Dear Delia

Dear Delia My clients are interested in protecting themselves from Inheritance Tax on a property that is getting above the lower limit, and in providing for their long-term care if they need it.

The Property Wealth Manager product from Close Brothers seems to offer what they want but I don’t know whether it releases cash or pays for long-term care, and whether they could move house or buy it back. Can you tell me what it offers?

Delia says: This product is designed for IHT planning. Dean Mirfin of Key Retirement Solutions and Mark Hutchinson of Close Investments explain. Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Intermediary response
Dean Mirfin is business development director for Key Retirement Solutions

The Close Brothers Property Wealth Manager product is designed for Inheritance Tax planning and for this reason it could prove a useful tool for these clients in principle, especially as the Inland Revenue has apparently confirmed that it will not attract IHT.

But what a client needs to be mindful of is that any decision to release equity from their home by whatever means must address all their potential needs for funds either now or in the future.

The clients in this question clearly have concerns about paying for their care in the future, but they also need to address other potential requirements for funds which may come their way.

The property in question is progressively getting above the lowest IHT limit of 285,000. From a client’s point of view, the basis of the Property Manager product is that they sell their home in exchange for an investment equal to the value of the property less charges. The future value of the investment is linked to property prices.

Due to the fact that the property value is now liquid – albeit in the form of an investment – this can be gifted to children so that after seven years there would be no IHT on the plan. It is important to bear in mind that once a client has gifted something away there can be problems in getting it back again should they need it in the future.

One criticism of the plan is that it is not as flexible as many would like and some pundits are also critical of its charges. That said, it may prove a suitable option. But in real terms this situation falls on common ground which could simply be resolved by a trust in the couple’s wills. The most common method of achieving this is through what is known as an IOU trust.

The advantage of a trust which is created within a will is that it does not come into effect until death. A person therefore maintains full control of their assets until then. This means should their needs or circumstances change they can flex with them and also change the will if appropriate.

So the Property Wealth Manager product may be suitable but, as with all equity release decisions, these clients should consider it alongside other options.

Through careful will planning they could address their IHT concerns while retaining the greatest degree of flexibility. That flexibility could be used to change plans or keep the option to access funds from the property should they need this in the future – for example to pay for care via a more traditional equity release scheme.

Lender response
Mark Hutchinson is head of marketing, property and tax at Close Investments

Property Wealth Manager is an IHT mitigation product from Close Investments and Isle of Man Assurance that aims to remove some or all of the value of a family home from an estate.

Inheritance Tax planning has traditionally focussed on liquid assets such as cash and investments. Including the value of a home has been difficult until recently.

Property Wealth Manager allows the value of a principal private residence to be passed to beneficiaries on death while allowing clients to continue living in it for the rest of their lives.

As long as a client is aged 60, in reasonable health and their main residence is worth more than 400,000 (with no outstanding mortgage), this product will buy the property at an independently agreed value. In return they will receive a lease allowing them to live in the property – with no more rent to pay – for the rest of their life.

They will also receive a cash lump sum which they can use to buy units in a whole of life investment bond. The bond reflects the value of the property and others within the product fund. By gifting the investment bond to heirs, when a client dies, heirs will receive the maturity proceeds, the unit price of which will reflect the vacant possession value of the properties in the fund. Heirs will also have first refusal to buy back the family home with the proceeds of the bond.

Even if the house continues to grow in value, increases will be reflected in the value of the units in the investment bond. Conversely, as this is an investment in residential property, a fall in house prices will also be reflected in the value of the bond.

The potential IHT liability for heirs will be reduced. But the maximum savings will be enjoyed by heirs if the client survives for seven years after gifting the investment bond. There may be other taxes payable by heirs on gains within the investment bond and charges will affect the efficiency and amount of potential savings.

A client should have no immediate plans to move home when investing in Property Wealth Manager but the scheme provides the flexibility to allow them to do so at a later date, should they wish.

Tax planning is a specialist area and it is important that people such as those in this question consult an experienced independent financial adviser to ensure the suitability of this or any investment to their individual circumstances.