The super-rich using the credit crunch to cut down on tax bills, a Birmingham legal firm says.
Matthew Hansell, a partner in the private client team at the Birmingham office of Mills & Reeve, said the credit crunch was helping Britain’s wealthy shave money off their tax expenditure.
Mr Hansell represents some of the Midlands’ wealthiest people – including seven people in the Rich List top 20. He said falling property and share prices were giving the wealthy the opportunity to review their portfolios and make some tax savings.
And he went on to say that although impending recession is proving uncomfortable, it is letting those with falling assets carry out some estate planning, making the most of the current economic climate.
He said: “If you own a holiday home – either at home or abroad – and have seen a drop in its value, you could gift a half share to your children. This enables you to share ownership and occupation with them, but there is likely to be little or no capital gains tax to pay on the transfer. What’s more, if you survive more than seven years from the date the gift is made, your children will not be liable for inheritance tax.
“Alternatively, you could let out the property, rather than sell it, to raise income. If you held this through a trust you would again benefit, and your children, by potentially reducing your inheritance tax liability but at the same time being able to continue to receive the rent.”
Many homeowners are “repatriating” millions of pounds of equity from their second properties in Europe to take advantage of the strong euro, the government’s recent capital-gains tax (CGT) changes, and to protect themselves from the credit crunch.
Mr Hansell said setting up a trust was becoming increasingly popular as a way of reducing inheritance tax liability. They also allow the benefactor to retain some control over the assets gifted.
He said: “With falling prices, however, you can pack a lot more assets into the trust. The point is that even the worst of circumstances can create opportunities. It’s important to seize the opportunity while the economy is at a low point.” Mills & Reeve said the credit crunch was forcing clients to look at their private lives as well as just their finances.
Marc Saunderson, who heads the firm’s family team in Birmingham, said the number of clients seeking advice on divorce had significantly increased since the economy took a nosedive.
He said: “Many wealthy individuals are starting to realise that now they are worth less, or earning less, now is the time to consider divorce. They may be able to settle with their spouses for a considerably lower sum than they were able to this time last year.
“If your only asset is your home, however, now may not be the best time to head for a break-up, as falling house prices mean that there is less in the communal pot to share around.”