Lease Family Treasures to Dodge the Taxman

1st December 2003

T. Wyn Jones

I recently read an article that outlined a new scheme that has been accepted by the Inland Revenue and that could save hundreds of thousands of pounds in inheritance tax(IHT).

Apparently an accountancy firm has set up a tax saving initiative to help clients to reduce IHT on chattels. It says that those with art collections, antiques or other valuables can easily shrink their tax liability in a “shearing scheme”. The scheme shears or cuts assets into two: half being a lease the other half being the right to the asset when the lease expires.

The way that it works is that the owner retains the lease but gives away the right to the asset when the lease ends with the length of lease being usually equal to the life expectancy of the person giving away the asset.

The scheme’s success hinges on two factors: the length of lease and the cost of caring for the chattels. As the lease is so short, it effectively reduces the value of the chattels, plus the cost of maintaining and insuring the possessions also helps to reduce the value.

It appears that the accountants in question have been lobbying the Revenue for acceptance of their special tax saving scheme for more than four years. The idea was established in the late 1980s for a client who was anxious to pass most of his estate to his heir, but the firm was unsure that it would be acceptable. But five years after the client’s death, the Revenue has finally approved the scheme as a valid means of tax avoidance.

If the scheme had been vetoed, the IHT due on £1.5 million of chattels would have topped £600,000, but the Revenue accepted that the chattels were worth less than £20,000 for IHT purposes and the estate paid less than £8,000 in tax – needless to say a substantial saving.

As is always the case though it is likely that the Revenue will seek to close this loophole in the near future with anti-avoidance legislation as they did with a similar shearing scheme for property and chattels which was approved by the House of Lords approximately five years ago.

Of course in depth advice is required as there is no point saving IHT only to pay capital gains tax (CGT) at 40 per cent on the creation of the lease.

But it just hammers home the point that sound professional advice is the order of the day as there are numerous ways to legally mitigate your tax liabilities.

On a more light-hearted note I am told that Australian Estate Agents are selling one-acre plots on the moon for around £25.

Lunar Realty, based in Melbourne, has bought the Australian rights to sell the land from Nevada-based entrepreneur Dennis Hope who has been cashing in since 1980 on what he says is a loophole in the 1967 United Nations Outer Space Treaty that bans nations from laying claim to the moon but said nothing about individuals.

Mr Hope registered a claim for the moon and planets with the United States, the Soviet government and the United Nations and, operating as the Lunar Embassy, has been selling plots of extraterrestrial property ever since.

How many people have put their hands in their pockets and shelled out hard cash for a slice of the moon? Apparently two million people from 180 countries since 1980!

Wyn Jones is a partner of McCartneys, Auctioneers, Surveyors & Property Agents. For further information on Property Matters he can be contacted on Tel 07702 722905 or by e mail on - wyn@mccartneys.co.uk