IHT, CGT and Income tax avoidance

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    IHT, CGT and Income tax avoidance

    So I’ve been listening to some property investment seminars where the suggestion is to buy ‘good’ properties, regularly put the rent up and never sell them.
    The advice is to keep them forever so you do not pay CGT; re-finance regularly and either enjoy the money or re-invest it; pay minimal iht on one’s death because the iht is only due on the minimal amount of equity left in the portfolio.
    It seems this is a popular strategy.

    I just see this as 3 levels of aggressive tax avoidance. And whilst it may be legal it could easily be picked up by HMRC and retrospectively taxed, on all 3 accounts. Google “The Loan Charge Scandal’ for evidence of retrospective taxation on loans, where those using a legal tax loophole have subsequently been clobbered.

    Are many people following this strategy? I must say I am gobsmacked to see this methodology being sold far and wide. Perhaps I am just being stupid?

    #2
    Income Tax is charged on job/salary income , at 20% rate below £50K and 40% above £50K.

    Spending of job income ( after tax paid at 20% or 40% ) on consumer services may include VAT charged at 20%.

    The CGT rates for capital gain is 18% rate on ( Job + CG ) income below £50K or 28% rate above £50K. But CGT is only payable after the sale of asset.

    If the property owner never sells, then the property inside the deceased person's estate over £325K is liable for iht charged at 40% rate. The family home below £350K if left to own children or grand children can escape the 40% tax.

    LZforum members are NOT conducting aggressive tax avoidance .

    Aggressive Tax Avoidance is done by online trading companies registered in low tax countries such as in Ireland, which has tax rate 12% .

    Comment


      #3
      I think the point being made is that landlords refinance to use the equity without selling and thus avoid CGT but it's perfectly legal and not necessarily depriving the state coffers as they might not otherwise sell .
      Its long been touted as a good way for building a portfolio and frequently promoted by members of this forum and definitely not illegal

      Comment


        #4
        Originally posted by clairol View Post
        pay minimal iht on one’s death because the iht is only due on the minimal amount of equity left in the portfolio.
        It seems this is a popular strategy.

        Are many people following this strategy? I must say I am gobsmacked to see this methodology being sold far and wide. Perhaps I am just being stupid?
        It might be popular, but only to people who can't do maths.

        It's only a tax effective policy in the same way that having no money when you die means you don't pay that much inheritance tax.

        Ignoring the reliefs and personal thresholds for simplicity, if you die with a portfolio worth £1m, you'd pay £400,000 IHT on it, and, might leave £600,000 to whoever is going to inherit.
        If you die with a portfolio worth £1m, with £750,000 or mortgage, you'd only pay £100,000 in IHT but people would inherit £150,000.

        It might be branded "tax efficient", but what it really means is that you spend the money during your lifetime rather than leave it to anyone else.
        Which might be a perfectly sensible thing to do, but it's nothing to do with tax.

        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          Originally posted by jpkeates View Post
          It might be popular, but only to people who can't do maths.
          Which might be a perfectly sensible thing to do, but it's nothing to do with tax.
          Yes but people who do maths in your example could give the £750,000 away before death so beneficiaries get £400,000 extra and tax man loses .

          Comment


            #6
            Originally posted by Section20z View Post
            Yes but people who do maths in your example could give the £750,000 away before death so beneficiaries get £400,000 extra and tax man loses .
            But there's £750,000 mortgage lending to pay off when you die, so the "giving away" is more like a loan.

            I'm not expecting anyone to pay 1p more tax than they should, but I find it's sometimes interesting to replace "the taxman" and "HMRC" with "we/us" and "other taxpayers".
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment

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