points or 0.67 per cent to 24,328.95.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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